Economic Outlook – 24 November 2019


  • Minutes from the October FOMC meeting indicated the Fed is content to remain on the sidelines for the rest of this year as the looser financial conditions resulting from rate cuts at three consecutive meetings feed through to the economy. Committee members judged the current stance of monetary policy as “appropriate”, while recognizing that the “risk that a global growth slowdown would further weigh on the domestic economy remained prominent.” The 75 bps of easing has not been unanimous, however, as some members viewed the latest rate cut as a “close call.” Moreover, the bar for further easing has been set fairly high—the Fed would need to see a “material” deterioration in the economic outlook to ease policy further.
  • Housing starts rose 3.8% in October, while permits surged 5.0% to the strongest pace since May 2007. Some of the strength was due to a jump in the volatile multifamily segment, but single-family permits, which are less subject to statistical noise and weather-related volatility, have now risen for six consecutive months, pointing clearly to upward momentum in residential construction.
  • Existing home sales also rose nicely in October, climbing 1.9% to a 5.46 million-unit pace. Inventories are running very tight again, however, particularly for entry-level homes where demand is strongest. This in turn has pushed price appreciation higher again, the median resale price rose 6.2% over the year, the strongest pace since July 2017. After a solid contribution in Q3, it is already looking like housing will again boost GDP growth in Q4, after a year and a half of drag.
  • The Leading Economic Index (LEI) fell in October for the third straight month, the first time that has happened since 2009. With trade uncertainty unlikely to be resolved soon, impeachment proceedings ongoing and the memory of last year’s fourth quarter fresh in mind, it will be important to closely monitor incoming economic data for signs of a break in either direction.
  • While the housing market has recently emerged as a bright spot, business investment has been a drag on growth. Since last year businesses have found themselves in a deep fog of economic uncertainty brought about by volatile policy making and the US – China trade war, making them reluctant to commit to new investment projects. Equipment spending (the largest component of business investment) has borne the brunt of the uncertainty impact, with the rise in uncertainty reducing equipment investment by an estimated 4.0% from Q1 2018 to Q3 2019. The resolution of the trade war could help boost investment. However, a sustained improvement will only be possible once firms are convinced that policy-making will not be as volatile as it has been over the last few years.
  • US President Donald Trump signed a bill that extends government funding through 20 December. The additional month will allow lawmakers time to attempt to craft a long-term appropriations bill. Money for a border wall along the US’s southern border remains a sticking point in negotiations.
  • The US Congress passed a bill last week by overwhelming (and veto-proof) majorities, aimed at protecting human rights in Hong Kong, provoking anger from Beijing. The bill would require US Secretary of State Mike Pompeo to certify once a year that Hong Kong retains enough autonomy from China to qualify for special US trading consideration, which reinforces its status as a world financial center. If signed by the president, as expected, it would also provide for sanctions against officials responsible for human rights violations in Hong Kong. Thus far, the US and China have kept the issue of human rights in Hong Kong separate from trade talks, but the longer the trade talks drag on, the greater the risk of the two issues comingling, analysts suggest.
  • Stocks moved modestly lower, and the S&P 500 Index ended a streak of six weekly gains on trade concerns. Within the S&P 500, energy stocks outperformed, helped by a rise in oil prices following a smaller-than-expected increase in US crude supplies. Health care stocks were also strong, helped by some moderation in presidential candidate Elizabeth Warren’s plans for a “Medicare for all” system. Consumer discretionary shares lagged following disappointing sales and forecasts from Macy’s, Home Depot, Kohl’s, and other retailers. Target was a notable standout after the company topped earnings and revenue estimates and raised its full-year profit outlook.
  • Uncertainty over the phase one trade deal appeared to outweigh positive economic signals in the bond market, driving longer-term bond yields lower. Healthy demand supported the performance of the investment-grade corporate bond market, which was largely focused on digesting new issuance.
  • On Tuesday, the Consumer Confidence Indicator from the Conference Board is due out and nothing suggests it should fall from its high level.
  • On Wednesday, besides the second estimate of Q3 GDP, focus is on the preliminary core capex orders and shipments in October. Capital investments have become the weak spot in the US economy given the weakness in the manufacturing sector globally and the ongoing trade war.


