In July, US personal income rose 0.1%, below expectation of 0.3%. Spending grew 0.6%, above expectation of 0.5%. The increase in personal income in July primarily reflected increases in compensation of employees and government social benefits to persons that were partially offset by a decrease in personal interest income. Headline PCE inflation rose to 1.4% yoy, matched expectations. Core PCE inflation was unchanged at 1.6% yoy, matched expectations.
Canada GDP grew 0.2% mom in June, above expectation of 0.1% mom. That’s also the fourth consecutive month of expansion. Growth in 17 of 20 industrial sectors more than compensated for a decline in manufacturing. Goods-producing industries declined 0.2% as a result of lower manufacturing, largely offsetting the growth in May. Services-producing industries were up 0.3%.
For Q2, GDP grew 0.9% qoq, after just 0.1% growth in each of the previous two quarters. This growth was led by a 3.2% rise in export volumes, while final domestic demand edged down (-0.2%). Expressed at an annualized rate, real GDP advanced 3.7% in Q2.
Eurozone CPI was unchanged at 1.0% yoy in August, matched expectations. Core CPI was also unchanged at 0.9% yoy, missed expectation of 1.0% yoy. Looking at the components, food, alcohol & tobacco is expected to have the highest annual rate in August (2.1%, compared with 1.9% in July), followed by services (1.3%, compared with 1.2% in July), non-energy industrial goods (0.4%, stable compared with July) and energy (-0.6%, compared with 0.5% in July).
Eurozone unemployment rate was unchanged at 7.5% in July, matched expectations. It’s also the lowest rate recorded since July 2008. EU 28 unemployment was unchanged at 6.3%, also the lowest since 2000. Among the Member States, the lowest unemployment rates in July 2019 were recorded in Czechia (2.1%) and Germany (3.0%). The highest unemployment rates were observed in Greece (17.2% in May 2019) and Spain (13.9%).
Swiss KOF Economic Barometer was unchanged at 97.0 in August, above expectation of 95.2. KOF noted that “somewhat more favourable signals than before are coming from indicators of foreign demand and domestically from consumer prospects and manufacturing. The remaining indicator bundles (accommodation and food service activities, financial, insurance and other services as well as construction), however, tend to point to stagnation or slight deterioration in economic sentiment.”
Released from Australia, building approvals dropped -9.7% mom in July, much worse than expectation of 0.0% mom. The decline tool approvals to lowest level in more than six years, and down -28% on a year ago. Also, total approvals are now tracking materially below ‘underlying demand’ for the first time since 2013. The data highlighted risk that building activity is taking another leg down. Also released, private sector credit rose 0.2% mom in July, matched expectations.
Separately, RBA said in its corporate plan that “movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets.” And, “especially in the context of weak growth in household income, high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks,” it added.
UK GfK Consumer Confidence dropped to -14 in August, down from -11 and missed expectation of -11.
Joe Staton, Client Strategy Director at GfK, says: “Until Brexit leaves the front pages – whenever that will be – consumers can be forgiven for feeling nervous not just about the wider economy but also about their financial situation…. For a long time, the downward momentum in the Overall Index Score has been associated with our views on economy. But reduced confidence is now affecting how we see our personal finances.
“If there is a continuation of that dip in our feelings about our ‘future wallets’, we’d quickly see a headline score (the average of our five sub-measures) crash to a level that approaches the worrying figures seen in the worst days of the 2008/2009 financial crisis.”
A batch of mixed economic data was released from Japan today. Industrial production rose 1.3% mom in July, well above expectation of 0.3% mom. Growth was supported by increased production of cars and chemicals, which offset decline in oil products. The somewhat solid rebound in production offered a hopeful sign that manufacturers are weathering global slowdown and escalation of US-China trade war so far.
On the other hand, retail sales dropped -2.0% yoy in July, much worse than expectation of -0.6% yoy. The contraction raised concerns that momentum of domestic demand was much weaker than originally expected. In particular, consumption could be further strained by the planned sale tax hike later in the year.
Also released, unemployment rate dropped to 2.2% in July, beat expectation of 2.3%. Housing starts dropped -4.1% yoy, versus expectation of -5.4% yoy. Tokyo CPI slowed to 0.7% yoy in August, down from 0.9% yoy, missed expectation of 0.8% yoy.
