Académique Documents
Professionnel Documents
Culture Documents
Contents
European Summit to remind inv estors of a long road ahead Germany : taking a look at the grow th slow dow n Aussie ex ports performing w ell giv en global headw inds Indonesia: tracking signs of a credit cy cle inflection Global Economic Outlook Summary 21 4 6 7 8 9 23 31 35 39 41 43 45 47 49 53 55 57 61 65 67 71 72 19 17 13
Global Central Bank Watch Now cast of global grow th Selected recent research from J.P. Morgan Economics The J.P. Morgan View : Markets Data Watches United States Euro area Japan Canada Mex ico Brazil Argentina Chile and Colombia United Kingdom Russia Turkey Australia and New Zealand China, Hong Kong, and Taiw an Korea ASEAN Asia focus Regional Data Calendars
Bruce Kasman
JPMorgan Chase Bank NA
David Hensley
JPMorgan Chase Bank NA
Joseph Lupton
JPMorgan Chase Bank NA
US 2014
2 1 2010
www.morganmarkets.com
Joseph Lupton
data confirm that policy is getting traction, with growth expected to surpass 4% annualized in 2H12. By contrast, we recently scaled back our expectations for policy easing and economic growth in China (more below).
Against the backdrop of global policy stances that restrain growth, the role of policy in relative performance is important to understand. It is in the Euro area where we think policy shifts will do the most to improve the growth picture. The ECBs OMT program is anticipated to help fix peripheral credit markets broken by sovereign stress. To be sure, Euro area fiscal policy will continue to tighten. But the structural fiscal tightening in the region as a whole is set to fall from over 1.5% of GDP in 2012 to near 1% of GDP in 2013. Underpinning this forecast is an ongoing shift in the regions approach to fiscal austerity, in which budget overshoots due to recession are no longer met with demands for additional structural tightening. The Italian government, for example, recently doubled its budget deficit forecast this year, without taking corrective action. And the plans the Troika has agreed with Portugal also allow for at least partial operation of automatic stabilizers. The forecast shows the Euro area as a whole crawling out of recession next year, with GDP rising 1.1% next year on a 4Q/4Q basis. In contrast, the US fiscal drag in 2013 is likely to be somewhat larger than the 1% drag experienced in 2012. Moreover, risks are increasing that not all of the fiscal cliff tightening will be avoided, in which case the drag could be significantly larger. There is some room for Fed policy to cushion this blow. However, the degree of fiscal tightening makes it hard to see any meaningful acceleration in the US economy in coming quarters. Our forecast maintains average US growth around 2%, an outcome that will require solid underlying performance in interest-sensitive components of private demand. In the emerging markets, it is Brazil that is being afforded the broadest policy lift. Policy interest rates reached a new low after this weeks 25bp cut, with the central bank signaling a low-for-long stance that we think will extend through late 2013. This stance is complemented by more expansionary fiscal policy, including measures targeted to boost consumption and investment, as well as more generous funding from the national development bank (BNDES). The latest activity
2
Joseph Lupton
by a drop in car sales that was partly related to the diplomatic dispute with Japan. Inflation likely moderated to 1.8%oya, though the relief is expected to prove temporary, with inflation forecast to move above 3%oya early next year.
will lower debt to 60% of GDP, difficult fiscal journeys will be substantially shortened. Though this weeks Summit will demonstrate that further institution building is hard, we doubt it will show that what is needed is out of reach.
Joseph Lupton
Real GDP
% over previous period, saar
Consumer prices
% over a year ago
2011 The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Spain United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets 1.8 2.6 4.2 8.9 2.7 6.0 5.9 8.0 3.9 6.9 5.7 4.2 -0.7 2.1 1.3 7.4 9.3 5.0 6.5 6.5 3.6 5.1 3.8 4.9 4.0 0.1 4.6 3.1 1.5 3.1 1.7 0.5 0.4 0.9 4.8 1.7 1.7 1.6 4.3 2.5 4.3 8.5 3.0 1.3 6.1
2012 2.1 2.2 2.9 3.3 1.4 5.4 4.3 4.0 3.9 6.0 3.5 5.0 2.0 3.5 2.6 6.1 7.6 1.2 5.6 5.7 2.4 4.7 5.3 2.1 1.1 5.8 3.0 2.1 -0.4 1.0 0.1 -2.3 -1.5 -0.3 2.7 1.0 -1.1 -1.2 2.4 0.6 3.6 2.8 2.4 1.2 4.7
2013 1.9 2.1 3.7 2.2 4.1 4.5 4.5 4.0 3.6 7.0 4.0 0.0 0.6 2.5 2.9 6.4 8.0 3.2 6.0 3.5 3.3 2.9 3.5 3.4 3.9 2.7 3.1 3.0 0.2 1.4 0.0 -0.6 -1.3 1.5 2.7 1.5 0.9 0.7 2.1 0.9 3.0 3.7 2.6 1.2 5.1
1Q12 2.0 1.8 2.8 2.4 0.5 5.1 0.9 4.2 4.9 8.3 11.8 10.1 5.3 5.6 4.1 7.2 6.5 2.4 6.1 4.6 3.5 5.8 12.6 10.0 1.5 50.8 3.1 2.7 0.0 2.0 0.1 -3.3 -1.3 -1.2 2.4 -3.1 -3.5 2.4 0.5 3.7 3.0 1.7 5.3
2Q12 1.3 1.9 2.4 -3.2 1.6 7.1 6.7 4.8 3.5 6.0 2.1 0.6 0.7 2.6 2.3 5.7 6.7 -0.4 5.3 6.2 1.1 5.9 0.9 -0.7 3.5 13.9 3.4 3.2 -0.7 1.1 -0.1 -3.3 -1.7 -1.5 1.3 -0.8 -0.9 1.6 1.9 1.5 1.8 0.4 4.2
3Q12 1.4 1.9 4.5 8.0 4.8 3.0 2.8 4.0 3.5 5.5 9.0 3.5 -2.0 1.5 1.5 5.6 7.4 2.0 5.2 4.0 2.0 2.5 1.2 -1.6 1.8 2.0 2.0 0.3 0.0 1.0 0.5 -1.0 -1.5 2.0 1.2 -1.2 -1.0 1.2 -1.0 1.8
4Q12 2.0 2.0 4.0 6.0 4.6 4.0 3.8 4.0 3.5 6.0 -9.0 -3.0 -0.8 1.8 3.5 6.3 8.2 2.5 5.0 3.0 3.5 1.5 1.2 8.2 3.8 2.0 2.8 -1.2 -1.5 0.0 -1.5 -2.5 -4.5 0.5 2.1 -1.3 -0.5 1.6 0.8 3.0
1Q13 1.5 2.1 3.3 0.0 3.8 4.0 4.2 4.0 4.0 8.0 12.0 -3.0 1.4 3.8 3.7 6.4 8.0 3.5 5.8 3.0 3.5 2.0 4.5 6.1 4.5 1.5 4.9 5.9 0.8 1.5 0.0 0.0 -1.0 1.5 2.8 2.1 1.0 1.8 1.2 3.5 2.7 1.4 5.1
2Q13 2.3 2.1 3.6 1.5 4.0 5.0 5.5 4.0 3.2 8.0 7.0 0.0 1.6 2.5 3.3 6.5 8.2 3.5 6.0 4.0 3.5 3.0 4.5 -1.2 4.6 2.0 6.1 3.8 0.8 2.0 0.5 0.3 0.5 2.0 2.5 1.0 1.5 2.4 -0.4 3.0 2.9 1.7 5.2
3Q13 2.5 2.2 3.9 0.5 4.3 5.0 5.5 5.0 3.3 7.0 9.0 3.0 1.3 1.8 2.0 6.8 8.2 5.0 6.8 4.0 4.0 3.5 4.5 4.5 4.8 2.0 6.1 3.6 1.3 2.5 1.0 0.8 0.5 2.5 3.8 4.3 1.8 3.5 3.2 4.0 3.2 1.9 5.6
4Q11 3.3 2.7 7.2 9.6 6.7 4.0 3.9 5.5 3.5 4.5 8.3 28.5 -0.3 3.1 1.8 4.9 4.6 5.7 8.4 4.1 4.0 3.2 4.7 5.5 1.4 4.0 2.5 6.1 2.9 2.6 2.6 3.7 2.7 4.6 6.4 2.4 4.1 4.6 3.4 6.8 9.2 3.8 2.7 5.7
2Q12 1.9 1.6 6.0 9.9 5.0 3.1 3.4 5.1 3.9 4.1 8.0 22.3 0.2 1.2 1.0 3.9 2.9 4.2 10.1 4.5 2.4 1.7 2.9 5.3 1.7 2.5 1.6 5.7 2.5 2.1 2.3 3.6 1.9 2.8 5.0 3.4 5.5 4.0 1.9 3.9 9.4 2.8 1.8 4.6
4Q12 1.9 2.4 6.3 10.0 5.5 2.5 3.1 4.2 4.4 3.4 7.6 23.4 0.0 1.7 1.7 3.3 2.2 2.5 9.8 3.9 1.9 1.1 2.3 4.1 2.1 1.3 1.3 5.3 2.5 2.1 1.9 3.2 3.4 2.7 6.1 2.9 5.9 3.7 4.7 6.7 7.7 2.8 1.9 4.5
2Q13 1.6 2.0 7.3 11.0 5.6 3.1 3.2 4.4 4.1 2.8 7.2 37.3 -0.2 2.7 1.8 3.8 3.3 2.7 9.0 2.2 3.0 1.2 2.3 3.3 1.8 1.1 1.5 5.4 2.0 1.8 1.3 2.3 2.9 2.6 6.2 2.4 5.0 2.6 6.4 7.4 6.9 2.8 1.6 5.0
Memo: 2.7 2.6 3.4 3.2 Global PPP weighted 3.8 3.0 3.2 3.6 2.4 3.2 3.8 4.2 3.3 3.3 Note: For some emerging economies, 2012-2013 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts. On July 6 we shifted to using concurrent nominal GDP weights in computing our global and regional aggregates from a static 5-year average GDP weight. We maintain the use of current FX rates but still report PPP-based aggregates. For details, see research note "Global economic aggregates get new weights in July 6, 2012 GDW.
Joseph Lupton
Note: More forecast details for the G-3 and other countries can be found on J.P. Morgans Morgan Markets client web site
Joseph Lupton
Current
Change since (bp) Jul 11 -45 -53 -31 -72 -291 65 -42 -59 0 0 -525 0 -25 25 0 100 -31 -75 0 -50 50 -100 25 -100 N/A -50 -43 -39 -150 0 0 0 -56 -50 -100 0 0 -75 -25
Last change
Next mtg
Forecast (%pa) Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 2.26 2.96 0.50 5.57 6.12 5.08 5.54 1.45 2.25 2.94 0.49 5.54 6.12 5.03 5.51 1.45 0.125 1.00 7.25 4.50 5.00 4.75 4.25 9.00 1.65 0.75 0.50 0.10 6.00 2.25 4.25 5.75 5.75 4.50 6.00 3.68 2.75 2.75 0.05 0.50 6.00 2.75 5.75 7.75 3.00 3.75 2.75 1.875 2.25 2.94 0.49 5.54 6.11 5.03 5.51 1.45 0.125 1.00 7.25 4.50 5.00 4.75 4.25 8.50 1.65 0.75 0.50 0.10 5.50 2.25 4.00 5.75 5.75 4.50 6.25 3.68 2.75 3.00 0.05 0.50 6.00 2.75 5.75 7.75 3.00 3.75 2.75 1.875 2.25 2.95 0.50 5.54 6.11 5.03 5.51 1.47 0.125 1.25 7.25 4.50 5.00 4.75 4.25 8.50 1.65 0.75 0.50 0.10 5.50 2.25 4.00 5.75 5.75 4.50 6.25 3.68 2.75 3.00 0.05 0.50 6.00 2.75 5.75 7.75 3.00 3.75 2.75 1.875 2.29 3.00 0.51 5.63 6.53 5.03 5.51 1.57 0.125 1.50 8.00 4.50 5.00 4.75 4.25 8.50 1.65 0.75 0.50 0.10 5.50 2.25 4.00 5.75 5.75 4.50 6.25 3.69 2.75 3.25 0.05 0.50 6.00 2.75 5.75 7.75 3.00 3.75 2.75 1.875
2.26 2.96 0.51 5.56 6.12 5.00 5.55 1.45 Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Reference 0.125 1.00 7.25 4.50 5.00 4.75 4.25 9.00 1.65 0.75 0.50 0.25 6.50 2.25 4.75 5.25 5.50 5.00 5.82 3.74 Cash rate Cash rate O/N call rate Disc. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo 3.25 2.50 0.05 0.50 6.00 2.75 5.75 8.00 3.00 3.75 3.00
-211 -136 -298 -152 -465 -145 -31 -388 -438 -273 -800 -337 31 -256 19 175 -221 -223 -444 -215 -63 -200 23 -294 N/A -329 -1011 5 -269 -488 -17 -548 -14 -140 -412 113 -24 -331 -83
43 48 0 66 0 106 104 28 0 75 0 0 450 175 300 275 10 0 0 0 125 175 125 0 N/A 0 7 84 25 0 0 0 69 75 0 325 100 0 175
16 Dec 08 (-87.5bp) 24 Oct 12 8 Sep 10 (+25bp) 10 Oct 12 (-25bp) 17 Jul 09 (-25bp) 12 Jan 12 (-25bp) 24 Aug 12 (-25bp) 12 May 11 (+25bp) 23 Oct 12 28 Nov 12 26 Oct 12 18 Oct 12 26 Oct 12 8 Nov 12
5 Jul 12 (-25bp) 5 Mar 09 (-50bp) 27 Sep 12 (-25bp) 25 Sep 12 (-25bp) 25 Jun 12 (-25bp) 9 May 12 (+25bp) 29 Mar 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) N/A
8 Nov 12 8 Nov 12 1 Nov 12 30 Oct 12 29 Oct 12 7 Nov 12 2 Nov 12 Nov 12 22 Nov 12 18 Oct 12
On hold On hold Feb 13 (-15bp) 1Q 13 (-25bp) On hold 7 Nov 12 (-25bp) Feb 13 (+25bp) Nov 12 (+25bp) Jan 13 (-50bp) N/A
0.75 0.50 0.25 6.50 2.25 4.50 5.25 5.75 5.00 5.85 3.72
2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Effctve rate
2 Oct 12 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 7 Jul 12 (-31bp) 11 Oct 12 (-25bp) 9 Feb 12 (-25bp) 17 Apr 12 (-50bp) 5 May 11 (+25bp) 26 Jul 12 (-25bp) 25 Jan 12 (-25bp)
Dec 12 (-25bp) 1Q 13 (+25bp) On hold On hold On hold On hold On hold 1Q 13 (-25bp) On hold On hold 28 Nov 12 (-25bp) On hold
3.00 2.50 0.05 0.50 6.00 2.75 5.75 8.00 3.00 3.75 2.75 1.875
Taiwan Official disc. 1.875 -71 62.5 0 30 Jun 11 (+12.5bp) Refers to trough end-quarter rate from 2009-present Effective rate adjusted on daily basis
Bold denotes move since last GDW and forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages.
