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  2. The Chief Economist's weekly update
Expertises d'investissement

The Chief Economist's weekly update

The Chief Economist's weekly update

To help you navigate through the economic news, here is a summary of last week’s main events and what to look out for next week.

Last weeks' key economic news (from 14th to 18th Jan.):

  • In the US, data publications have been delayed due to the government shutdown. PPIs declined (-0.2% m/m) on lower energy and trade service prices, while the trend was stable at 2.5% y/y; the trend in core PPI rose by 2.8% y/y. Headline prices offer a diverging trend compared with core inflation, which is also being seen in other price indices and countries. Regional business surveys painted a mixed picture with the New York Empire index weakening further while the Philly Fed rebounded significantly. This validates the view in favour a mini cycle in industry. Industrial production rebounded further on auto and on other industrial sectors except energy. For housing, the only index that was published (NAHB) rebounded in January, which was the first positive signal after several months of steady decline. Consumer sentiment (Michigan) has decreased, mainly expectations, due to the government shutdown, but willingness to buy large items remained at a high level. The Beige Book confirmed an erosion in manufacturing confidence due to interest rates, volatility on financial markets and falling energy prices, along with rising tariffs and costs, and uncertainties surrounding trade and final demand. This paves the way for moderate growth, while the labour market remains tight but with no significant upside risks from wage growth and inflation.
  • In the eurozone, industrial production declined more than expected (-1.7% m/m) due to a fall in energy, auto and capital goods production. Inflation for December was confirmed at 1.6% y/y after 1.9% y/y, but core inflation stayed on a stable trend (1% y/y, due to regular rises in services). German GDP slowed from 2.2% y/y in 2017 to 1.5% y/y in 2018, due to weaker growth in consumption and disappointing export performances. Indirectly, Q4 GDP growth was weak, but slightly positive.
  • In the UK, parliament rejected the Brexit agreement proposed by prime minister May by a larger-than-expected majority. On the data front, retail sales were heavily down, except on internet, after the rebound seen past month. Inflation stayed firm on a monthly basis (up by 0.2% m/m), while the trend moderated further from 2.3% y/y to 2.1% y/y. Core inflation increased slightly from 2.4% to 2.5% y/y. PPIs declined on lower oil prices and their trend moderated significantly from the previous month. The slowdown in inflation is providing some relief for the BoE. Separately, sentiment on house prices (the RICS prices balance) remained on a negative trend.
  • In Japan, the tertiary index contracted slightly after a rebound in the previous month. Core machine orders were flat over the month and moderated on a yearly trend and industrial production has been confirmed down in Nov. (-1% m/m); inflation has moderated further to 0.7% y/y after 0.9% y/y  and core inflation stayed low at 0.3% y/y.
  • In China, the trade balance showed a large surplus, but exports and imports both contracted, fuelling concerns about current growth; monetary aggregates increased further from December (aggregate financing) and the PBoC launched several new liquidity injections ahead of the Chinese New Year. Separately, more fiscal measures are also in the pipeline to cushion the slowdown. In Brazil, retail sales and the monthly aggregate index on global activity both improved, pointing towards a gradual recovery.


Important for the scenario next week:

  • In the US, as the government shutdown continues, the publication of a wide range of data has been postponed; this includes retail sales, for which the consensus expects a modest rise for December, but core sales should continue to be strong (up by 0.4% m/m). On the supply side, durable goods orders are also expected to be strong and inventories should continue to rise. The first estimates of manufacturing and services PMIs will be published; the manufacturing figures are expected to weaken further while those for services should stabilise, reflecting lower activity. Regional business surveys (Richmond) should remain weak or sluggish in this environment. A range of housing data are set to be published (delayed and new stats: housing starts, existing home sales, home prices, new home sales): after the rebound seen in the confidence index (NAHB), a stabilisation or slight rebound should be seen in the hard data after the fall in Q4.
  • In the eurozone, the main event will be the ECB meeting: no change in strategy is expected but Mario Draghi is likely to place a greater emphasis on the deteriorating balance of risks and a longer-than-expected slowdown in activity in his communication; the forward guidance on rates could become vaguer in terms of the agenda for the first round of normalisation measures, while questions could be raised about liquidity and the opportunity to launch new TLTROs. On the data front, the manufacturing PMI may remain weak in this environment, while some stabilisation is expected in the services sector; business confidence data will also be published at country level for Germany, France and Belgium, and is expected to be slightly less negative than in previous months. First estimates of eurozone consumer confidence will be published and some stabilisation is expected after the large fall seen at the end of last year, however, downside risks remain in place.
  • In the UK, labour data should continue to be positive with the unemployment ratio remaining low, but job creations are likely to have declined; wage growth should remain on a 3% y/y trend. Various business sentiment indicators (the CBI trend) will be published, which could point towards further downside risks on activity.
  • In Japan, the BoJ meeting should confirm that its current strategy will stay in place, with no major announcements expected. The first estimate of the manufacturing PMI should remain in a 52–53 range. The trade balance could remain negative due to a contraction in exports.
  • In Russia, data should confirm moderate, albeit fragile, growth thank to the steady rise in industrial production (2.4% y/y), retail sales (around 3%) and stable unemployment (4.8%). Real disposable income should nevertheless remain negative.
  • In China, Q4 GDP numbers are expected to moderate by more than consensus expectations (from 6.5% to 6.4%); the consensus also expects no major changes in the industrial production (5.3% y/y), investment (6% y/y) and retail sales (8.2% y/y) trends, but monthly figures could disappoint further before seeing the impact of the new measures that have been adopted.
  • Central bank meetings: Norway, Malaysia and Korea.
  • Markets are still waiting for the end (or partial end) of the US government shutdown, as this could now have a negative impact on Q1 GDP growth. In the UK, prime minister May has to present a “Plan B” to parliament next Monday after talks with various opposition leaders; the EU looks ready to extend the Article 50 deadline to avoid a “no-deal” Brexit, but domestic political developments in the UK remain highly confusing and uncertain. Downside risks on eurozone growth and downwards revisions to the 2019 outlook are under way, putting some pressure on the ECB to be as flexible and patient as the Fed. Last, while trade talks between the US and China are on a positive footing, the Chinese authorities have launched significant monetary and fiscal supports.


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