US stocks open sharply higher after China appears have back down from their stance in trade war with US. Instead of warning of retaliation to US President Donald Trump’s new tariffs, China said it would seek consultations and negotiations as resolution to trade conflicts. Furthermore, Trump later said there is a “talk scheduled for today at a different level”.
DOW opened higher today and hit as high as 26348.94. But it appears to be struggling to take out 55 day EMA again and pares back some gain as the session continues. This EMA (now at 26301) remains a major focus. As long as it holds, further fall is expected through 25440.39 at a later stage. Though, sustained trading above will turn focus back to 27398.68 high.
IMF Managing Director Christine Lagarde said ECB has a “broad tool kit at its disposal and must stand ready to act.” She added “while I do not believe that the ECB has hit the effective lower bound on policy rates, it is clear that low rates have implications for the banking sector and financial stability more generally.”
Lagarde is expected to take over Mario Draghi as next ECB President on November 1. Her comments came as written answers to the European Parliament’s committee on economic affairs.
China’s Ministry of Commerce spokesman Gao Feng said today that “China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war.” And, “China is lodging solemn representations with the U.S. on the matter.”
Additionally, Gao reiterated the usual rhetoric that “escalation of the trade war won’t benefit China, nor the US, nor the world,” and “the most important thing is to create the necessary conditions for continuing negotiations.” He also repeated Vice Premier Liu He’s comment that China is “willing to solve the problem through consultation and cooperation with a calm attitude, but firmly opposes escalation of trade war.”
The comments suggested that China is backing down from its hard-line stance after recent escalation by US President Donald Trump. Trump tweeted earlier this month that 25% tariffs on some USD 250B in imports from China would rise to 30% come Oct. 1. He also lifted planned levies on USD 300B in Chinese goods due on Sept. 1 and Dec. 15 by 5%.
According to the second estimate, US GDP grew 2.0% annualized in Q2, unrevised from first estimate, down from Q1’s 3.1%. The deceleration in real GDP in the Q2 primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.
The PCE price index increased 2.3%, compared with Q1’s 0.4%. Excluding food and energy prices, the PCE price index increased 1.7%, Q1’s 1.1%.
US initial jobless claims rose 4k to 215k in the week ending August 24, matched expectations. Four-week moving average of initial claims dropped -0.5k to 214.5k. Continuing claims rose 22k to 1.698m in the week ending August 17. Four-week moving average of continuing claims dropped 250 to 1.697m.
Advanced goods trade deficit dropped -2.5% to USD 72.3B in July, smaller than expectation of USD 74.0B. Exports of goods for July were USD 137.3B, USD 0.9B more than June exports. Imports of goods for July were USD 209.7B, USD 0.9B less than June imports. Wholesale inventories rose 0.2% mom, matched expectations.
UK Leader of Commons Jacob Rees-Mogg challenged other MPs to collapse the government if they can, as criticism over Prime Minister Johnson’s move to suspend the parliament grew. Rees-Mogg told BBC, “All these people who are wailing and gnashing of teeth know that there are two ways of doing what they want to do… One, is to change the government and the other is to change the law. If they do either of those that will then have an effect… If they don’t have either the courage or the gumption to do either of those then we will leave on the 31st of October in accordance with the referendum result.”
Some EU ministers sang a chorus against no-deal Brexit today as risks grow. Dutch Foreign Minister Stephan Blok said “it’s in nobody’s interest to see a no-deal Brexit,” and, “we still hope it will be possible to avoid a no-deal Brexit and we are looking forward to any proposals from the British government that fit into the Withdrawal Agreement”. Austria’s Alexander Schallenberg said “I fear so, yes,” that a no-de Brexit is more likely. But he also reiterated EU’s stance that “the ball is in the UK’s court… We have done whatever is possible to ensure an orderly exit of Britain.” Finnish Foreign Minister Pekka Haavisto said: “To support Brexit with the deal is a key issue because otherwise we will face a lot of negative consequences to our economies and our border traffic.”
Germany CPI dropped -0.2% mom in August, worse than expectation of -0.1% mom. Annually, CPI slowed to 1.4% yoy, down from 1.7% yoy, missed expectation of 1.5% yoy.