Jul 27
Nov 02
Nov 09
Note. Shaded values show forecasts computed by the Kalman filter estimates from the dynamic factor model. Underlined values are our estimates based on available data.
2011
2012
2013
Note. Oil is Brent while industrial metals and agriculture are the J.P. Morgan commodity curve indexes. Common movements for each are given by the common factor scaled by each commoditys individual loading weight. The idiosyncratic movement is the residual.
Nov 16
7
Aug 03
Aug 10
Aug 17
Aug 24
Aug 31
Sep 07
Sep 14
Sep 21
Sep 28
Oct 05
Oct 12
Oct 19
Oct 26
JPMorgan Chase Bank NA, New York Bruce Kasman Joseph Lupton David Hensley
Japan
Macroeconomic impacts of Japan/China dispute, Oct 5, 2012 The BoJ eased, what's next? Sep 21, 2012 Japan: recession or stagnation, that is the question, Sep 14, 2012 Japan: hope and anxiety, consumption by the elderly, Aug 17, 2012 Japans tax hike: small step toward debt sustainability, Jun 29, 2012 Japan: nonmanufacturers are performing well, but, Jun 15, 2012 Japan: how worrisome is the nuclear power plant shutdown? May 11, 2012
Western Europe
A NEET way to look at Euro area unemployment, Oct 5, 2012 Germany may want to slow down on Europe, Oct 5, 2012 Euro area growth: a better 2013 in prospect, Sep 21, 2012 The French Budget: Scylla, Charybdis, and Europa, Sep 21, 2012 Household deleveraging is not preventing a UK recovery, Sep 21, 2012 Another good week in the Euro area, Sep 14, 2012 ECB takes a big step forward but with qualifications, Sep 7, 2012 Euro area inflation differentials: largely a tax story, Sep 7, 2012 Europes busy political September, Aug 31, 2012 What next from the ECB? Previewing SMPs big brother, Aug 24, 2012 UK: Chancellor likely to delay the target for debt reduction, Aug 24, 2012 Euro area: a look at the drags facing Euro area consumers, Aug 17, 2012 Euro area: awaiting a decline in core inflation, Aug 10, 2012 UK: revisiting the hop, skip, and slump in productivity, Aug 10, 2012
Latin America
Chile: a conscientious objector faces "currency war" draft, Oct 5, 2012 Brazil at a crucial juncture to address potential growth, Sep 28, 2012 Brazil: BRL close to, but still stronger than, fair value, Aug 31, 2012 Latin America: agriculture price spike adds inflation risk, Aug 3, 2012 Brazil: challenges to increasing public investment spending, Jun 15, 2012
1. Research notes listed have been published in GDW; Special Reports and Global Issues are stand-alone features, but may also have appeared in some form in GDW.
JPMorgan Chase Bank NA Jan Loeys J.P. Morgan Securities Ltd. Nikolaos Panigirtzoglou
This risk-premium-focused strategy into equities, credit, and carry assumes volatility will remain subdued and markets will be buffeted by only modest adverse shocks. We dont see huge volatility from data or earnings surprises, with macro volatility having collapsed over the past two years, and aggregate earnings now also showing almost no movement anymore. This leaves us with the political surprise factor. Here we have to tread more carefully as the next few weeks will see another EU Summit, US elections, and Chinese leadership change, each of which with potentially momentous impact. On the last, the top priority of Chinese leaders will likely be stability and continuity. We do not foresee a major change in direction or worsening of the territorial conflict with Japan. The recent rebound in Chinese equities shows the market is hoping for positive news coming out of the Communist Party Congress on Nov 8. The EU Summit on Oct 18-19 has an ambitious agenda on both long- and short-term issues. But the lack of an imminent crisis, thanks to the ECBs OMT promise, means to us that not much progress is likely to be made. Unfortunately, given the need to merge sovereignty, EMU members seem to be unable to make major decisions without being subject to undue pressure (detailed analysis by Alex White in this GDW). That leaves the US election and the nearing fiscal cliff. Irrespective of who wins the election, both parties will soon have to seek compromise on avoiding a recession caused by fiscal tightening, as it appears extremely unlikely one party will have a blocking majority. But into the election, and the yearend decisions on taxes, inevitable political posturing, as neither side wants to show their cards yet, can easily have a depressing effect on economic activity, if not on risk prices. In our view, it supports taking some chips off the table, without going as far as neutral, let alone short risk assets. We stay medium-term positive on risk assets.
Fixed income
Bonds edged higher on the week, but essentially remain in the very narrow range they have held since the summer. That overall stability masks some striking crosscurrents, however. One is the Fed-fueled compression of US MBS spreads, which we expect to hold given an extremely tight supplydemand balance. Another is the marked outperformance of Australian bonds, triggered by a more dovish central bank, but also reflecting a long-standing yield compression toward core markets. We are reluctant to oppose this outperformance, given the uncertainty about the RBAs reaction function engendered by last weeks rate cut. The most important shift has been the better tone in Euro area sovereign debt markets. We share the broad view that the promise of the OMT backstop marks a major step forward in
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JPMorgan Chase Bank NA Jan Loeys J.P. Morgan Securities Ltd. Nikolaos Panigirtzoglou
Economic Research The J.P. Morgan View: Markets October 12, 2012
the Euro areas crisis management, and are encouraged by some tentative signs of capital returning to the periphery. These include a fall in Spains Target2 balance and bond managers shift to overweight peripheral bonds, for the first time since 2010, as reported in our European Duration Survey. But for the near term, we are wary of a Spanish downgrade from Moodys to below investment-grade, and thus move to a more defensive stance, including by cutting overweights in the EMU core vs. Germany, and adding outright longs in German Bunds.
Equities
Global equities have paused over the past five weeks, following three months of strong gains. MSCI AC World at 330 is practically unchanged since the beginning of September and is at the same level as at the end of April, before the May crash. It is still 8% below its post-Lehman peak seen in May 2011. With short covering largely behind us, the equity market appears to be lacking strong drivers. The US reporting season is generating a small positive surprise, but this is not enough of an impetus. As we argued last week a subpar 2% pace in global GDP growth for 3Q is not enough to change the pattern of stagnation seen in S&P500 EPS since 3Q11. We thus look for a 3Q EPS of around $26, similar to 2Qs $25.8 and little changed from 3Q11. The bottom-up analyst forecast is $25.2, so such an outturn would represent a small positive surprise of around 3%, similar to the previous reporting season. At the time, a 3% surprise in the 2Q reporting season failed to lift equity markets during the first half of July. There is not enough impetus in the macro picture either. This weeks macro news was rather mixed, raising doubts about the anticipated rebound in global manufacturing. The rebound in the September global manufacturing PMI induced us last week to re-enter our Cyclical vs. Defensive equity sector overweight, but the trade has yet to perform. However, the US reporting season provides two interesting sectoral themes. First, domestically-oriented US companies are the ones whose earnings are outperforming, suggesting a focus on US-centric stocks. Second, Financials will likely be one of the bright spots in 3Q driven by improving credit and loan demand and a solid recovery in US housing. Our US Equity Strategist Tom Lee points out that a tailwind is also building for US Financials into 2013, which is the resetting of the credit scores for millions of Americans. The peak year of personal bankruptcies was 2005 and those records are removed from credit reports after 2012. Thus, we should see rapid improvements in the credit quality of millions of Americans in 2013.
10
Credit
Spreads gave a mixed picture this week as US high-grade tightened, Treasuries rallied, and lower-quality credit and equity markets sold off. At 160bp, US high-grade is now back to pre-August 2011 levels, and the Feds activity in mortgage markets seems to be bolstering demand for highquality corporates as MBS portfolio holdings are replaced. Yet even as issuers take advantage of low all-in yields to push net supply across all USD spread product toward our forecast of $25 billion/month, $40 billion of Agency MBS purchases and $60 billion of coupon payments per month will drive a $75 billion/month shortfall of spread product going forward. We believe such strong technicals are not fully priced in
JPMorgan Chase Bank NA Jan Loeys J.P. Morgan Securities Ltd. Nikolaos Panigirtzoglou
and expect further spread tightening to occur. Eric Beinstein and his team elaborate in this weeks CMOS. Our colleagues in credit derivatives strategy continue to cite liquidity as the overarching theme in European credit markets. Given that OMT can be seen as the ECB taking the role of lender of last resort, just as the Bank of England has done over the last three years, they feel that financial conditions between the UK and Europe will normalize and so examined relative value ideas between the two this week. They argue for a long in Euro vs. UK in investment grade corporates, which comes with an attractive entry point given the UKs recent outperformance. See Saul Doctor and team, CD Player.
vent much weakness in China-linked currencies. Regardless, we have few strong priors on this months releases so combine limited commodity FX longs (long NZD/USD) with a relative value trade (sell downside in an oversold cross like AUD/CAD).
Commodities
Commodities are up around 2% this week, led by oil as tensions between Turkey and Syria escalated further. Syrian crude output is very small and world oil markets are already insulated from a supply disruption caused by the sanctions and logistical constraints affecting Syrian production. Of more concern is the possible threat to the 1mbd of crude exports that pass through Turkey from Azerbaijan and Iraq to the Mediterranean around 50 miles from the Syrian border (see Daily Oil Note, Fenton et al., Oct 10). The threat to these pipelines seems low, while the conflict is limited to sporadic border skirmishes, but this does further raise uncertainty in an already tense situation and is likely at least partially responsible for the rally in oil this week. In our GMOS portfolio, we remain long Brent time spreads, to hedge our long risk exposures against an oil shock. This hedge has worked very well over the past weeks and we maintain it. USDA data out this week showed lower-than-expected corn stocks but soybeans were in line with expectations and wheat stocks were higher, although both were lower than previous USDA estimates. This caused a sharp rally in grains, which recovered all of the weeks earlier decline to finish broadly flat. In GMOS, we remain short agriculture on the argument that the US harvest is essentially over and that planting conditions for the new crops are much improved and high prices mean much higher future supply. Agriculture prices have historically exhibited an element of mean reversion precisely due to this dynamic, and we believe they have peaked over the summer and will gradually move lower over the coming months.
Foreign exchange
Apart from a few trend reversals this week, currency markets still look listless. The trade-weighted dollar and aggregate FX volatility are unchanged this week, FX volumes are below average, and manager returns are flat-lining for some composites. We have argued that easy money from the worlds central banks wouldnt deliver easy returns immediately since the global economy looked flaccid, commodity currencies were rich, and central bank intervention likely. This remains the outlook andunfortunatelyan exercise in patience, particularly ahead of two massive weeks for US earnings and Chinese data. Earnings look well on track to be unimpressive but in line with expectations. Trades are mostly unchanged this week and geared around three themes: carry (long NZD/USD), less sovereign stress in Europe (long EUR/GBP and short EUR/Scandi puts), and commodity FX relative value (AUD/CAD). China releases its usual array of activity data next week, the last before the November leadership transition. Any data improvement should lift currencies in Chinas orbit (AUD, NZD, EM Asia), but how much? The China Economic Surprise Index described in this weeks FXMW provides some guidance. Identical to the US Economic Activity Surprise Index (US EASI) we developed over 10 years ago, this one tracks the balance of positive versus negative surprises on monthly Chinese data releases since 2009. Months when the balance of surprises is positive are associated with 2% rises that month in commodity currencies, whereas months with negative surprises are associated with small declines (about 0.3%). Should China disappoint again as the index shows it has been doing for the past two months (third chart previous page), it isnt clear that the commodity currencies would decline that much or for that long, given the proximity of the leadership transition. If China observes its usual political-business cycle by engineering stronger growth in the year after the transition, expectation for imminent stimulus would probably pre-
11
JPMorgan Chase Bank NA Jan Loeys J.P. Morgan Securities Ltd. Nikolaos Panigirtzoglou
Economic Research The J.P. Morgan View: Markets October 12, 2012
Interest rates
United States Euro area United Kingdom Japan GBI-EM hedged in $ Fed funds rate 10-year yields Refi rate 10-year yields Repo rate 10-year yields Overnight call rate 10-year yields Yield - Global Diversified
Current 0.125 1.65 0.75 1.45 0.50 1.72 0.05 0.77 5.79 Current 159 190 573 753 292 340
Dec-12 0.125 2.00 0.50 1.50 0.50 1.65 0.05 0.90 6.00 Index
YTD Return* 2.1% 2.9% 2.4% 1.9% 6.3% YTD Return* 9.6% 8.6% 12.8% 19.0% 15.7% 14.7%
Credit Markets
US high grade (bp over UST) Euro high grade (bp over Euro gov) USD high yield (bp vs. UST) Euro high yield (bp over Euro gov) EMBIG (bp vs. UST) EM Corporates (bp vs. UST)
JPMorgan JULI Porfolio Spread to Treasury iBoxx Euro Corporate Index JPMorgan Global High Yield Index STW iBoxx Euro HY Index EMBI Global JPM EM Corporates (CEMBI) Quarterly Averages
Commodities
Brent ($/bbl) Gold ($/oz) Copper ($/metric ton) Corn ($/Bu)
13Q3 120
Foreign Exchange
EUR/USD USD/JPY GBP/USD USD/BRL USD/CNY USD/KRW USD/TRY
3m cash YTD Return* index in USD EUR JPY GBP BRL CNY KRW TRY 0.8% 1.8% 4.5% -3.0% 2.0% 5.5% 11.2%
YTD Return
US
Europe YTD 0.5% 8.9% 13.9% 21.8% 13.7% 16.5% 19.8% 10.1% -0.2% 7.5% 12.3%
Japan
YTD -4.0% -13.1% -3.6% 0.0% 11.3% 8.6% 18.2% -10.4% 5.5% -18.2% 0.2%
EM
YTD ($) 5.5% 3.0% 9.9% 10.9% 18.5% 28.3% 14.9% 17.8% 13.0% 4.9% 11.6%
Equities
S&P Nasdaq Topix FTSE 100 MSCI Eurozone* MSCI Europe* MSCI EM $* Brazil Bovespa Hang Seng Shanghai SE
Current 1427 3044 718 5793 144 1111 996 59162 21136 2105
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YTD 6.8% 11.1% 10.9% 19.9% 12.6% 18.5% 25.0% 17.9% 24.2% 5.1% 15.9%
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Likely outcome Reinforcement of German views on legacy assets. No resolution on whether burden sharing will ultimately be prospective or retroactive. Possible small assurances to Ireland. Likely little progress, disagreements becoming more obvious. Possible indication that timeframe on introduction will be pushed back. Some discussion but likely not substantive. Some member states may indicate shift to greater domestic focus. Likely more discussion of transactions tax. Progress likely in principle, but unlikely to see precise details. Proposal will continue to be more about symbolism than substance in the near term. Review of progress on the Growth Compact wont be substantive. More pressure on Germany to support pro-growth policies following IMF revisions. Debate over Commission plan to move toward fiscal integration, but all substantive discussion pushed to December. Possible discussion of Treaty change. Unlikely to see substantive progress, particularly if Greek Troika discussions not complete. Small chance of Spain surprising on support request, but unlikely. Background tussle on speed with which the region needs to act, and on balance between structural and EU wide institutional reform.
