Economic Outlook – 3 November 2019


  • US economy grew at a 1.9% annualized pace last quarter, slowing marginally from 2.0% recorded in the second quarter. Sectors centered on the domestic side of the economy, including consumer spending (+2.9%), residential investment (+5.1%), and government spending (+2%), all made positive contributions.
  • US business investment declined for the second straight quarter (-3%), while net exports and inventories were minor drags. The falloff in business spending is the worst performance since late 2015, reflecting a confluence of factors ranging from slowing global growth, rising trade protectionism, and elevated policy uncertainty to appreciation of the US currency.
  • On the job side, the US economy continues to surprise to the upside with non-farm payrolls rising by a healthy 128k in October, while job gains were revised upwards in the two prior months. However, a higher participation rate acted to induce a minor uptick in the unemployment rate to 3.6%. Overall, the labor market seems to be holding its own, even as the expansion cools.
  • The US Federal Reserve cut its target range for the federal funds rate to 1.5% – 1.75% on Wednesday but indicated that it has set a high bar regarding further adjustments in interest rates. The global economic backdrop would need to worsen significantly for the Fed to cut rates further, according to Fed Chair Jerome Powell, while a noteworthy change in the inflation backdrop would be needed for the Federal Open Market Committee to consider raising rates. The prospect for a considerable period of steady policy rates has seen the US yield curve flatten after several weeks of steepening that saw the curve emerge from inversion.
  • The US House of Representatives voted on Thursday to formalize its impeachment inquiry into President Donald Trump. Only two Democrats failed to back the measure while no Republicans did so. To date, the inquiry has been conducted behind closed doors, but public hearings are expected in the weeks ahead. Markets are currently sanguine about the president lasting out his term, given the low likelihood of two-thirds of the US Senate voting to remove him if he is impeached.
  • A Friday rally spurred by a strong monthly jobs report helped stocks move solidly higher for the fourth consecutive week. The large-cap S&P 500 Index and the technology-heavy Nasdaq Composite Index reached new intraday and closing highs, while the smaller-cap benchmarks remained some distance from their late-2018 peaks. Within the S&P 500 Index, health care shares outperformed, helped by earnings beats from Merck and Pfizer.
  • The jobs report sparked a smaller reaction in the bond market, where longer-term Treasury yields rose somewhat on Friday but ended the week substantially lower as investors anticipated a pause in the Fed’s easing cycle.
  • ISM non-manufacturing is due out Tuesday. In the past couple of months, the service sector has begun to show weakness, pointing to weaker private consumption growth.
  • Michigan consumer sentiment is due out Friday. It would not be surprising if ISM non-manufacturing fell further to 52, down from 52.6.


  • Preliminary data on GDP growth for the eurozone remained flat in the third quarter at 0.2 % quarter-on-quarter, beating expectations. In year-on-year terms, growth fell to 1.1 %, down from 1.2 % last quarter and in line with expectations. Although the release lacks detailed breakdowns, Germany, which releases Q3 GDP data next month, is expected to continue to weigh on euro area growth, while the release from France shows domestic demand holds up resiliently as external demand falters in some other countries.
  • The European Central Bank (ECB) kept rates unchanged and restarted its asset purchase program, targeted at €20 billion per month. President Mario Draghi passed the baton to Christine Lagarde, who took over leadership of the bank on Friday. In his final speech, Draghi, who governed the ECB for eight years, called for unity among ECB and eurozone leaders. Acknowledging that monetary policy has become less effective in delivering stimulus, he reiterated his call for governments to fill in the gaps with fiscal policy.
  • In the euro area, the European Commission’s autumn economic forecast is out on Thursday. The report includes the latest fiscal projections, which will not only be interesting with respect to Italy, but also whether a European-wide shift in fiscal easing is underway, as the ECB has been calling for recently.
  • Thursday brings the German September industrial production figures. The German industrial sector remains weak and judging by the PMIs this did not change in September, leaving the German manufacturing sector in recession for the fifth quarter in a row.


  • With the risk of a 31 October no-deal Brexit gone, members of the British Parliament have voted overwhelmingly to schedule a general election on 12 December. Boris Johnson’s Conservative Party holds a 10-point lead in early polling, but recent British history has shown that opinion polls are far from infallible. A centerpiece of the Conservatives’ campaign will be the enactment of Johnson’s recently agreed to Withdrawal Agreement with the European Union, which has been shelved until after the election.
  • A renewed rush to stockpile ahead of another aborted Brexit deadline limited losses for British manufacturers last month, though not by enough to prevent a sixth month of contraction, a survey showed on Friday. The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) rose to 49.6 from 48.3 in September, its highest level since April and topping all forecasts in a Reuters poll of economists that had pointed to a reading of 48.1. However, the index still remained below the 50 dividing line between growth and contraction. October’s PMI was flattered by manufacturers building stocks ahead of the Oct. 31 date for Brexit that was superseded this week by a Jan. 31 deadline,
  • British car output dropped by an annual 3.8% in September, hit by weakening demand overseas and political and economic uncertainty at home as Brexit remains unresolved, an industry body said on Thursday. Production stood at 122,256 vehicles, with volumes in the first nine months of the year down 15.6% to just under 1 million cars according to the Society of Motor Manufacturers and Traders (SMMT).
  • On Tuesday, the UK PMI service index for October is due out. Based on other soft indicators, the index is expected to remain unchanged at 49.5.
  • On Thursday, the Bank of England is expected to remain on hold but the interest is for further signs that the BoE is moving closer to ease monetary policy, as the economy is slowing and some BoE members have sounded more dovish recently.


  • Manufacturing PMI from Markit/Caixin surprisingly increased to 51.7 in October from 51.4 in September, whereas the official manufacturing PMI fell from 49.8 to 49.3. It was the fourth month in a row with increases in Markit’s PMI. Meanwhile, the official PMI stays muted, and the divergence between the two is pronounced. The PMI from Markit/Caixinis a preferable index as it puts a higher weight on private and smaller companies than the state-owned-enterprises-heavy official PMI. Even though the monthly activity data did stabilise in September, which could have continued into October, the slowdown fear cannot be called off based on the strong Markit PMI as long as the official manufacturing PMI stays subdued below the 50 threshold.
  • Despite the cancelation of the APEC summit in Santiago, Chile in mid-November due to antigovernment protests, negotiators from China and the United States say that the two side are on track to conclude an agreement this month. US President Donald Trump and Chinese President Xi Jinping were scheduled to sign the accord in Santiago, but must now find a new, neutral venue at which to do so.
  • Chinese stocks recorded a weekly gain as strong earnings from mainland companies and data showing an upswing in private manufacturing activity offset US trade-related concerns. For the week, the benchmark Shanghai Composite Index edged up 0.1%, and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, rose 1.4%.
  • In terms of data, the trade balance (due Friday) will give more insight to how hard the export sector is hit by the trade war with the US and the global slowdown. Exports are expected to still look soft but not as weak as in the beginning of 2019.
  • FX reserves for October (due Thursday) should be broadly flat as it has been a quiet month on the CNY FX market.

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