Released earlier today, German unemployment rose 4k in August, matched expectations. Unemployment rate was unchanged at 5.0%, also matched expectations.
Eurozone Economic Sentiment improved to 103.1 in August, up from 102.7 and beat expectation of 102.3. The slight improvement of euro-area sentiment resulted from markedly higher confidence in industry and retail trade, while confidence deteriorated significantly in services and construction and, to a lesser extent, among consumers.
Industry Confidence rose 1.4 while Retail Trade Confidence rose 1.2. On other hand, Services Confidence dropped -1.3. Consumer Confidence dropped -0.5. Construction Confidence dropped -1.3. Amongst the largest euro-area economies, the ESI rose strongly in Spain (+1.9) and edged up in Germany (+0.4), while it remained broadly stable in France (+0.1) and the Netherlands (+0.2) and decreased only in Italy (−0.9).
Business Climate Indicator rose 0.22 to 0.11. Managers’ assessments of past production and of export order books improved sharply. Also their production expectations, as well as their views on overall order books and the level of stocks of finished products improved markedly.
New Zealand ANZ Business Confidence dropped sharply from -44.3 to -52.3 in August. Activity Outlook also turned negative again, down from 5.0 to -0.5. ANZ noted that “employment, investment and export intentions all fell to dismal levels, along with profit expectations.” Also, “inflation indicators were weaker despite higher reported costs.”
Just over a third of this month’s survey responses were received after the surprised RBNZ -50bps OCR cut. ANZ noted “there were small differences in the responses before and after” and “none of the differences were statistically significant for any of the data series.” ANZ further said “the outlook for the economy appears to be deteriorating further, with firms extremely downbeat despite easier monetary conditions, fairly robust commodity prices, and positive population growth. Whatever the cause, the risk is rising that it becomes self-fulfilling.”
NZD/USD drops to as low as 0.6306 today. 100% projection of 0.6938 to 0.6481 from 0.6790 at 0.6333 was broken this week. Next stop will be 161.8% projection at 0.6051 in the medium term, which is slightly below 2015 low at 0.6102.
BoJ board member Hitoshi Suzuki said while there are risks from heightening overseas uncertainties, there was no sign of recession yet. He emphasized that “if the BOJ were to consider and implement specific monetary easing measures, it will take action deemed appropriate at the time while weighing the benefits and demerits of each step.”
He further pointed out, “if bank deposit rates effectively turn negative, it could hurt the economy by cooling consumer sentiment”. And excessively low interest rates could also discourage lending and lower the impact of monetary easing. He added, “once the financial system destabilizes, it will become very difficult to achieve price stability.”
ECB Governing Council member Ewald Nowotny complained that “in past years we perhaps followed markets’ expectations too intensively and avoided disappointing them.” He emphasized “central banks should be the decisive institution and must therefore sometimes disappoint markets.”
On inflation targeting, Nowotny favors aiming for 2% plus or minus one percentage point. And, it means that inflation of 1.6% is also within the target area and therefore requires no monetary policy measures”. However, he said “Draghi by contrast interprets ‘symmetry’ in such a way that lower interest rates are in place for a longer period: ‘lower for longer’ is the slogan here. I actually consider that to be a problematic signal.”
San Francisco Fed President Mary Daly said she’s in a “watch-and-see position right now” regarding further interest-rate cut. In inflation data comes in “more robust, that would be confidence-generating for me”. However, if data is soft, “that would be something I would want to consider.”
Though she also noted that “right now, with little inflationary pressure and considerable uncertainty about the threshold for full employment, I’m biased towards including as many workers as possible in the expansion.”
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Trump: We don’t have a tariff problem, we have a Fed problem
US President Donald Trump complains Fed again today. He pointed to “Euro is dropping against the Dollar ‘like crazy'”. (Our comment: No, it’s just a small decline). And, that give Eurozone a “big export and manufacturing advantage”. At the same time “Fed does NOTHING!”.
Trump repeated his usual comment that “if the Fed would cut, we would have one of the biggest Stock Market increases in a long time.” He went further that “we don’t have a Tariff problem”, “we have a Fed problem”.
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