Banking union
Banking sector
EMU budget
Growth
Fiscal integration
Other issues
media attention. The fatal flaw for next weeks Summit is likely to be an agenda that tries to do much. We expect discussion of seven or eight key line items designed to shape the regions response to the crisis, in a package that seems sufficiently dense that leaders will be unable to navigate their way to a substantive agreement. The content of the debate will also be difficult to address. We expect significant divisions to remain over the long-term move toward banking union and shared supervision, as well as strategies to deal with European banking sector stress. We also expect the fundamental disagreement about official sector burden-sharingas to whether it is backward-looking or forward-lookingto remain unresolved. We are more optimistic about progress on new budgetary mechanisms although we think that these will amount to less in practice than many appear to believe. We do not expect significant outcomes on Greece or Spain, although we dont discount the possibility that the Summit could surprise. On a more positive note, while the Summit is unlikely to resolve any issues permanently, it may make incremental progress overall (insofar as it will at least force the region to address some areas of disagreement that have been conveniently ignored in the past). However, in doing so, it will highlight the length of the political journey that has yet to be traveled in order to deliver permanent structural and institutional reform. We think the outcomes will probably leave the region leaning
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What to expect
Investors who have been following European politics over the past two years will have become used to Summits that overpromise or under-deliver. There are usually a range of reasons for this, not least the fact that compromise agreements require concessions, which are difficult to make in the full glare of
Economic Research European Summit to remind investors of a long road ahead October 12, 2012
more heavily on the prospect of monetary policy intervention with the Summit providing a reminder to the market that political authorities are not yet able to deliver on structural or institutional changes in the near term. In many ways this will be dj vu all over again. Investors with longer memories will recall a crucial European Summit in mid-October 2011 (almost exactly the same day a year ago), which saw the final touches being put on Europes bailout mechanism (then the EFSF, rather than the ESM) after a painful period of ratification beset by legal difficulties. There was intensive discussion of the need to restructure Greeces debt burden, which was felt to be unsustainable. Chancellor Merkel went into the meeting seeking further commitments on economic governance (a Fiscal Pact) from her European partners, who instead wanted to see burden sharing before they signed away significant parts of their sovereignty. In substance, all of these debates remain current a year later, with disagreement over banking union replacing discussion of the Fiscal Compact for example. In Europe, beyond the ECB, change will continue to happen slowly.
impact of this concession by making further gains on burdensharing and growth, and as a result goes into the Summit with big expectations and relatively little room for maneuver. France will push for specific time-bound commitments on banking union, burden sharing, and fiscal integration. Germany will most likely demur. In preparing for this discussion, French Government figures have been making a significant play of the need for more urgent regional action in the near term. Finance Minister Moscovici has publicly urged Germany to focus on the dynamics of the European crisis, which in his view remain acute and mean that the region must continue to act quickly. The German view is much more skeptical on the need for speed (see Germany may want to slow down on Europe, GDW, Oct 5). We think these different perspectives on growth, institution building, and the speed of change will frame most of the discussions that take place at this Summit and further reduce the likelihood of substantive agreement. As a result, investors can expect the region to offer up a range of inconclusive debate about the areas we lay out below.
unlikely that other commitments to Ireland will be made clear at this Summit, but Kenny could receive private assurances that encourage him to temper the amount of pressure he places on Germany et al at this stage. A possible compromise on the whole issue would see a reiteration of the German, Dutch, and Finnish position alongside recognition that the structure of Irelands obligations to the EU and ECB would be subject to renegotiation in the future.
role. All of these issues remain highly contentious, and we do not expect any resolution at this stage. It is possible that we could see a reframing of the commitments on when banking union is supposed to be introduced, perhaps giving a more realistic time frame than January 2013.
Economic Research European Summit to remind investors of a long road ahead October 12, 2012
Financial Framework (MFF). This reflects the need to appease the UK and other non-Euro area member states that fear having to pay for Euro area integration. Beyond this, the Commission sees the centerpiece of this Summit as a discussion of the other steps toward integration laid out in its interim report Toward a genuine economic and monetary union. This report has already been published, but provides little in the way of concrete detail on which leaders will be able to agree. It reflects the Commissions four-point plan to move through banking union to fiscal and economic integration and the building of more political structures at the European level. We think it is wholly unrealistic to expect that leaders will agree on anything of substance at this stage, when the debate over banking union has itself only just begun. We do however expect some general statements about the desirability of a long-term move in the direction of further fiscal integration. A more substantive discussion may happen when the Commissions final report is published in December. However, the regions internal debate over integration is likely to keep skating around the central issue, which is the question of how to introduce binding control mechanisms on individual members to which they are prepared to sign up. We dont expect any progress on this core issue at this stage, and think that progress on the integration agenda will be largely confined to positive words. One other question which will hang over this Summit to some extent, however, is the possibility of Treaty change. There is widespread recognition that a change to the European Treaty (TFEU) will likely be required at some point if the region is to move in the direction of further integration, even if only as far as a completed banking union. We think that much of this debate will remain on hold until after next years German election, however.
sible point of leverage. We dont see this as being particularly credible, but it is not completely impossible that Prime Minister Rajoy could deliver a piece of political theatre and pronounce himself willing to make a formal request if the Summit reaches some arbitrary criteria of his choosing. In addition to all this, there may be some broader discussion in the margins of the Summit about the role of the ECB in containing peripheral stress. Leaders may seek private assurances from Chancellor Merkel that she will remain supportive of the idea of ECB intervention (reflecting ongoing political nervousness in the background). None of this is likely to become public, or to impact the ECBs stance.
German IP
%q/q saar 20 10 0 -10 -20 96 98 PMI-based estimate 00 02 04 06 08 10 Sep PMI 12 14 IP (Manufacturing) Jul/Aug IP
so there is still a question about the near-term outlook for the industrial sector (despite the puzzlingly strong IP data in 3Q).
Economic Research Germany: taking a look at the growth slowdown October 12, 2012
GDP growth. Unfortunately, no clear improvement is taking place. The positive signs in July, with domestic capital goods shipments (+4%m/m), capital goods imports (+4.6%m/m), and capital goods orders (+1.5%m/m) increasing, proved short-lived. Detailed import data are not yet available for August, but domestic shipments fell again in August (-2.5%m/m) and domestic capital goods orders plunged (-6.8%m/m). Overall, shipments and imports may still post a gain in 3Q12, but the weakness of orders does not yet point to a sustained stabilization. The decline in reported capacity utilization in manufacturing to below its long-run average also suggests a reduced need for exanding the capital stock in the near term. The greater caution of the corporate sector is also impacting consumers. The business surveys in September pointed to very little new job creation, and the monthly employment data are aligning themselves with that message. We would be surprised if the employment indices in the surveys weakened a lot further, as firms appear to be displaying a willingness to retain staff (as they did during the 2008-09 recession). But, the sharp slowdown in hiring implies that hourly wage growth will be the main driver of disposable income growth in the near term. An underlying improvement has certainly taken place, as negotiated pay growth has accelerated from 1.7%oya last year to a 2.7%oya average so far this year. Unfortunately, the way this feeds through to effective wages and real disposable income is noisy, incomplete, and is currently being impacted by a price drag. Hence, real disposable incomes have only grown at a 1%q/q saar pace in recent quarters and may slow in 2H12. In terms of actual spending, the indicators have also been more mixed. Households remain upbeat about their income positions and are reporting a high propensity to make large purchases. But, unless revised, retail sales and car registrations point to a consumption decline in 3Q12, and household credit is yet to pick up meaningfully. The part of the domestic economy that is still looking buoyant is residential construction. Housing permits are up 7% so far this year, the monthly house price indices are continuing last years upward trend, and financing conditions are very loose (with mortgage rates falling to a new record low in August). Hence, there seems to be more to come from the residential segment, although it is too small as a share of the economy to drive growth in a meaningful way. Outside of the residential segment, the construction data have turned more mixed, and there are questions about the recent momentum in the nonresidential construction segment and about public construction (which plunged in 1Q12, possibly reflecting temporary cutbacks by local and regional government). Overall, the latest developments suggest that German domestic demand is ultimately still very dependent on the export performance of the corporate sector. Via a resilient labor mar18
ket, corporates continue to protect consumers from downside risks, but that leaves questions over the ability of consumer spending and domestic investment to lift more independently (e.g., in response to the very easy credit conditions). We expect growth to pick up again soon, as exports improve, but it may take longer for a deeper behavioral shift to take place.
Japan
China
2009
2010
2011
2012
2013
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further questions about the durability of Australias export mix. However, despite softer-than-expected global growth so far in 2012, demand for Australias key exports has remained healthy, and volumes are forecast to remain elevated for at least the next 18 months (our forecast horizon). Using a regression (first chart next page) based on our projections for iron ore prices, Chinese IP, and global GDP growth, export volumes are expected to increase at an average pace of 7.1%oya until at least 4Q13, an estimate that suggests upside risk to our official forecast of 5.3%oya, and remains well above the longer-term average of 3.7%oya. Further upside exists to the extent that Australias export output has been constrained by supply-side factors, which of course is what necessitated the vast capex pipeline in
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Economic Research Aussie exports performing well given global headwinds October 12, 2012
the first place. This suggests that export volumes could well be stronger for a given level of Chinese growth than the recent historical sensitivities indicate. This export growth is expected to be driven largely by continual demand for both iron ore and coal from China over the coming years, although the reliance on these commodities will dissipate as LNG exports begin to comprise a larger portion of the total export basket. Currently, nine of the 10 largest projects in Australias investment pipeline are LNGrelated, which, assuming that the Productivity Commissions forecast of a two-year lag between project commencement and output reaching normal capacity holds, should see LNG output increase rapidly in the coming quarters, increasing upside risk for our current export projections. In terms of export values, considering that commodity prices are expected to remain significantly lower than their 2011 record highs, it is likely that value growth will track below that of volumes.
Export volumes
%oy a 25 20 15 10 5 0 -5 -10 96 A$ bn 900 800 700 600 500 400 300 00
% -pts 2 1 0 -1 -2 00 01 02 03 04 05 06 07 08 09 10 11 12
Actual Model
Capital imports
imports, coupled with healthy demand for key commodity groups, results in more favorable net export volumes. Although the exact contribution that net trade will make to growth is unclear, it is apparent that the beneficial impact of the net exports of GDP component will provide a somewhat offsetting impact to lower levels of capital investment anticipated in coming years.
United States
Net exports are a substantial drag on growth in 3Q12; exports are declining as are imports of capital goods September price data confirm a rise in energy prices and continued slowing of core inflation Consumer confidence up in October; first Oct business surveys apt to show sluggish mfg, further rise in housing The economy continues to expand but at a lackluster pace. With additional data on August foreign trade and wholesale inventories out this past week, real GDP growth last quarter is tracking just a bit lighter than expected and the quarterly real GDP forecast is revised slightly lower to 1.4% saar (from 1.5%). The forecast continues to call for a modest acceleration to 2.0% growth this quarter. There is very little currentquarter data in hand to test this forecast. But improvement in new orders as reported in both September ISM surveys is broadly consistent with the forecast of slightly better growth this quarter. The first October business surveys, regional manufacturing surveys from the New York Fed (Monday) and Philly Fed (Thursday) and the Homebuilders survey (Tuesday), will condition views on activity early in the quarter. So will the upcoming weekly reading on initial jobless claims. Initial jobless claims plummeted 30,000 in the first week of October, but the Labor Department indicates that the drop mainly reflects results from one large state, reflecting firstweek-of-the-quarter technical issues rather than labor market improvement. Claims had receded below their recent trend in late September in the two weeks following the week of the last labor market survey, and the upcoming report for the week of October 13 (with possible revisions to the prior week) should give a better sense whether claims are trending lower into the fourth quarter. Markets will be watching consumer indicators ahead of the holiday selling season. The upcoming September retail sales report is expected to post an impressive 1.0% samr increase in monthly sales, boosted by stronger auto sales and higher gasoline prices, along with a healthy 0.5% increase in core retail sales. However, consumer price inflation was also high in September and that increase would imply a lackluster 0.15% rise in real consumer spending for the month, in line with the pace for the quarter as a whole. Continued modest income growth and the prospect of possible payroll tax increases in January are likely to limit gains in holiday spending this year. But recent increases in consumer confidence suggest that spending could be a bit stronger than might be expected on the basis of job and income growth alone. The preliminary Michigan consumer confidence survey
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Imports Exports
0 Japan tsunami, supply disruptions Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
-12 Jan 11
for October increased 4.8pts to 83.1. This is a new high for the expansion (although still low by standards prior to the last recession). And increases in confidence from the recent July lows have been concentrated in expectations, the component most highly correlated with spending on durables.
have slowed to 1.5%oya, exports to Europe are down 5.8%oya and are down 14.4% saar over the past six months (as sa by J.P. Morgan). The trend in import volumes has also been down over the past few months, although the decline has not been as sharp as for exports. Import volumes have declined 3.6% saar over the past three months despite an increase in oil imports. Nonoil import volumes are down at a 6.1% rate. Trade report a negative for capital spending: Core capital goods orders have been trending lower since last spring, and core capital goods shipments started declining over the summer. For a while it seemed that the weakness in the capital goods business might be concentrated in foreign demand, reflecting the recession in Europe and severe slowdown across most of Asia. However, the latest monthly foreign trade data highlight the weakness in domestic demand. Volumes of imported capital goods declined 1.0% samr in August, the third consecutive substantial decline for a cumulative drop of 17.2% at an annual rate over this period. Meanwhile, exports of capital goods increased 1.0% samr in August and are up at a 6.1% pace over the past three months. Thus, the August trade report only reinforces the message from core capital goods activity of a sharp falloff in domestic demand for capital goods. The forecast for real business spending on equipment and software for 3Q12 is being revised lower again, to -4.8% saar (from -2.7% last week and a forecast of 7.0% growth when the quarter began).
