US
The third estimate of real GDP growth advanced at a 1.4%, a bit faster from the previously-reported 1.1% increase. The still-anemic upwardly revised reading is due to a smaller drag in inventories, structures and equipment and an uptick in net exports. Real final sales, which removes the more volatile GDP components, was also revised higher increasing at a 2.6% annual rate.
A key data point to watch on this front is next week’s NFP report for September. Employment growth slowed in August as expected after two months with very strong jobs growth. This leaves average jobs growth over the summer at a solid 230,000 per month. However, one has to take into account that the strong employment growth came after a very weak spring. In September, signals on employment growth are mixed. Claims figures still suggest employment growth well above 200,000, while the Markit PMI employment index suggests job growth just above 100,000.
September figures for both the ISM manufacturing index (Monday) and the ISM non-manufacturing index (Wednesday). Both indices declined sharply in August, indicating that growth has also disappointed in Q3. Regarding the manufacturing sector, regional indices and the Markit PMI manufacturing index for September have declined, suggesting that the ISM manufacturing index could move even lower in September from the level of 49.4 in August. Though the Markit manufacturing PMI index declined to 51.4 in September, it is still above the 50 threshold suggesting growth.
Other US housing-related indictors reported last week included the S&P Core Logic Case-Shiller Index and pending home sales. The house price measure was little changed in July, remaining steady around 5.0% for the 20-City Index. Home appreciation in Seattle and Portland continued to post double-digit gains relative to a year earlier, while New York and Washington, D.C. saw the slowest pace of increases. Pending home sales, which typically lead closed transactions by one to two months, slipped 2.4% in August. That said, there is hope for the housing market, with purchase-only mortgage applications still growing relative to a year earlier and mortgage rates still low.
OPEC’s extraordinary meeting was light on details, but telegraphed its intent to cut production to a target range between 32.5 and 33 million barrels a day. The WTI benchmark price rose an initial 5% from $44 to over $47 in reaction to the cut and has moved above $48 per barrel. This is likely to be the extent of the impact, however, as continued oversupply should limit any further price gains.
UK
The latest Quarterly National Accounts showed that the economy was even more resilient ahead of the EU referendum than previously thought. Estimates of quarterly GDP growth were revised up from +0.6% to +0.7% in Q2. The breakdown showed that business investment is now thought to have risen by 1%, rather than 0.5%. However, the external sector was still struggling more than expected ahead of the referendum, with net trade pulling GDP growth down by 0.8 percentage points and the current account deficit widening from GBP 27 billion in Q1 to GBP 28.7 billion in Q2. Looking ahead, growth still looks to have slowed in Q3.
UK mortgage approvals fell from 60,925 in July to 60,058 in August (consensus was 59,800), which suggests that the housing market has continued to cool following the Brexit vote. Approvals are now at a 20-month low, continuing the recent downward trend after peaking at over 73,000 in January. However, the RICS survey measure of new buyer enquiries picked up sharply in August, implying that the downward trend should not last much longer. Households’ appetite for unsecured debt does not appear to have been hit, with the month-on-month GBP 1.6bn rise in consumer credit in August, in line with the average for the six months prior to the vote.
UK production data for August will be made available on Friday. Manufacturing production fell 0.9% month-on-month in July and has fallen three months in a row after the big increase in April. It is difficult to say whether the falls have been due to Brexit, as production fluctuates a lot. As PMI manufacturing has rebounded and due to the weaker GBP, a rebound in actual production is possible.
EU
Annual flash HICP inflation increased modestly to 0.4% from 0.2% previously. This was more or less in line with expectations, but given that preliminary German and Spanish CPI inflation surprised on the upside in September, some might have expected a larger increase. The positive base effect is expected to become stronger in the final two months of the year (not October), only to reverse in the first half of 2017, thereby returning inflation to the present level.
The ECB can find some comfort in the short run, but core inflation remains subdued at 0.8% in September (consensus expected an increase). The increase in headline inflation primarily was driven by energy, and service inflation only picked up slightly to 1.2% having been almost flat the past four months. Food inflation decreased.
The EU retail sales figures will be released on Wednesday. They have been solid on a yearly basis, however this needs to be seen in the light of the low oil price from 2015. Looking forward, gradually decreasing retail figures re expected for the euro area as the continual improvement in the labour market has plateaued and the higher inflation will weaken the real wage. This is also reflected in the latest retail figure for Germany.
China
The official PMIs for September will be released. The expectation is for the PMIs to support the view that the moderate recovery continues. On Friday, the FX reserves figures for September are due. It will be interesting to see whether or not the higher offshore rates in mid-September related to intervention. In terms of CNY, a continuation of the weakening trend of the CNY is likely, still in a controlled fashion.
Japan
Japan’s household spending and retail sales contracted in August, suggesting diminishing impact of the gargantuan stimulus package to the economy. CPI prints affirmed that deflation prevailed and that the government was far from achieving its goals of stimulating the stagnant economy and pushing up price growth. Providing some reprieve, industrial production rose 1.50% month-on-month in August, reversing the 0.40% month-on-month decline in July.
Sources: Danske Bank, Haendelsbank, Wells Fargo, TD Economics, HansLeong Bank.