  • Prime Minister Boris Johnson and Labour Party leader Jeremy Corbyn squared off in a debate last week in advance of the 12 December general election. Opinion polls showed that Johnson scored a very narrow victory in the debate, though his Conservative Party holds an approximately 14.0% lead in the polls. Markets are pricing in the prospect of the Conservatives being able to garner a majority in the House of Commons, which would allow them to pass the Withdrawal Agreement and for the United Kingdom to exit the European Union at the end of January.
  • British business suffered its deepest downturn since mid-2016 this month as the approach of a national election exacerbated uncertainty about Brexit, according to a survey which augured badly for the economy. The first “flash” early reading of the IHS Markit/CIPS UK Purchasing Managers’ Indexes (PMI) for Britain showed that the decline in both the services and manufacturing sectors has quickened in November. The readings suggested the world’s fifth-biggest economy is contracting at a quarterly pace of 0.2%, IHS Markit said, although the PMIs have overstated economic weakness recently, in part because of higher government spending ahead of Brexit.
  • The UK pound fell after preliminary IHS Markit/CIPS PMIs showed private sector activity had contracted the most in three years. Activity in the services sector, which accounts for about 80.0% of the UK economy, fell to 48.6 from 50 in October. The manufacturing PMI also fell after coming under pressure from a drop in export orders brought about by Brexit uncertainty. 
  • With harsh lessons learnt from past Black Fridays, British retailers are stretching promotions over several weeks, aiming to smooth out consumer demand and reduce the pressure on supply and distribution networks. Brought over from the United States by Amazon (AMZN.O) in 2010, the annual event started as a single day of discounting before growing into a long weekend that took in ‘Cyber Monday’. It then grew to a week or so either side and is now getting longer and longer, though after chaos and scuffles in stores in 2014 it is now predominantly an online affair.
  • There are no market movers in the UK this week.


  • The Eurozone Flash Composite PMI was 50.3 in November compared to 50.6 in October. Meanwhile, Manufacturing PMI was 46.6 compared to 45.9, and Services PMI was 51.5 compared to 52.2, with only manufacturing exceeding expectations. The previously divergent manufacturing and services sectors are showing some signs of convergence, but any positive signs of manufacturing easing is countered by concerns over negative spillovers into the service sector, notably via slower employment growth
  • The German Statistics Office confirmed that the German economy narrowly missed a recession and grew 1.0%. In a separate report, the Bundesbank said that the economy will likely stagnate in the fourth quarter and that there is little sign of a rebound anytime soon. However, the bank noted that business expectations among manufacturers have improved and that private spending should help support economic growth in the fourth quarter.
  • In the euro area focus will be on the November inflation prints, which come in on Friday. Last month, core inflation ticked up to 1.1% year-on-year driven by slightly higher service prices, while headline inflation fell to 0.7% year-on-year on the back of falling energy prices. The uptick in core inflation is encouraging news for the ECB, but the uptick was not as broad-based as one could hope since especially NEIG inflation remains very low at just 0.3% year-on-year.


  • Chinese President Xi Jinping said that his country wants to reach a “phase one” trade deal with the United States based on “mutual respect and equality.” Xi said that he did not want a trade war but will fight back when necessary. During the week, Chinese negotiators invited their US counterparts to take part in fresh face-to-face talks in Beijing, but the timing of the meeting is uncertain due to next week’s Thanksgiving holiday in the US. Among the issues still to be negotiated are the size of any tariff rollbacks as well as structural issues such as intellectual property protections. Last week, the US Department of Commerce issued a 90-day extension for US firms to do business with China’s Huawei, the third such extension. On Friday morning, US President Donald Trump said a deal with China is potentially “very close.”
  • Chinese stocks fell for the week, as bipartisan US support for a bill supporting protestors in Hong Kong dashed expectations for a partial trade deal that was expected to be sealed this month. For the week, the benchmark Shanghai Composite Index declined 0.2% and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, shed 0.7%. Both gauges fell to their lowest levels of the week on Friday, days after the US House and Senate each passed a bill supporting human rights in Hong Kong.
  • China reduced two key lending rates during the week, as the government stepped up the pace of monetary easing to cushion the trade war’s impact on the economy. On Monday, the People’s Bank of China (PBOC) unexpectedly trimmed its seven-day repurchase rate for the first time in more than four years. Days later, the PBOC reduced its loan prime rate (used by many lenders to base their mortgage rates) for the third time since August, when it became the official lending benchmark. Taken together, the cuts signaled the PBOC’s determination to bolster lending and shore up an economy under growing strain from the ongoing US trade battle.
  • There are no market movers in China this week.

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