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Retail sales
%m/m sa Jun Total Ex autos Ex autos and gas Building materials Control group Plus gasoline -0.7 -0.8 -0.4 -2.1 -0.3 -0.7 Jul 0.6 0.8 0.8 1.2 0.8 0.7 Aug 0.9 0.8 0.1 1.0 -0.1 0.7 Sep 1.0 0.9 0.6 1.0 0.5 0.9
the survey data reported for September; more specifically, the headline measures and new orders indexes increased in the regional and national surveys last month, on average. However, this improvement was observed in the Empire State survey, so we think it has some catching up to do in October.
Empire State survey and ISM-weighted composite
Index, sa 40 20 0 -20 -40 Derived-composite General business conditions Index, sa 65 60 55 50 45 40 09 11 35
We forecast that retail sales increased 1.0% in September. An increase in unit auto sales has already been reported for the month, and we think gasoline prices will provide a lift to the nominal data on sales at gasoline stations. We believe sales at motor vehicles and parts dealers increased 1.5% in September while sales at gasoline stations increased 3.4%. Excluding these categories, we forecast that retail sales increased 0.6%. Sales of building materials should continue to climb back after plunging between March and June, and we forecast a 1.0% increase for September to follow similarly-sized gains the prior two months. Away from all of these categories, we believe sales of the so-called control group increased 0.5% in September; these sales have been choppy lately, and our forecast would represent a bounce back from a 0.1% decline reported for August.
Retail sales control measures
%ch over 3 months, saar 20 10 0 -10 -20 -30 Control plus gasoline stations 05 07 09 11 Control: total excluding gasoline, automotive dealers, and building materials
01
03
05
07
Business inventories
%m/m sa, unless noted May Inventories Manufacturing Wholesale Retail inventories Ex autos Autos Inventory/sales ratio 0.3 -0.1 0.0 1.1 0.6 2.1 1.27 Jun 0.1 -0.1 -0.2 0.8 0.1 2.2 1.29 Jul 0.8 0.6 0.6 1.1 0.5 2.7 1.28 Aug 0.6 0.6 0.5 0.8
1.29
We estimate that nominal business inventories increased 0.6% in August. Reports already available show that manufacturing inventories increased 0.6% during the month, while wholesale inventories increased 0.5%. We forecast that retail inventories increased 0.8% in August; industry data point to an increase in inventories of motor vehicles and parts during the month, and we think other retail inventories increased 0.4%, which would be in line with the recent trend.
We believe the Empire State manufacturing surveys headline increased 4.4pts to -6.0 in October. In general, the manufacturing data have deteriorated significantly over the past few months, though there was some improvement in
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CPI
%m/m sa, unless noted Jun Total %oya (nsa) Core %oya (nsa) Core services Core goods Food Energy Housing Owners eq. rent Rent Lodging away from home Apparel New vehicles Used vehicles Airfares Communication Medical care 0.0 1.7 0.20 2.2 0.2 0.2 0.2 -1.4 0.1 0.10 0.12 0.9 0.5 0.2 0.0 -2.5 0.0 0.6 Jul 0.0 1.4 0.09 2.1 0.1 0.0 0.1 -0.3 0.0 0.18 0.31 -2.3 0.2 -0.1 -0.5 -2.7 -0.5 0.4 Aug 0.6 1.7 0.05 1.9 0.1 -0.2 0.2 5.6 0.3 0.26 0.19 -0.6 -0.5 0.2 -0.9 -1.3 -0.6 0.2 Sep 0.5 1.9 0.13 2.0
After accelerating in May and June, medical care prices have settled back to more moderate increases. We forecast that such prices increased 0.3%, which is in line with the average monthly increase for the series.
Consumer prices
%oya, nsa 6 4 2 0 -2 -4 Headline CPI Core CPI %oya, nsa 3.0 2.5 2.0 1.5 1.0 0.5
0.3 4.0 0.20 0.22 -0.2 -0.4 0.2 -0.4 0.5 -0.4 0.3
05
07
09
11
We forecast that the consumer price index increased 0.5% in September (+1.9%oya). In August we saw gains in energy, food, and core prices (which exclude food and energy), with energy prices providing the bulk of the lift to the headline index. We expect that a similar dynamic played out in September with another surge in energy prices and moderate increases in food and core prices. Core prices increased an especially soft 0.05% in August. We anticipate that such a low growth rate was not sustained and that core prices moved up 0.13% (+2.0%oya), which is still fairly mild for the series. We anticipate rising prices for gasoline, fuel oil, and natural gas based on our seasonal adjustment of relevant spot price movements, which should send energy prices up 4.0% in September. Rising fruit prices, along with other components of prices received by farmers, signal a 0.3% increase in the food CPI. Food price increases have remained in a narrow 0.0% to 0.2% range since last September. We expect the food CPI to break a bit above this range as effects from the run up in spot grain prices begin to transmit through the food production chain. Owners equivalent rent moved up 0.26% in August, the largest gain for the series since 2008. We anticipate that OER increased a more moderate 0.20% in September. We forecast that tenants rent firmed 0.22% in September, which is comparable to the August increase for the series. Prices for lodging away from home tumbled in July and August. We expect that this trend continued in September with a 0.2% drop. Used vehicle prices tend to lag the Manheim Used Vehicle Index, which fell each month from April through August. These declines signal a 0.4% drop in used vehicle prices in September. New vehicles prices moved up 0.2% in August and we expect a similar increase in September. Although airfares have eased for the three months through August, we anticipate that they firmed 0.5% in September based on rising jet fuel prices.
Industrial production
%m/m sa, unless noted Jun Industrial production Manufacturing Motor vehicles and parts High-tech Mfg ex motor vehicles Business equipment Capacity utilization (%,sa) Manufacturing 0.1 0.4 2.0 1.0 0.3 1.9 78.9 77.5 Jul 0.5 0.4 2.7 0.8 0.2 0.1 79.2 77.7 Aug -1.2 -0.7 -4.0 -1.1 -0.4 -0.2 78.2 77.0 Sep 0.2 -0.1 -4.2 0.3 78.2 76.9
We believe industrial production increased 0.2% in September. Industry figures point to a drop in motor vehicle production during the month but data on hours worked for other segments of the manufacturing sector signal modest growth outside the auto industry. We forecast a 0.1% decline in manufacturing production in September with production of motor vehicles and parts dropping 4.2% and other manufacturing production increasing 0.3%. Away from the important manufacturing sector, we forecast that mining production increased 1.0% in September while utilities production increased 0.7%. Industry data point to increased mining activity during the month, and the weather in September likely led to a boost in utilities production.
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an increase in permits of 1.8% during the month. Starts have been pushing higher since late 2011 but the negative gap between starts in permit-issuing areas and permits reported for August points to a pullback in starts in September, and we forecast a decline of 3.8%. Multifamily starts and permits have been trending higher since late in 2009 though the monthly readings for these series are often very volatile. We believe both starts and permits bounced back in September after declining in August, and we forecast an increase in starts of 9.5% and an increase in permits of 3.5%.
Single-family starts and permits
Mn, saar
06
08
10
12
Homebuilders survey
Sa Jul Housing market Present sales Prospective buyer traffic 35 36 28 Aug 37 38 30 Sep 40 42 31 Oct 42
We forecast that the NAHB surveys headline increased 2pts to 42 in October. This survey has been improving lately, increasing 26pts over the year through September. Other data related to the housing market have picked up recently as well, and we think the housing market will continue to improve.
NAHB survey and single-family housing starts
Index, sa 80 Mn, saar 2.0
Jobless claims
000s, sa New claims (wr.) Wkly 4-wk avg Aug 4 Aug 11 Aug 18 Aug 25 Sep 1 Sep 8 Sep 15 Sep 22 Sep 29 Oct 6 Oct 13 364 369 374 377 367 385 385 363 369 339 365 369 365 369 371 372 376 379 375 376 364 359 Continuing claims Wkly 4-wk avg 3313 3320 3331 3332 3304 3275 3281 3288 3273 3305 3312 3325 3324 3322 3311 3298 3287 3279 Insured Jobless,% 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6
60
1.5
40 20
Housing starts
1.0 0.5
NAHB survey
0 05 06 07 08 09 10 11 12 13
0.0
Housing starts
Mn units, saar Jun Starts Single-family starts Multifamily starts Permits 0.75 0.53 0.22 0.76 Jul 0.73 0.51 0.23 0.81 Aug 0.75 0.54 0.22 0.80 Sep 0.75 0.52 0.24 0.82
We estimate that housing starts were unchanged at 750,000 saar in September while housing permits increased 2.4% to 820,000 saar. For the important single-family data, permits have been trending steadily higher since early in 2011, and we expect this to have continued through September with
We forecast that initial jobless claims increased 26,000 to 365,000 during the week ending October 13 (which is the survey period for the October employment report). The Department of Labor indicated that the 30,000 decline in claims reported for the prior week was mostly due to one state which may have reflected an issue with seasonal adjustment. The seasonal factors can often create volatility in the claims data around the change of the quarter and Columbus Day, so we think the upcoming report will show an increase in claims that undoes most of the decline reported for the previous week. The state-level initial claims data for the week ending October 6 will be reported along with the national claims data for the week ending October 13. These figures should reveal which state led to the large drop in claims during the
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week ending October 6; we suspect it was a heavily populated state (most likely California).
Initial jobless claims
000s, sa 700 600 500 400 300 200 2007 2008 2009 2010 2011 2012
2007
2008
2009
2010
2011
2012
We believe existing home sales declined 3.5% to 4.65 million saar in September. The housing market appears to be generally improving, but the relevant indicators signal that existing home sales declined in September. Existing home sales increased in both July and August, but pending home saleswhich typically lead existing home sales by one or two monthsedged lower over these two months, on net. The limited data available for local markets look consistent with some pullback in existing home sales in September.
We think the Philadelphia Fed surveys headline increased 2.9pts to 1.0 in October, crossing back into positive territory for the first time since April. The survey was still weak in September, but the increase in new orders (from -5.5 to 1.0) and the large drop in inventories (from -6.9 to -21.7) created a favorable dynamic for upcoming activity, so we think we will see some improvement in the survey reported for October.
The trade deficit in August widened to $44.2 billion from $42.5 billion the prior month, as imports edged down 0.1%, but exports fell quite a bit more, dropping 1.0%. The slowing in global growth is now making itself more evident in the export data; over the past two months exports are down 3.4% and on a year-ago basis exports are up only 1.5%, the slowest pace of the expansion. Net exports appear likely to subtract
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around 0.6%-pt from GDP growth in 3Q, a little more than our previous estimate. The decline in exports occurred across a number of categories. One of the larger declines was an 8.3% drop in food and beverage exports, which may appear to reflect a drought effect, though the drop merely seems to be reversing a 16.7% increase that took place the prior month. The geography of exports is reported on a not seasonally adjusted basis, but in year-ago terms one of the bigger declines has taken placenot surprisingly in exports to Europe, which are down 5.8% versus last August. The slight decline in imports took occurred despite a price-led increase in nominal crude petroleum imports, as ex. petroleum imports fell 1.5%. Auto imports cooled off, down 3.0%, after running quite strong the prior three months. One of the more disappointing aspects of the report was the continued decline in capital goods imports, down another 1.1% in August, which alongside the weak capital goods shipments figures signal reduced domestic appetite by US business for expanding capital outlays. Import prices (Oct 11)
%m/m nsa, unless noted Import prices %oya Ex. fuel import prices %oya Jul -0.7 -3.2 -0.4 0.0 -3.3 Aug 0.7 -2.2 -0.2 -0.5 1.1 -1.9 -0.4 Sep 0.5 -1.6 -0.1 -0.8 1.1 -0.6 0.2 -0.5
The producer price index for finished goods jumped 1.1% in September on rising energy and food prices, leaving the PPI up 2.1%oya. Despite the increase in headline prices, core prices (which exclude food and energy) were unchanged in September, their lowest print since October 2011. Rising gasoline, fuel oil, and natural gas prices sent the energy PPI up 4.7% in September, the second consecutive monthly rise in energy prices. Food prices firmed 0.2%, which is fairly soft considering we expect that they started to come under pressure from the summer spike in feed grain prices. Taking a closer look within core prices, auto prices slipped 0.2% for a second month. Light truck prices gained 0.3%, but increases have been moderating since July. Core ex light vehicles were also unchanged in September, the lowest reading for the series since February 2010. Much of the weakness in core prices was due to a 0.1% drop in capital equipment prices (a category that includes light trucks). This decline reflects the current weakness in US capital spending. Based on information in the PPI report, we anticipate that the PCE medical care services deflator dropped 0.4% in September, which is likely making up for an unusually large 0.6% increase in August. The intermediate goods PPI popped 1.5% and the core intermediate increased by the same amount in September. PPI crude goods firmed 2.8% and the crude core rose 1.6%. Taken together, these increases suggest that some firming may be in the pipeline for PPI finished goods. Consumer sentiment (Oct 12)
Michigan preliminary Aug 74.3 88.7 65.1 3.6 3.0 157 Sep 78.3 85.7 73.5 3.3 2.8 165 Oct 78.0 83.1 88.6 79.5 3.1 2.6 152
The import price index increased 1.1% in September on rising fuel and nonfuel prices. Despite the September increase and an August gain that was revised up to 1.1%, import prices have declined 0.6% over the prior year. In September, rising crude oil and fuel oil prices sent fuel prices up 4.4%. Nonfuel prices moved up 0.2%, the first monthly increase for the series since April. The nominal trade-weighted dollar depreciated 0.9% between early August and early September (when import prices are collected), which likely accounts for some of the firmness in nonfuel prices. Turning to the details of nonfuel prices, food prices popped 1.7% in September, the largest increase since March. This rise was likely not substantially influenced by the summer surge in spot feed grain prices since the US is not a major importer of the products most affected by the Midwest drought. In fact, the September increase in food prices was largely driven by a spike in vegetable prices. Capital goods prices increased 0.2%, the largest gain since January, and vehicle prices increased 0.3%. However, the story for September was not entirely one of firming prices. Consumer goods prices were unchanged and nonfuel industrial supplies dipped 0.2%, the fourth consecutive drop for the series. Producer price index (Oct 12)
%m/m sa, unless noted Finished goods %oya (nsa) Core %oya (nsa) Energy Cars Trucks Core intermed. Core crude Jul 0.3 0.5 0.4 2.5 -0.4 1.1 1.6 -0.9 -1.1 Aug 1.7 2.0 0.2 2.5 6.4 -0.2 0.6 -0.2 2.2 Sep 1.0 2.0 0.2 2.5 3.7 0.3 0.2 0.2 1.1 2.1 0.0 2.3 4.7 -0.2 0.3 0.6 1.6
Univ. of Mich. Index (nsa) Current conditions Expectations Inflation expectations Short term Long term Home buying conditions
The University of Michigan consumer sentiment index increased 4.8pts to 83.1 in the preliminary October report, which was a new peak for the expansion. The level of sentiment still looks low by historical standards, and other data related to consumer spending have been soft, but it is still positive to see sentiment improving. Details of the report show that the current conditions index (+2.9pts to 88.6) and expectations measure (+6.0pts to 79.5) both improved in the October report. The two expectation measures specifically regarding the economy also reached new highs for the recovery in October. Sentiment related to personal finances and income expectations improved in October but remain weak by historical standards. The indexes related to the labor market were mixed in October even with the favorable headlines associated with the September employment report (most of the sampling for the Michigan survey was done before the employment data were released). The median one-year-ahead and five-year-ahead inflation expectations both declined by 0.2%-pt to 3.1% and 2.6%, respectively, in the preliminary October data. This reading for the longer-term measure was a new low for the cycle and was last reported this low during the recession in March 2009 and December 2008.
