Economic Outlook – 16 June 2019


  • Most employment indicators continued to show a great deal of strength last week, including the latest JOLTS data and the weekly initial unemployment claims, which rose but remain near historic lows. The JOLTS survey noted that hires rose slightly to 5.9 million in April, while separations were essentially unchanged at 5.6 million. There were 7.5 million job openings, against just 5.8 million unemployed, marking the 14th month in a row, job openings exceeded the number of unemployed.
  • A survey released last week showed that small businesses in the United States remain quite confident, with the National Federation of Independent Business survey of business optimism rebounding sharply in May to near-record levels. But leaders of large businesses were less ebullient, with the Business Roundtable CEO Economic Outlook Index falling for a fifth straight quarter. While the overall index remains at healthy levels, all three components of the survey (hiring, sales and capital investment) declined. Uncertainty over US trade policy and softening global growth were cited as factors behind the erosion in sentiment.
  • The headline Producer Price Index (PPI) rose just 0.1% in May, while prices excluding food and energy products, rose 0.2%. Year-on-year changes in both series moderated slightly, with the headline index sliding 0.4 percentage points to 1.8% and core PPI inflation falling 0.1% point to 2.3%. While good news, the PPI has not provided all that much insight into inflationary trends.
  • The CPI came in better than expected, with both the headline and core price measures rising just 0.1%. Falling gasoline prices helped hold down the headline measure, while another large drop in used car prices helped contain the core CPI. Residential rent also moderated, following some larger increases in prior months. Excluding the drop in used car prices, which should prove transitory, the core CPI would be close to 2.0% year-on-year.
  • As for the impact of tariffs, it is hard to see in the import data. Import prices fell 0.3% in May, on an overall basis and excluding petroleum products. On a year-on-year basis import prices are down 1.5%. While tariffs are not directly reflected in import prices, the continued slide adds credence to reports that Chinese suppliers have been absorbing much of the tariff so far. Retaliatory tariffs and slower global economic growth might also explain the larger drop in export prices, which are now down 0.7% year-on-year.
  • Stocks kicked off last week with strong performance on Monday on news of a deal between the US and Mexico to avert tariffs before losing some momentum later in the week. The large-cap S&P 500 Index and the Dow Jones Industrial Average finished the week with modest gains. The Russell 2000 Index of small-cap companies slightly outperformed larger-cap indexes. Energy stocks were volatile. The price of West Texas Intermediate crude oil, the US benchmark, plummeted about 4.0% last Wednesday after a government report showed a large increase in US crude oil inventories for the second consecutive week. However, last Thursday morning, news that two oil tankers had been attacked in the Gulf of Oman triggered a sharp rally in oil that recovered some of the losses from earlier in the week.
  • The weak inflation data helped push Treasury yields lower, with the yield on the 10-year Treasury note falling below 2.1% in Friday trading. Treasuries also benefited from the building geopolitical tensions in the Middle East and the continuing uncertainty about the trade war between the US and China, both of which encouraged investors to move into safe-haven assets.
  • The Federal Reserve meeting concluding on Wednesday is set to be very important for markets, as the pressure for easing monetary policy is increasing. The Federal Reserve is expected to make a dovish policy shift, paving the way for a rate cut in July and a total of 75 basis points in cuts in the second half of 2019.
  • The preliminary Markit PMIs for June are out this week. The very weak PMIs for May, indicating growth of just 1.0% annualised, caught most by surprise and the uncertainty is whether this was just a blip or whether the economy has slowed faster than we had expected.


  • The labour market is holding up remarkably well despite Brexit. In the three months to April, the unemployment rate was unchanged at 3.8%, in line with market expectations. Average weekly earnings excluding bonus payments (regular pay) increased from 3.3% to 3.4% year-on-year beating the consensus expectation of 3.2%. Average weekly earnings (total pay), on the other hand, decreased to 3.1% year-on-year from an upwardly adjusted 3.3% in March. All in all, the UK labour market is showing remarkable resilience despite Brexit worries taking their toll on economic activity.
  • Britain’s Brexit-battered housing market steadied in May and a measure of prices improved as the delay in the country’s European Union exit gave some encouragement to buyers, a survey showed last Thursday. The Royal Institution of Chartered Surveyors (RICS) house price measure (the difference between members reporting price rises and falls) improved to -10 from -22 in April. That was its highest reading since October and was stronger than the median forecast of -21 in a Reuters poll of economists.
  • Former London Mayor Boris Johnson was the leading vote getter in a field of 10 candidates in the first round of balloting as Conservative Party members of Parliament began the process of choosing a new leader to replace Theresa May. Three aspirants to lead the party have so far been eliminated in a process that will winnow the field down to two finalists. The wider Conservative Party membership will then vote to decide the issue. The winner of the contest is expected to be announced the week of 22 July.
  • There is a Bank of England meeting happening this week but it is not important since the BoE is firmly on hold despite its tightening bias and it is one of the small meetings without an updated inflation report or a press conference.


