US
Economic data has been solid over the past two months but several factors could slow growth rates in the manufacturing industry over the coming months. In particular, data shows a significant inventory build-up in both the manufacturing and retail sectors in Q2, while demand continues to look solid and the fall in energy prices should boost private consumption. However, an inventory correction might be due soon.
Coupled with the negative impact of a stronger USD, the general increase in uncertainty means manufacturing production and the ISM manufacturing index could weaken in the short term.
Meanwhile in the labour market, the Conference Board’s measure of the labour market has increased to a new cycle high in August, which is an encouraging sign. However, taking a broader set of labour market indicators into account, job growth slowed to a still-solid 205,000 in August, from a growth rate of 235,000 on average over the past three months.
EU
The main event this week is the ECB meeting, where the ECB council is expected to remain dovish and slightly worried, as the lower oil price and stronger effective EUR are challenging their outlook for a sustained adjustment in the inflation path.
Moreover, Mario Draghi is likely to emphasise the open-endedness of the QE programme and add that the ECB is ready to use all available instruments, as well as to put a lot more focus on the downside risks to the economic outlook following the latest development in China.
UK
The most important data releases are the PMI figures for August. PMI manufacturing in the UK is slightly below PMI manufacturing in the euro area, so there is room for a small increase. However, the scope is limited, due to the strong GBP which puts pressure on the manufacturing sector.
China
The Chinese stock market has stabilised in recent days. The next main hurdle for China’s stock market will be the official manufacturing PMI.
While emerging markets’ economic growth can be expected to slow over the next few years, it is unlikely to completely collapse like in the 1990s. The West should be spared the prospect of an uncertainty shock, as occurred in autumn 1998. It will ‘only’ suffer the impact of weaker growth in the emerging markets. However, Western markets will be affected by a slowdown in export growth to emerging markets. There is a downside risk in 2016 growth forecast for Germany (1.8%), which is heavily dependent on business with China.
The US, which has now corrected many of its economic imbalances, will probably be robust enough to weather a loss of business with China and, if anything, achieve stronger growth in 2016 (2.8%) than this year (2.3%).
Japan
The main release is the industrial production for July. The overall picture is that it has started to stabilise after a very weak start to the year.
Sources: Commerzbank, Danske Bank