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2.5
2.0
1.5 2010
2011
2012
2013
Core CPI
2009
2010
2011
2012
2013
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JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre
Euro area
Next weeks Euro area summit to be a reminder of difficult path toward greater political integration But, ECBs OMT announcement continues to limit financial market stress Euro area IP surprises on upside in August, with statistical question marks We nevertheless allow for better IP in our 3Q12 GDP estimate, offset by payback in 4Q12 Next weeks EU summit will be a reminder of the long road ahead that the region faces in moving toward a more politically and fiscally integrated monetary union. Nevertheless, the ECBs willingness to engage in OMT continues to limit the level of stress in financial markets and reduces the pressure on politicians of having to move too quickly toward more integration.
Tracking model
99
01
03
05
07
09
11
13
unwilling to go quite so far, mainly because the business surveys are much weaker. But, we are going halfway by raising our 3Q12 GDP forecast by 1%-pt to zero, and are reducing our 4Q12 estimate by the same amount to -1.5%q/q saar. Hence, the 2H12 average is unaffected. Revisions at the country level follow a similar pattern, with 3Q better and 4Q worse than previously. In Spain, this is exaggerated by a
31
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre
VAT effect, which likely supported spending in 3Q12 and will weigh even more on spending in 4Q12. Given the statistical factors that may be impacting the data and given that the IP gains are hard to square with anecdotal evidence and the much weaker business surveys, we would downplay the significance of the forecast change. Instead, we continue to watch the business surveys for signs of underlying lift, which we continue to expect to materialize as we move into next year.
Euro area IP
1Q08 = 100 105 100 95 90 85 80 75 70 2008 2009 2010 2011 Germany France Italy Spain 2012 2013
Euro area IP
1Q08 = 100 Ireland Germany Portugal Greece 2008 2009 2010 2011 2012 2013
marginal income tax tranche of 45% for incomes higher than 150,000; capital gain taxes will increase in the housing sector; credit tax exemptions benefiting companies will be partly removed; and taxes on polluting activities will increase.
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre
0.5
0.5 -0.3 0.3 -0.1 0.1 -2.3 0.3 -2.6 -1.1 -7.4
Inflation
Consumer prices
Jun Tue Oct 16 11:00am Euro area (final) HICP (%m/m, nsa) HICP (%oya, nsa) HICP (%oya, core-X)1 HICP (%oya, core-XX)2 HICP (%m/m, ex-tobacco) -0.1 2.4 1.8 1.6 -0.1 Jul -0.5 2.4 1.9 1.7 -0.6 Aug 0.4 2.6 1.7 1.5 0.4 Sep 0.7 2.6 2.5 1.5 0.8
1. Excluding unprocessed food and energy. 2. Excluding food, alcohol, tobacco, and energy.
Producer prices
Jun Fri Oct 19 8:00am Germany %m/m nsa %m/m sa %oya nsa -0.4 -0.4 1.6 Jul 0.0 0.0 0.9 Aug 0.5 0.5 1.6 Sep
We expect Euro area headline inflation to be revised down one tenth to 2.6%oya. Since the publication of the Euro area flash estimate in the final days of September, a number of countries have released their final inflation figures. Spanish inflation increased seven tenths to 3.5%oya as a result of the September VAT hike from 18% to 21%. Italian inflation also increased a tenth to 3.4%oya as fuel prices continued to surge. But inflation declined in Germany and France, by one tenth to 2.1%oya and two tenths to 2.2%oya, respectively, largely offsetting inflation increases in Spain and Italy. The country releases so far suggest Euro area inflation will be revised down one tenth.
The August IP reports were much stronger than expected, both in the core and in the periphery. In the region overall, IP rose 0.6%m/m in August, with the July/August average up 4% annualized on the 2Q12 level. The manufacturing part did even better, rising 0.7%m/m and tracking up almost 5% ar so far in 3Q12. In the detail, intermediate goods production was flat in August and is up only marginally so far in 3Q. Consumer goods production rose strongly however (1.8%m/m in August) and is up just over 2% ar so far in 3Q. The capital goods category rose 0.7%m/m in August and is up over 8% ar so far in 3Q12. Within the capital goods category, both machinery and electrical/optical goods production declined in August but are still up modestly so far in 3Q12. The category that accounted for most of the strong gains is auto production, which surged 5.6%m/m in July and 6%m/m in August. This reflects particularly strong increases in Germany, France, and Italy. The increases in auto production are hard to reconcile with anecdotal evidence, which points to weak orders and manufacturers trying to manage down their production levels (one exception is France, where reports suggest that producers ramped up production in August to build inventory levels ahead of possible strike action). It is possible that the data are being impacted also by problems with the seasonal adjustment. Nevertheless, we are incorporating some of the strength into our GDP forecast, offset by payback in 4Q12. For more details, see this weeks Euro area essay. By country, the improvement in the summer has been broadbased across the region, and much less of this owed to auto production in Germany, France, and Italy. In fact, almost all Euro area countries are tracking decent increases so far in 3Q12, including the peripheral countries.
33
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre
16.2
16.3 10.8
German and Spanish HICP inflation was unrevised with respect to their flash releases. German inflation declined a tenth to 2.1%oya and Spanish inflation rose seven tenths to 3.5%oya as the 3%-pt VAT hike to 21% lifted prices. In the remaining countries, French inflation printed two tenths lower at 2.2%oya, and Italian inflation rose 0.1%-pt to 3.4%oya. Taking these data into account, as well as final figures for countries such as Belgium and the Netherlands, it looks like Euro area inflation will be revised down a tenth to 2.6%oya. The details of the country releases were also informative in a number of ways. French inflation declined partly as a result of the lower tax rate applied to fuel products in September. Fuel prices in France declined 0.9%m/m, which subtracted 0.3%-pt from lower energy prices. But prices also declined substantially in the service sector, especially for services related to tourism. In Spain, the introduction of the new VAT rate of 21% (up from 18%) contributed to lift prices by 1.9%m/m in September, and headline inflation rose seven tenths to 3.5%oya. During the summer, we observed a frontloading of the VAT pass-through as headline inflation already increased 0.9%-pt in the two months prior to September. The cumulative impact has now reached 1.6%-pts since June and only a marginal effect remains to be seen. In our view, this effect will not be strong enough to lift inflation further, and we think Spanish inflation has now peaked.
76.2 -2.1
76.5 0.3
German exports remained on a firm upward trajectory in August. Exports of goods rose 2.4%m/m in nominal terms and 2.0%m/m in real terms, and the %3m/3m annualized rate is still running at a solid 7% on both measures. Imports were softer. They edged up in nominal terms, and fell for the third consecutive month in real terms (by 0.8%m/m in August). The %3m/3m saar rate is still running at a decent 5.9% pace on real imports, but this reflects gains a few months back. Due to the relative strength of exports, the trade surplus jumped close to its all-time high. The export data are firm relative to the business surveys, which point to stagnant or slightly declining real exports. In particular, the new export orders index in the manufacturing PMI had slumped to 39.4 in August before it recovered somewhat to 42.4 in September. The export expectations index in the IFO had declined to -1.4 in August and deteriorated a bit further in September to -3.2.
Inflation
Consumer prices
Jul Germany (final) %m/m nsa %m/m sa %oya nsa HICP (%oya) France %m/m nsa Index ex tob nsa %oya nsa HICP (%oya) Italy (final) %m/m nsa %oya nsa HICP(%oya nsa) Spain (final) %m/m nsa %oya nsa HICP(%oya nsa) 0.4 0.1 1.7 1.9 -0.4 124.22 1.9 2.2 0.1 3.1 3.6 -0.2 2.2 2.2 Aug 0.4 0.4 2.1 2.2 0.7 125.06 2.1 2.4 0.4 3.2 3.3 0.6 2.7 2.7 0.0 3.2 3.4 1.0 3.4 3.5 Sep 0.0 0.3 2.0 2.1 -0.3 124.74 1.9 2.2
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Japan
Small firms sentiment worsened with concerns over the impact of the China-Japan dispute Total machinery orders plunged in August, further evidence of weak global equipment investment Private consumption picked up in August, but trend appears to be downward The IMF/World Bank annual meeting is being held in Tokyo this week, and the IMF published its latest World Economic Outlook, which revised down its global GDP growth forecast for 2012 and 2013 from the July update (a detailed report was released in April). The downward revision of the global outlook is not surprising; we also have revised down our global outlook over the past three to six months. Still, the IMFs outlook for Japan (2.2% real growth in 2012 and 1.2% in 2013) seems too optimistic in our viewour forecast looks for 2.0% and 0.6%. Indeed, the Japanese Cabinet Offices real consumption index released this week showed a notable contraction of a key component of domestic private demand in 3Q. With the sharp fall in auto sales in September due to the end of government subsidies, a further fall in consumption looks likely at least in the near future. Also, the machinery orders report provided further evidence of the softness in domestic capex and the sharp fall in external demand for Japanese equipment. With the recent emergence of additional downside risk from the dispute with China, it looks likely that the trend of the Japanese economy is weakening more and faster than the views of officials (including the BoJ and Japanese government). To be sure, we do not think that Japan has slid into a recession, even though we do expect two consecutive quarters of contraction in the GDP (technical recession). In line with the official view, our base case scenario looks for some (but less) recovery in global growth next year after near-term uncertainties (such as the US fiscal cliff) fade away. Even in Japan, relatively firm business and consumer sentiment so far may prevent a second-round effect from the decline in manufacturing activity to the overall economy. However, the downside risks to this view remain high, and are probably strengthening, especially in Japan. The current development warrants nearterm policy support. In this regard, the hung Diet is decisively negative. We expect another monetary easing at the end of October, but that will not likely be sufficient to boost growth materially. In our view, close cooperation between a strong government and the BoJ is necessary to address the challenges facing Japan. Political deadlock is generally a strong headwind for the global economy; Japan is no exception.
Machinery orders
Yen bn, sa, 3mma for both scales 3000 Total 2500 2000 800 1500 1000 02 03 04 05 06 07 08 09 10 11 12 Core domestic 700 600 1000 900 1100
cent gains in July (+4.6%) and June (+5.6%). The average of July and August is up 4.3% annualized relative to the 2Q average, showing some recovery from the 15.3% plunge in 2Q, and it is stronger than the official outlook (-4.8%) presented in August. This suggests that firms spending (investment) behavior is not yet on a downtrend. However, it should be noted that the total domestic private orders, including volatile orders from the noncore sectors, plunged 13.7%m/m sa in August and is tracking a 22.3%q/q saar decline in 3Q, which is certainly negative for the GDP-based capex in near future. More worrisome was the 14.7%m/m sa plunge in foreign orders in August, which leaves the Jul/Aug average down 42.6% annualized from 2Q when the orders fell off a cliff at -52.7% ar. The August orders level is 40.9% lower than the recent peak in January this year, indicating that external demand for Japanese equipment manufacturers has fallen sharply. The decline in August may be exaggerated as the fall of orders in big ticket items (railroad vehicles) was cited in the report, but the weak trend seems to be clear. With recent news of a softer Asian economy and the dispute between Japan and China, it is difficult to expect that external demand will pick up materially in the near future. In domestic orders, it appears that manufacturers demand has been softening lately, but nonmanufacturers are holding up relatively well, except noncore electric utility companies. Meanwhile, public orders fell again in August, -7.1%m/m sa after a 13.5% plunge in July. It seems that reconstructionrelated orders are now weakening, although the main reason for the decline in August was a fall in defense-related orders.
Bank lending
%oya 6 4 2 0 -2 -4 2008 2009 2010 2011 2012 2013
sumption in 4Q after a 2.0% decline in 3Q, but the risk is still skewed to the downside.
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Industrial productionfinal
%m/m sa May Production Shipments Inventories Inventory/shipments ratio Operating ratio Production capacity (%oya) -3.4 -1.3 -0.7 -3.7 -2.2 -1.3 Jun 0.4 -0.9 -1.2 4.2 -2.3 -1.3 Jul -1.0 -3.1 2.9 3.7 0.5 -1.7 Aug -1.3 0.4 -1.6 -2.9 DI
nomic impacts of Japan/China dispute, GDW, Oct 5, 2012), at least in the near future. However, given that the income surplus is expected to rise gradually or at least to be stable at a high level, the current account surplus will not likely turn into deficit in coming months. Economy Watchers survey (Oct 10)
Jul Current conditions Households Business Employment 44.2 42.8 44.8 52.1 Aug 43.6 42.1 44.0 52.5 Aug 43.2 41.2 40.2 40.0 50.8
Construction spending
%oya May Public Private Residential Nonresidential 10.5 2.1 5.2 -1.4 Jun 10.4 2.4 5.3 -0.9 Jul 12.3 0.7 1.4 -0.2 Aug
See main essay. Cabinet Office private consumption index (Oct 10)
Jun %m/m sa -1.0 -0.9 Jul -0.5 -1.0 Aug 0.5 1.5
Construction spending data are a second-tier indicator that rarely receives much attention. Still, public spending in this survey is the key input for public investment in GDP. Since reconstruction activity has been delayed, we expect that the uptrend of this demand will continue for while, but confirmation from this indicator is important.