  • The European Union and the US brokered a beef-import deal that could bring an end to a decade-long dispute over a restriction of beef imports into the European market. The deal reaffirms Brussels’ determination to improve trade relations with the US and may increase the likelihood that car tariffs, which the US has threatened to impose, can be avoided. US farmers will now have access to 80.0% of the annual EU quota on hormone-free beef over seven years. The deal was reached after the EU persuaded Australia, Argentina, and Uruguay to give up chunks of the quota. EU Agriculture Commissioner Phil Hogan said the deal reaffirms the EU’s commitment to bringing about a new phase in its relationship with the US that is in line with an agreement reached between European Commission President Jean-Claude Junker and US President Donald Trump in July 2018. The agreement resulted in a de-escalation of tensions that had threatened to spiral out of control and into an all-out trade war.
  • European stock markets ended last week higher, buoyed by the rise in oil prices stemming from the tanker incident in the Gulf of Oman, but still under pressure from US-China trade tensions and weak Chinese industrial data. The pan-European STOXX Europe 600, the exporter-heavy German DAX index, and Italy’s FTSE MIB Index all gained.
  • The June PMIs will be issued on Friday. Driven by a further improvement in the order-inventory balance, manufacturing PMI remained broadly stable at 47.7 in May. Still, the improvement in new orders can be considered as temporary in light of the trade war escalation and hence look for further downside for the manufacturing PMI in June (at 47.6) and in coming months.
  • The ECB’s annual conference in Sintra takes place from Monday to Wednesday this week. A significant number of policymakers are set to speak at the conference and while much of the discussion is set to be academic in nature, Mario Draghi’s welcome address will be closely watched on Monday evening and introductory remarks on Tuesday morning. In 2017, he used the event to signal a potential upcoming change in monetary policy, which led to a sharp market sell-off.


  • Growth in industrial production fell from 5.4% year-on-year in April to only 5.0% in May, the lowest on record, except for a few new-year distorted months back in the early 2000s. Also, fixed investment growth disappointed by slowing from 5.7% to 4.4% in ordinary year-on-year growth rate terms. The only positive surprise was retail sales growth, which increased more than expected by consensus, indicating some resilience among households to the overall slowdown.
  • Large scale protests representing broad swaths of society took place in Hong Kong this week as citizens took to the streets to oppose a proposed law that would allow certain criminal suspects to be extradited to mainland China. Protesters are fearful of an erosion of due process and the rule of law if the bill is passed. Hong Kong’s chief executive, Carrie Lam, says the law is needed so that Hong Kong does not become a sanctuary for fugitives from the mainland.
  • In the lead-up to an expected meeting between Chinese President Xi Jinping and US President Donald Trump during the G20 summit in Osaka, Japan at the end of this month, expectations of a breakthrough toward a trade agreement are scant. It is a possible such a meeting may not even take place, which was acknowledged by Trump this week. The US president also said this week that if a meeting does not take place between the leaders of the world’s two largest economies, his administration will immediately impose 25.0% tariffs on the remaining USD 300 billion in Chinese exports to the US. Meanwhile, China warned global tech giants that there will be ramifications if they cooperate with the US ban against China’s dominant telecom equipment manufacturer, Huawei.
  • Chinese stocks rebounded as traders grew more confident that Beijing would step up stimulus measures to cushion the economy from the impact of US tariffs. The benchmark Shanghai Composite Index ended up 1.9%, its best showing in eight weeks, and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, added 2.5%. The latest gains came a week after both indexes closed at their lowest levels in almost four months.
  • This week is quiet in China, with new house prices the only data of interest. House price inflation has been quite robust, as inventory levels are low and monetary easing supports housing.

Sources: T. Rowe Price, Reuters, MFS Investment Management, Handelsbanken Capital Market, TD Economics, Danske Bank.