The current account surplus was somewhat larger than expected in August, recording 722.3 billion, sa (J.P. Morgan: 635 billion; consensus: 520 billion), up from 335.4 billion in July. The relatively large gain in the surplus reflected a smaller trade deficit in the month, which was not a surprise given the already reported custom trade balance. The trend of the trade deficit has been relatively stable since the beginning of this year with declines in both nominal exports and imports. The surprise in August was a larger-than-expected income surplus, which jumped from 118 billion to 128 billion. This component is volatile, so it is difficult to identify a trend from monthly changes. From the three-month average, it looks like the income surplus is on a gradual rising trend, mainly from direct investment income. The services deficit was smaller in August than in July but the trend is for a wider deficit. Overall, the current account surplus has been broadly flat through this year, and August report did not break that trend. Looking ahead, the merchandise trade and services deficits likely will be larger given the dispute with China (see Macroeco-
1. The DI asks whether a respondent thinks that now is a good time to purchase durable goods.
The CAOs consumer sentiment index fell 0.4pt to 40.1 in September, but remained above the recent low in July (39.7). The level has been broadly flat since March this year. This sentiment survey has yet to point to any downturn in the trend of consumption. However, the track record of this sentiment index in predicting actual consumer spending has been poor, especially for real changes. So, stable sentiment does not assure firm actual consumption.
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In the details, all four component DIs have been broadly stable, showing no particular change (improvement or worsening) recently. While the perception of the labor market condition is relatively soft, income growth actually edged up in September. We think that sentiment will worsen further in coming months.
of oya rise was exactly that same as in August and 2Q. However, it should be noted that the rise reflects the liquidity preference of money holders (households and nonfinancial corporates), not a rise in credit, as the broad liquidity measure, L, rose at a much more moderate pace in September (0.7%oya) and 3Q (+0.4%). In L, investment trusts, the key financial product for households that want to take risk, fell more rapidly in September (-3.4%oya) and 3Q (-2.7%) from 2Q (-2.0%) and 1Q (-0.7%). On the other hand, the rise in foreign bonds accelerated in September (+5.3%) and 3Q (+3.8%) from 2Q (+0.3%) and 1Q (-0.8%). It seems that individuals who are taking risks are now shifting their portfolio to foreign bonds from investment trusts that are backed by equities. Note that the recent acceleration of the gain in L partly reflects a technical estimate in the preliminary print, so it is difficult to judge if there is a change in trend.
05
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10
11
12
The tertiary sector activity index, which covers almost all sectors except manufacturing, picked up in August as expected after a revised 0.7% (from 0.8%) fall in July. The average of July and August is only 0.8% annualized lower than the 2Q average, showing broad stability. The result was consistent with business surveys that show firm nonmanufacturing activity. Indeed, manufacturing activity (industrial production) is tracking a sharp decline of close to 15% annualized in 3Q even after a 7.7% decline in 2Q.
The domestic corporate goods price index (CGPI) rose modestly again in September at 0.3%m/m nsa after a 0.2% rise in August, mainly due to the rise in prices of petroleum products. Still, the fall before August left 3Q down 3.0%q/q ar. In oya terms, the index was down 1.4% in September and 1.8% in 3Q. Excluding petroleum products, corporate goods prices were basically flat between July and September after having declined from falling commodity prices. By stage of demand, prices at all stages, raw materials (+2.2%), intermediate materials (+0.3%), and final goods (+0.4%), rose in September, although capital goods in the final goods category fell a bit (-0.1%). Consumer goods rose 0.5%, mainly due to a 1.2% rise in imported nondurable goods (propane gas). Accordingly, the oya decline eased notably, suggesting that the deflation in the core CPI will soon ease (note that Japans core CPI excludes only fresh food and includes energy). Export prices were flat, while import prices jumped 1.5%, mainly due to the hike in energy prices. International terms of trade derived from this survey deteriorated a bit in September, but remain somewhat higher than the trend from 2002. Money stock (Oct 12)
%oya Jul M2 L 2.2 0.0 2.3 Aug 2.4 0.3 Sept 2.4 0.3 0.7
The M2 (high liquidity) maintained a relatively solid rise, up 2.6%m/m saar in September and 2.9%q/q saar in 3Q, leaving the oya rise at 2.4% in both the month and the quarter. The pace
38
Canada
Trade balances narrow slightly in August But trade still likely a drag on overall growth in 3Q Weak capex implications from August trade figures Next week sees release of key BoC survey The August trade figures released this week continued to show the trade sector being a net drag on overall activitya reflection of the external headwinds that are buffeting the economy. Both the nominal and real trade deficits narrowed slightly but this reflected weakness in imports, not revival of exports. Housing starts retreated 2.3%m/m in August following a 7.7%m/m jump in July, but were down 5.3%q/q for 3Q versus an 11.7%q/q surge in 2Q. This points to a weak reading, on the margin, for residential investment in the 3Q national accounts, though construction will obviously be ongoing on the surge in structures started in 2Q. Consumer sentiment treaded water in September, holding to the strong gains made in August. The nominal trade deficit narrowed in August to C$1.32 billion from a wider-than-previously-released C$2.53 billion shortfall in July (previously -C$2.34 billion). Nominal imports collapsed 3.1%m/m, reflecting declines in every sector except energy, while exports were little changed (-0.1%m/m). This was the sixth month of the previous seven in which the trade balance posted a deficit. Nominal exports were down 1.6% from a year ago, while imports edged up 0.6% from a year earlier. By sector, exports were generally up with a sharp decline in exports of industrial goods and materials (-6.1%m/m) offsetting increases in other major sectors. Real (chain weighted) exports were essentially unchanged in August following a 1.7%m/m decline in July. So far in 3Q, real exports are down 1% from the 2Q average. Though the August decline in imports was widespread, it was led by a 7.4%m/m drop in imports of industrial goods and materials, after four consecutive monthly increases. Energy imports rose for the first time in three months, while imports of machinery and equipment fell for the second consecutive month. Real (chain weighted) imports slumped 2.0%m/m on top of a 1.2%m/m decline in July. Thus far in 3Q, real imports are down 0.5% from the 2Q average. The real trade deficit narrowed in August from July. But, the July/August average is still slightly wider than the 2Q average, indicating that net exports could be a slight drag on 3Q overall GDP. It should be noted, however, that Statistics Can-
3Q avg
1Q avg 2Q avg
4Q avg 06 08 10 12
ada recently conducted a major revision to its national accounts data, and as a result, the monthly real trade figures do not line up as well with quarterly net exports as they had previously. For example, the monthly real trade figures show that the real deficit widened slightly in 2Q while the revised national account figures show a slight narrowing. Meanwhile, the 3Q capex picture is getting gloomier. Canadian businesses import about 70% of their purchases of machinery and equipmentso these imports are a very useful leading indicator of business investment spending. Machinery and equipment imports fell 1.9%m/m in August on top of a 2.6%m/m drop in July. Thus far in 3Q, they are 0.5% below the 2Q average, pointing to weak business investment spending in 3Q.
39
Since Canada is a small, open economy, the terms of trade play an outsize role in the determination of domestic income. Changes in global commodity prices are a key factor behind changes in Canadas terms of trade. The recent pickup in global commodity prices is being reflected in an associated rise, albeit slight thus far, in the terms of trade. External headwinds are clearly blowing hardas reflected in the recent deterioration in export performance. The external sector will likely be a drag on overall growth in 3Q. This report continues to underscore the outsize role global events are playing in determining the near-term course for both the Canadian economy and Canadian policy. We continue to expect that external events will be the primary guide to the course of monetary policy over the near term. We still look for the next BoC rate action to be a hikebut not until July 2013. Next week sees the release of the Bank of Canadas quarterly Business Outlook Survey. This contains key gauges of business expectationsfor investment spending and employmentas well for inflation and measures of capacity utilization. The most recent couple of surveys have portrayed very strong capex and hiring intentions with capacity utilization above its long-term average. However, inflation expectations have remained anchored. With external headwinds now blowing harder than at the previous survey, it will be interesting to see how the business outlook has been affected.
Wholesale sales
Sa May Total, %m/m %oya 0.9 6.5 Jun -0.3 6.1 Jul -0.6 4.6 Aug 0.8 4.8
The headline CPI is expected to increase 0.3%m/m. Gasoline prices should push the index up again in September, as they did in August. In August, the CPI for gasoline was up 2.7%, turning up for the first time in four months. At a 1.3%oya expected pace in September, the headline rate will be below the BOC target midpoint (2%) for the fifth month in a row. Core inflation should remain tame at 1.5%oya, although a seasonal boost is expected from clothing and the education category.
Manufacturing report
%m/m sa, unless noted May Sales New orders Unfilled orders Inventories Inventory-shipments ratio 0.4 1.6 0.7 1.5 1.34 Jun -0.8 1.0 2.1 -1.8 1.32 Jul -1.5 -5.6 -1.2 1.0 1.36 Aug 1.2 1.2 -1.2 0.0 1.34
Manufacturing shipments are expected to recover robustly in August after two months of negative readings. Energy shipments should provide a large boost to the total. Sharp monthly decreases in energy shipments have held down total shipments since April, so a turnaround in that sector is overdue. Exports of energy products, already reported for August, were up 5.5% after six consecutive monthly declines. Crude petroleum exports were the standout increasing 9.1%, mostly due to higher prices. The auto sector is also expected to contribute to the August gain as production numbers were strong in the month. Offsetting some of the strength will be metal products. Prices in that sector were down in August and have been weak since March.
40
JPMorgan Chase Bank N.A, London Branch Allan Monks Malcolm Barr
United Kingdom
3Q GDP still tracking near 0.5%q/q sa, energy tariff increase will damp 4Q King allows for aiming off the inflation target, but doesnt show how Weale joins those likely not to vote for more QE in November The IP and manufacturing output numbers for August were significantly weaker than expected, leaving manufacturing output running at -2.8%3m/3m saar. After Julys post-bank holiday bounce, the ONS data had edged toward a flat sequential trend, while the business surveys had been flagging falling output. On that basis, the August data are not much of a surprise. For the purposes of the 3Q GDP preliminary estimate (due Oct 25), we assume that the ONS will pencil in flat manufacturing output in August and a small decline in overall IP. Oil and gas output has risen a cumulative 9% in the last three months, and we suspect September will see some payback. Given the step up in output in July, however, the main effect of the August IP data is not on the 3Q GDP estimate, but to create a more negative trajectory for the data looking into 4Q. It looks increasingly likely that the weakness in the underlying trend in output will demonstrate itself with the 4Q GDP data. A key question, however, is how the Olympics may affect the data on services output for 3Q. While the ONS has stated that it will treat ticket sales as household expenditure in 3Q, it has not been clear how this would be captured on the output side of the data, which drives the early estimates of GDP. The ONS has informed us that, within the Index of Services output, an adjustment to the data under the Arts, Entertainment, and Recreation heading will be made to reflect the Games. The size of this adjustment is near 600 million, or 0.16% on the quarterly change in GDP, and should lift output in the affected sector by just under 11% in the quarter. Near 10% of that adjustment was applied to the July data, and the rest will come over August and September. While the Olympics will act to push the estimate of 3Q GDP growth upward, it looks like construction output will offset that effect. After a small decline in August, construction output looks set to rise by close to 1.6%q/q nsa in 3Q. The seasonal adjustment the ONS makes to the data is somewhat variable, but our best guess is that will translate into a near 2% sa decline for 3Q. That would take nearly 0.14%-pt off the quarterly growth rate of GDP, a similar magnitude to the Olympics boost. If we put all of the data together, 3Q looks to be tracking a near 0.5%q/q sa gain, a gain that would be almost
2008
2009
2010
2011
2012
2013
oya
3m/3m
2011
2012
2013
entirely attributable to the normalization in working days after a bank holiday affected 2Q.
49
JPMorgan Chase Bank N.A, London Branch Allan Monks Malcolm Barr
next weeks September CPI release and as other energy suppliers respond to the move by British Gas. Our CPI projection had assumed the bulk of the energy price impact would come in October, lifting the headline CPI inflation rate from what is likely to be a local low point in September at 2.2%oya (the September data are due on Tuesday). The British Gas move suggests that, relative to our prior forecast of a bounce to 2.6% in October, the move back up will be a bit more muted in the month. But the view that the CPI will move up to run close to or slightly above 2.5%oya as we move through year-end still looks about right. The increase in energy tariffs will lift the sequential rate of inflation above that in underlying nominal incomes, and mean that the putative recovery in real income growth receives another short-term knock. Our utilities team has been flagging to us the likelihood of these increases in tariffs for some time, and it has been one of the reasons why we have forecast that 4Q GDP growth will not show much acceleration from the pace underlying the noisy 2Q and 3Q prints.
weaker growth) it is prepared to tolerate in the near term to deliver greater financial stability? These questions will be made more complicated in the future by the interaction of monetary policy with macroprudential tools. Kings speech added very little on these key issues other than calling for more research. Some have interpreted Kings speech as a suggestion that the MPC is currently (and has recently been) aiming off by seeking higher-than-target inflation in the medium term. We would agree that the MPC has become more tolerant of realized inflation overshoots, and of upside risk in its mediumterm inflation forecast, through the crisis. But it is more difficult to demonstrate conclusively that the mean of the MPCs medium-term inflation objective has shifted, and that the MPCs shift in responses does not simply reflect the greater volatility of the economic environment. We very much doubt that MPC members would agree that they are aiming off the target currently.
JPMorgan Chase Bank N.A, London Branch Allan Monks Malcolm Barr
Retail prices
%oya CPI Core CPI1 RPI (1987=100) RPI RPIX Jun 2.4 2.1 241.8 2.8 2.8 Jul 2.6 2.3 242.1 3.2 3.2 Aug 2.5 2.1 243.0 2.9 2.9 Sep 2.2 2.1 244.4 2.7 2.7
May Average weekly earnings (3mma %oya sa) Headline 1.7 Ex bonuses 1.8 Private sector ex bonuses 2.1 Three months to: May Labor force survey (all percentage rates, sa) Activity rate 63.3 Employment rate 58.2 Unemployment rate 8.1 May Change over three months Employment (000s) 168.0
Aug
Headline inflation is likely to fall sharply as increases in utility bills a year ago drop out of the calculation. Utility bill increases will, however, push inflation back upward over the coming months. On the core inflation number, the forecast allows for a bounce back in core goods prices in sequential terms after some unusually deep discounting through the summer.
Tue Oct 16 9:30am
Business survey data suggest the recent strength in employment growth will not be sustained, but nothing within the labor market data itself has sent a clear signal that a slowdown is in prospect. The forecast hence shows a further decline in the claimant count measure of unemployment, but a more modest one than over July-August. Retail sales
Volumes, sa Including auto fuel (%m/m) Ex auto fuel (%m/m) Ex auto fuel (%oya) Ex auto fuel (%3m/3m saar) Jun 0.6 1.0 3.1 1.6 Jul 0.2 -0.1 2.7 4.8 Aug -0.2 -0.2 3.1 4.2 Sep -0.2
Producer prices
Nsa Input prices (%m/m nsa) %oya nsa Output prices (%m/m nsa) %oya nsa Core output1(%m/m nsa) %oya nsa Jun -2.2 -2.2 -0.6 2.0 -0.2 1.7 Jul 0.4 -2.4 0.1 1.8 -0.1 1.2 Aug 2.0 1.4 0.5 2.2 0.1 1.2 Sep
Increases in retail sales over May and June took the level of sales volumes up significantly, and that level has been largely sustained through the last couple of releases. Although the trend in retail sales is toward modest gains, we suspect there is still scope for some payback of the recent gains. Public sector finances
bn, nsa PSNCR PSNB PSNB (ex. fin. int.) Current budget (ex. fin. int.) Net debt to GDP (%) Net debt to GDP (%) ex fin it. Jun -0.8 12.5 14.5 -13.1 135.8 65.9 Jul -25.0 -1.9 0.1 1.5 136.0 65.6 Aug -9.6 12.4 14.4 -11.7 136.0 66.1 Sep
13.9
The forecast would leave the deficit on track to record a full year outturn near 130 billion, around 10 billion higher than projected by the OBR.
51
JPMorgan Chase Bank N.A, London Branch Allan Monks Malcolm Barr
Industrial production
Sa IP (%m/m) %oya Manufacturing(%m/m) %oya Jun -2.4 -3.8 -2.9 -3.9 Jul 2.9 -0.8 3.2 -0.6 Aug -0.3 -0.9 -0.3 -0.3 -0.5 -1.1 -1.1 -1.2
3.1 -0.7
Trade balance
bn, sa Jun Trade balance Goods Services Total trade balance -10.1 5.7 -4.3 Jul -7.1 5.6 -1.5 -7.3 -1.7 Aug -9.8 5.7 -4.2
6.2 -3.9
Construction output
Nsa, constant prices % m/m Jun -3.5 -3.3 Jul 2.2 Aug 2.1 -0.9
Average per surveyor, both scales, sa 100 Sales 90 80 70 Stocks 60 50 2008 2009 2010 2011 2012 2013
Tom Kennedy
Australia: employment
000s 8500 Full time 000s 3500 3300 3100 7500 Part time 7000 05 06 07 08 09 10 11 12 13 2900 2700
8000
rates. We were of a similar view, but to hear the Deputy Governor say it, after a long period of emphasizing the stability of the unemployment rate in the low 5s, helps explain the Boards about-face. For that reason, the October minutes will add less value than they would have before Deputy Governor Lowes speech, though it will still be interesting to see whether there are broader echoes of a more dovish approach to policy, as hinted in last weeks decision, and in Lowes speech. Recent commentary has left us with the impression that the Board now is more inclined to focus on stimulating non-mining investment, which will require further policy easing given the still-limited transmission of low rates to credit growth so far. Also, on the global front, mention of the shift in the reaction functions of the Fed and the ECB was conspicuous in its absence in the official rate decision: the minutes may shed light on whether the Board felt the case for policy easing was strengthened on the grounds of treading water relative to the major central banks. Of course, such a motivation would be further strengthened given the perceived spillovers from excess liquidity provision by the G-4 to AUD.
Tom Kennedy
ways a degree of structural change occurring, there is some evidence that the changes taking place have led to a higher rate of job turnover than has been the case. Whether measured by time in ones current job, the persistently high level of vacancies (which hints at a persistent level of latent demand for labor that is unsatisfied for frictional reasons), or by looking at the dispersion of employment growth across industries, the structural changes the economy has undergone in recent years appear significant. That heightened state of adjustment has led to a general sense of uncertainty, such that consumers have become quite concerned about rising unemployment. This is all despite the fact that the labor market clearing mechanism appears more efficient now than ever: both the average level and variation of unemployment by region are lower now than 10 years ago. Lowe puts some of this down to increased geographic mobilitythe willingness of workers to pursue fly in/fly out opportunities in the resources sector, for example. But the most important points made were those that clarify the RBA Boards about-face last week. The persistently low unemployment rate has been an anchor for policy through the last couple of years and has made the Bank reluctant to cut rates without a clear signal from the inflation data. That changed last week, and the Recent Outcomes section of Lowes speech makes clear why. The fact that aggregate labor demand has slowed is not controversial. Indeed, the Deputy Governor makes this clear in reference to the decline in average hours worked and the employment to population ratio. The unemployment rate has only stayed low because of a fall in participation. In our investigations on this, we concluded that falling participation could not be explained by any clear, sustainable driver that related to a genuine fall in the pool of potential labor, a view that is supported by Lowe.
heads added to the labor force. The unemployment rate pushed higher from 5.1% to 5.4%. Consolidating the argument that the rise in the jobless rate reflects a realignment with fundamentals rather than being news about the state of the labor market, employment growth actually beat expectations in September (J.P. Morgan and consensus: +5,000), and the other measures of labor utilization firmed a little, too. Total hours worked jumped 0.5%m/m, and average hours per worker rose 0.3%m/m. The employment to population ratio held steady at its cycle low of 61.68%. The implications of the September data are colored by the clear shift in perspective from the Reserve Bank over the last couple of weeks. Both last weeks Board decision to cut rates 25bp, and Deputy Governor Lowes speech earlier this week showed officials no longer clinging as tightly to the jobless rate as the best single measure of inflation pressure. Both pieces of commentary made it clear that the Board had seen enough weakness on the demand side to conclude that the labor market had lost momentum, and, in that sense, it may not have mattered whether we got the final catharsis of a rise in the jobless rate.
58
Tom Kennedy
-5
Tom Kennedy
picking up. This in part reflects the better outcomes for global dairy prices of late, which is significant for exporters of milk powder.
Housing finance
Sa May %m/m -0.6 Jun 1.0 Jul -1.0 Aug 2.5
Consumer prices
4Q11 %q/q %oya -0.3 1.8 1Q12 0.5 1.6 2Q12 0.3 1.0 3Q12 0.4 0.9
60
US economic calendar
Monday 15 Oct
Retail sales (8:30am) Sep 1.0% Ex auto 0.9% Empire State survey (8:30am) Oct -6.0 Business inventories (10:00am) Aug 0.6%
New York Fed President Dudley speaks in New York (8:00am) Richmond Fed President Lacker speaks on economy in Virginia (12:45pm) St. Louis Fed President Bullard speaks on economy in St. Louis (1:10pm) San Francisco Fed President Williams speaks on economy in San Francisco (8:30pm)
Tuesday 16 Oct
CPI (8:30am) Sep 0.5% Core 0.13% TIC data (9:00am) Aug Industrial production (9:15am) Sep 0.2% Manufacturing -0.1% Capacity utilization 78.2% NAHB survey (10:00am) Oct 42
Fed Governor Raskin speaks on regulation in Boston (12:00pm) Atlanta Fed President Lockhart speaks in Atlanta (12:00pm)
Wednesday 17 Oct
Housing starts (8:30am) Sep 750,000 Permits 820,000
Thursday 18 Oct
Initial claims (8:30am) w/e prior Sat 365,000 Philadelphia Fed survey (10:00am) Oct 1.0 Leading indicators (10:00am) Sep
Auction 30-year TIPS (r) $7 bn Announce 2-year note $35 bn Announce 5-year note $35 bn Announce 7-year note $29 bn
Friday 19 Oct
Existing home sales (10:00am) Sep 4.65 mn
22 Oct
23 Oct
Richmond Fed survey (10:00am) Oct FOMC meeting
Auction 2-year note $35 bn
24 Oct
Manufacturing PMI (8:58am) Oct flash New home sales (10:00am) Sep FHFA HPI (10:00am) Aug FOMC statement (12:30pm), projections (2:00pm), and press conference (2:30pm)
Auction 5-year note $35 bn
25 Oct
Initial claims (8:30am) w/e prior Sat Durable goods (8:30am) Sep Pending home sales (10:00am) Sep KC Fed survey (11:00am) Oct
Auction 7-year note $29 bn
26 Oct
Real GDP (8:30am) 3Q advance Consumer sentiment (9:55am) Oct final
29 Oct
Personal income (8:30am) Sep Dallas Fed survey (10:30am) Oct Senior loan officer survey (2:00pm) 4Q
30 Oct
S&P/Case-Shiller HPI (9:00am) Aug Consumer confidence (10:00am) Oct Housing vacancies (10:00am) 3Q
Minneapolis Fed President Kocherlakota speaks in Minnesota (8:00pm)
31 Oct
ADP employment (8:15am) Oct Employment cost index (8:30am) 3Q Chicago PMI (9:45am) Oct
Announce 3-year note $32 bn Announce 10-year note $24 bn Announce 30-year bond $16 bn San Francisco Fed President Williams speaks on monetary policy in New York (12:45pm)
1 Nov
Initial claims (8:30am) w/e prior Sat Productivity and costs (8:30am) 3Q preliminary Manufacturing PMI (8:58am) Oct final ISM manufacturing (10:00am) Oct Construction spending (10:00am) Sep Light vehicle sales Oct
2 Nov
Employment (8:30am) Oct Factory orders (10:00am) Sep
5 Nov
ISM nonmanufacturing (10:00am) Oct
6 Nov
JOLTS (10:00am) Sep
Auction 3-year note $32 bn
7 Nov
Consumer credit (3:00pm) Sep
Auction 10-year note $24 bn
8 Nov
Initial claims (8:30am) w/e prior Sat International trade (8:30am) Sep Chain store sales Oct
Auction 30-year bond $16 bn
9 Nov
Import prices (8:30am) Oct Consumer sentiment (9:55am) Nov preliminary Wholesale trade (10:00am) Sep
72
Tuesday 17 Oct
Wednesday 18 Oct
Thursday 19 Oct
Friday
Belgium: BNB cons. conf. (3:00pm) Oct Netherlands: CBS cons. conf. (9:30am) Oct
22 Oct
23 Oct
Euro area: EC cons conf prelim (4:00pm) Oct France: INSEE bus. conf. (8:45am) Oct Belgium: BNB bus. conf. (3:00pm) Oct
24 Oct
Euro area: PMI flash (10:00am) Oct Mfg, services, composite Germany: PMI flash (9:30am) Oct Mfg, services, composite Import prices (8:00am) Sep France: PMI flash (8:45am) Oct Mfg, services, composite Italy: ISAE cons. conf. (10:00am) Oct
25 Oct
Euro area: M3 (10:00am) Sep Italy: Contractual wages (10:00am) Sep Netherlands: CBS bus. conf. (9:30am) Oct
26 Oct
Germany: GFK cons. conf. (8:00am) Nov France: INSEE cons. conf. (8:45am) Oct Italy: ISAE bus. conf. (10:00am) Oct
29 Oct
Germany: CPI 6 states and prelim (8:00am) Oct
30 Oct
Euro area: EC capacity utilization (11:00am) 4Q EC bus. conf. (11:00am) Oct EC cons. conf. (11:00am) Oct Sector accounts (10:00am) 2Q Germany: Retail sales (8:00am) Sep Spain: HICP flash (8:00am) Oct GDP flash (9:00am) 3Q Belgium: CPI (11:15am) Oct
31 Oct
Euro area: HICP flash (11:00am) Oct Unemployment rate (11:00am) Sep ECB bank lending survey (10:00am) Oct Germany: Employment (9:55am) Sep Unemployment (9:55am) Oct France: PPI (8:45am) Sep Cons. of mfg goods (8:45am) Sep Italy: CPI prelim (11:00am) Oct PPI (12:00pm) Sep
1 Nov
2 Nov
Euro area: PMI Mfg final (10:00am) Oct Germany: PMI Mfg final (9:55am) Oct France: PMI Mfg final (9:50am) Oct Italy: PMI Mfg final (9:45am) Oct Spain: PMI Mfg final (9:15am) Oct
5 Nov
6 Nov
Euro area: PMI services & composite final (10:00am) Oct PPI (11:00am) Sep Germany: PMI services & composite final (9:55am) Oct Mfg orders (12:00pm) Sep France: PMI services & composite final (9:50am) Oct Italy: PMI services & composite final (9:45am) Oct Spain: PMI services & composite final (9:15) Oct
7 Nov
Euro area: Retail sales (11:00am) Sep Germany: Industrial production (12:00pm) Sep
8 Nov
Euro area: ECB rate announcement (1:45pm) No change expected Germany: Foreign trade (8:00am) Sep France: Trade balance (8:45am) Sep Netherlands: CPI (9:30am) Sep
9 Nov
Germany: CPI final (8:00am) Oct France: Industrial production (8:45am) Sep Monthly budget situation (8:45am) Oct Italy: Industrial production (10:00am) Sep
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
73
Wednesday 18 Oct
Thursday 19 Oct
Friday
All sector activity index (1:30 pm) Aug BoJ Governor Shirakawas address at meeting of credit unions (3:45 pm) Auction 3-month bill Auction 20-year bond
22 Oct
Reuters Tankan (8:30 am) Oct Trade balance (8:50 am) Sep BoJ bank loan officers survey (8:50 am)3Q Nationwide department store sales (2:30 pm) Sep BoJ Governor Shirakawas address at branch managers meeting
23 Oct
24 Oct
25 Oct
Corporate service prices (8:50 am) Sep
26 Oct
Nationwide core CPI (8:30 am) Sep
29 Oct
Total retail sales (8:50 am) Sep
30 Oct
All household spending (8:30 am) Sep Unemployment rate (8:30 am) Sep Job offers to applicants ratio (8:30 am) Sep IP preliminary (8:50 am) Sep BoJ Monetary Policy Meeting and statement BoJ outlook report (3:00pm) BoJ Governor Shirakawas press conference (3:30 pm)
31 Oct
PMI manufacturing (8:15 am) Oct Nominal wages (10:30 am) Sep Housing starts (2:00 pm) Sep
1 Nov
Auto registrations (2:00 pm) Oct
2 Nov
Minutes of Oct 4-5 BoJ Monetary Policy Meeting (8:50 am)
5 Nov
PMI services/composite (8:15 am) Oct
6 Nov
7 Nov
8 Nov
Current account (8:50 am) Sep Bank lending (8:50 am) Oct Machinery orders (8:50 am) Sep Economy Watchers survey (2:00 pm) Oct
9 Nov
M2 (8:50 am) Oct Consumer sentiment (2:00 pm) Oct
Auction 6-month bill During the week: CAO private consumption index Sep
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
74
Tuesday 16 Oct
Manufacturing sales (8:30am) Aug 1.2%
Wednesday 17 Oct
Nonresidential construction (8:30am) 3Q
Thursday 18 Oct
Wholesale sales (8:30am) Aug 0.8%
Friday 19 Oct
CPI (8:30am) Sep 0.3% (1.3%oya) Core 0.4% (1.5%oya)
22 Oct
23 Oct
Retail sales (8:30am) Aug Bank of Canada rate announcement (9:00am)
24 Oct
Monetary Policy Report (10:30am) Teranet/National Bank HP Index (9:00am) Sep
25 Oct
Payroll employment (8:30am) Aug
26 Oct
29 Oct
30 Oct
IPPI (8:30am) Sep
31 Oct
Monthly GDP (8:30am) Aug
1 Nov
RBC manufacturing PMI (9:30am) Oct
2 Nov
Labor force survey (8:30am) Oct
5 Nov
Building permits (8:30am) Sep
6 Nov
Ivey PMI (10:00am) Oct
7 Nov
CFIB Business Barometer Index (6:00am) Oct
8 Nov
Housing starts (8:15am) Oct International trade (8:30am) Sep New housing price index (8:30am) Sep
9 Nov
All existing home sales are tentative. Times shown are local.
75
Tuesday 16 Oct
Brazil: FGV: IPC-S Oct 15 Mexico: Central bank reserves (Prior week)
Wednesday 17 Oct
Brazil: IGP-10 Oct 0.63%m/m nsa Fipe CPI Oct 15 Colombia: Trade balance Aug
Thursday 18 Oct
Brazil: COPOM meeting minutes Chile: BCCh meeting Colombia: Retail sales Aug -0.1%oya IP Aug -3.5%oya
Friday 19 Oct
Argentina: Economic activity Aug Brazil: IPCA-15 Oct 0.61%m/m nsa IGP-M 2st release Oct Mexico: Unemployment rate Sep 5.2%
Brazil: Tax collections Sep CAGED formal job creation Aug Colombia: Tax revenues Aug Mexico: Pension funds report Sep
22 Oct
Mexico: Retail sales Aug Banamex survey of economic expectations
23 Oct
Argentina: Trade balance Sep Brazil: FGV: IPC-S Oct 22 Current account balance Sep FDI Sep Mexico: Central bank reserves (Prior week)
24 Oct
Mexico: IGAE (GDP proxy) Aug CPI Oct 1H
25 Oct
Argentina: IP Sep Brazil: Consumer confidence Oct Unemployment rate Sep Mexico: Trade balance Sep
26 Oct
Brazil: BCB credit report Sep Colombia: Banrep meeting Mexico: Banxico meeting
29 Oct
Brazil: Central government budget Sep
30 Oct
Brazil: IGP-M Oct Primary budget balance Sep Net debt as % of GDP Sep Chile: Retail sales Sep Manufacturing index Sep Mexico: Central bank reserves (Prior week) PS budget balance Sep
31 Oct
Chile: Unemployment rate Sep Colombia: Unemployment rate Sep Mexico: Commercial bank credit Sep
1 Nov
Brazil: FGV: IPC-S Oct 31 IP Sep PMI Manufacturing Oct Trade balance Oct Mexico: Banxico survey of economic expectations Remittances Sep Manufacturing PMI (IMEF) Oct Non-manufacturing PMI (IMEF) Oct Peru: CPI Oct WPI Oct Uruguay: CPI Oct Trade balance
2 Nov
Colombia: PPI Oct
5 Nov
Brazil: Fipe CPI Oct Mexico: Consumer confidence Oct
6 Nov
Brazil: PMI Services Oct Mexico: Central bank reserves (Prior week) Uruguay: Unemployment rate Sep
7 Nov
Brazil: IGP-DI Oct IPCA Oct Mexico: Gross fixed investment Aug Inflation report 3Q
8 Nov
Brazil: FGV: IPC-S Nov 7 Peru: BCRP meeting Mexico: CPI Oct
9 Nov
Brazil: IGP-M 1st release Nov Colombia: Banrep meeting minutes Mexico: Banxico meeting minutes Employment report 3Q
During the week: Argentina: Tax revenues Oct Brazil: Commodity price index Oct Vehicle production (ANFAVEA) Oct Colombia: Tax revenues Sep Auto sales Oct Mexico: Auto report Oct
76
JPMorgan Chase Bank N.A, London Branch Malcolm Barr Allan Monks
UK economic calendar
Monday 15 Oct
Rightmove HPI (12:01am) Oct
Tuesday 16 Oct
CPI (9:30am) Sep 2.2%oya ONS HPI (9:30am) Aug PPI (9:30am) Sep
Wednesday 17 Oct
MPC minutes (9:30am) Labor market report (9:30am) Sep Claimant count 12.0k,ch,m/m,sa
Thursday 18 Oct
Retail sales (9:30am) Sep -0.2%m/m (ex. auto fuel)
Friday 19 Oct
Public sector finances (9:30am) Sep 13.9bn, nsa (PSNB ex. fin. int.)
22 Oct
23 Oct
BBA mortgage lending (9:30am) Sep
24 Oct
CBI industrial trends (11:00am) Oct and 4Q
25 Oct
Real GDP (9:30am) 3Q Index of services (9:30am) Aug
26 Oct
29 Oct
M4 & M4 lending final (8:30am) Sep Net lending to individuals (9:30am) Sep
30 Oct
CBI distributive trades (11:00am) Oct
31 Oct
Gfk cons. conf. (12:01am) Oct
1 Nov
PMI Mfg (9:30am) Oct
2 Nov
PMI Construction (8:30am) Oct
5 Nov
PMI Services (9:30am) Oct
6 Nov
New car regs (9:30am) Oct BRC retail sales monitor (12:01am) Oct Industrial production (9:30am) Sep
7 Nov
8 Nov
Markit jobs report (12:01am) Oct Trade balance (9:30am) Sep MPC rate announcement & Asset purchase target (12:00pm) No change expected
9 Nov
Construction output (9:30am) Sep and 3Q Quoted mortgage interest rates (9:30am) Oct
77
Tuesday 16 Oct
Poland: Average gross wages 2:00pm) Sep 2.5%oya Employment (2:00pm) Sep 0.0%oya Russia: Retail sales Sep 4.1%oya, Unemployment Sep 5.4% Investment Sep 2%oya Turkey: Consumer confidence (10:00am) Sep Israel: GDP final 2Q
Wednesday 17 Oct
Poland: PPI (2:00pm) Sep 1.7%oya Industrial output (2:00pm) Sep -4.5%oya South Africa: Retail sales (1:00pm) Aug
Thursday 18 Oct
Hungary: Average gross wages (9:00am) Aug Turkey: CBRT rate decision (2:00pm) 100bp cut in the upper band
Friday 19 Oct
22 Oct
Poland: Core inflation (2:00pm) Sep
23 Oct
Poland: Unemployment (10:00am) Sep Retail sales (10:00am) Sep Turkey: Capacity use (2:30pm) Oct 74.6% Holiday: Hungary
24 Oct
South Africa: CPI (10:00am) Sep
25 Oct
Hungary: Retail sales (9:00am) Aug South Africa: PPI (11:30am) Sep Holiday: Turkey
26 Oct
Holiday: Turkey
29 Oct
South Africa: Private sector credit (8:00am) Sep Israel: BoI rate decision (5:30pm) no change
30 Oct
Hungary: Unemployment (9:00am) Sep NBH rate decision (2:00pm) South Africa: Budget (2:00pm) Sep
31 Oct
Hungary: PPI (9:00am) Sep Poland: NBP inflation expectations (2:00pm) Oct Turkey: Foreign trade (10:00am) Sep South Africa: Trade balance (2:00pm) Sep
1 Nov
Czech Republic: PMI (9:30am) Oct CNB rate decision (1:00pm) Russia: Manufacturing PMI (8:00am) Oct South Africa: Kagiso PMI (11:00am) Oct Turkey: PMI (10:00am) Oct Holiday: Hungary, Poland
2 Nov
Hungary: PMI (9:00am) Oct Poland: PMI (9:00am) Oct Romania: PPI (10:00am) Sep NBR rate decision
Holiday: Turkey
Holiday: Hungary
During the week: Russia: CBR rate decision (1-9 Nov) South Africa: Quarterly labor force survey 3Q (1-4 Nov)
5 Nov
Czech Republic: Retail sales (9:00am) Sep Romania: Retail sales (10:00am) Sep Turkey: CPI (10:00am) Oct PPI (10:00am) Oct Holiday: Russia
6 Nov
Czech Republic: Industrial output (9:00am) Sep Trade balance (9:00am) Sep Russia: CPI Oct
7 Nov
Hungary: Budget balance (4:00pm) Oct Poland: NBP rate decision 25bp cut South Africa: Gross reserves (8:00am) Oct
8 Nov
Czech Republic: Unemployment (9:00am) Oct Hungary: Trade balance (9:00am) Sep Turkey: Industrial output (10:00am) Sep
9 Nov
Czech Republic: CPI (9:00am) Oct Hungary: Industrial output (9:00am) Sep Romania: Industrial output (10:00am) Sep Trade balance (10:00am) Sep Russia: Foreign trade Sep
During the week: South Africa: Manufacturing output (5-9 Nov) Times shown are local. 78
Tuesday 16 Oct
New Zealand: CPI (8:45am) 3Q 0.9%oya
Wednesday 17 Oct
Malaysia: CPI (5:00pm) Sep 1.4%oya Singapore: NODX (8:30am) Sep US$12.2bn Thailand: BoT monetary policy meeting (2:30pm) No change
Thursday 18 Oct
China: GDP (10:00am) 3Q 7.4%oya FAI (10:00am) Sep 20.0%oya, ytd IP (10:00am) Sep 9.0%oya Retail sales (10:00am) Sep 12.5%oya Hong Kong: Unemployment rate (4:30pm) Sep 3.3%, sa
Friday 19 Oct
Taiwan: Export orders (4:00pm) Sep 1.7%oya
22 Oct
Hong Kong: CPI (4:30pm) Sep Taiwan: Unemployment rate (8:30am) Sep
23 Oct
Singapore: CPI (1:00pm) Sep Taiwan: IP (4:00pm) Sep
24 Oct
Australia: CPI (11:30am) 3Q China: Flash PMI (10:30am) Oct Vietnam: CPI Oct Holiday: India
25 Oct
New Zealand: RBNZ rate announcement(9:00am) Hong Kong: Trade balance (4:30pm) Sep Philippines: BSP monetary policy mtg.(4:00pm) Imports (9:00am) Aug Singapore: IP (1:00pm) Sep
26 Oct
New Zealand: Trade balance (10:45am) Sep Korea: GDP prelim (8:00am) 3Q Consumer survey (6:00am) Oct Taiwan: Leading index (4:00pm) Sep Holiday: Indonesia, Malaysia, Philippines, Singapore
Holiday: Hong Kong, Thailand Philippines: Budget balance Sep (22-26 Oct)
29 Oct
30 Oct
India: RBI monetary policy meeting (11:00am) Korea: Current account balance (8:00am) Sep
31 Oct
Australia: Pvt. sector credit (11:30am) Sep Building approvals (11:30am) Aug New Zealand: NBNZ business confidence (1:00pm) Oct Building permits (10:45am) Sep Korea: IP (8:00am) Sep Taiwan: GDP prelim (8:30am) 3Q Thailand: PPC, PII (2:30pm) Sep Trade balance (2:30pm) Sep
1 Nov
China: PMI mfg. (NBS) (9:00am) Oct PMI mfg. (Markit) (9:45am) Oct Hong Kong: Retail sales (4:30pm) Sep India: Trade balance (11:00am) Sep PMI mfg. (10:30am) Oct Indonesia: CPI (11:00am) Oct Trade balance (11:00am) Sep Korea: Trade balance (9:00am) Oct CPI, PMI mfg (8:00am) Oct Taiwan: PMI mfg. (10:00am) Oct Thailand: CPI (11:00am) Oct Holiday: Philippines
2 Nov
Australia: PPI (11:30am) 3Q New Zealand: ANZ commodity price (1:00pm) Oct
Holiday: Philippines
5 Nov
Australia: Trade balance (11:30am) Sep Retail sales (11:30am) Sep Singapore: PMI (9:30pm) Oct Taiwan: CPI (8:30am) Oct During the week:
6 Nov
Australia: RBA rate announcement (2:30pm) Philippines: CPI (9:00am) Oct
7 Nov
8 Nov
Indonesia: BI monetary policy meeting Malaysia: IP (12:00pm) Sep BNM monetary policy mtg. Taiwan: Trade balance (4:00pm) Oct
9 Nov
China: CPI, PPI (9:30am) Oct FAI, IP, Retail sales (1:30pm) Oct Korea: BoK monetary policy mtg.(9:00am) Malaysia: Trade balance (12:00pm) Sep
Monday 15 October
China CPI (Sep) India WPI (Sep) Russia IP (Sep) United States Retail sales (Sep) NY Fed survey (Oct) Busnss inventories (Aug)
Tuesday 16 October
Euro area HICP final (Sep) Russia Retail sales (Sep) United Kingdom CPI (Sep) United States CPI (Sep) IP (Sep) NAHB survey (Oct)
Wednesday 17 October
Poland IP (Sep) Singapore NODX (Sep) Thailand BoT mtg: no chg United Kingdom Labor market report (Sep) MPC minutes (Oct) United States Housing starts (Sep)
Thursday 18 October
Brazil COPOM mtg mins (Oct) China FAI (Sep) IP (Sep) Retail sales (Sep) GDP (3Q) Chile BCCh mtg: no chg Turkey CBRT mtg United Kingdom Retail sales (Sep) United States Philly Fed survey (Oct)
Friday 19 October
Canada CPI (Sep) Japan Shirakawa speech Taiwan Export orders (Sep) United States Existing home sales (Sep)
* published October 13
20 26 October
22 October
23 October
Canada BoC mtg: no chg Euro area EC cons conf plm (Oct) France INSEE bus conf (Oct) Taiwan IP (Sep)
24 October
Australia CPI (3Q) China Markit mfg PMI flash (Oct) Euro area Flash PMI (Oct) Italy ISAE cons conf (Oct) United States Flash mfg PMI (Oct) New home sales (Sep) FOMC mtg: no chg Bernanke press conf
25 October
Euro area M3 (Sep) Hong Kong Trade report (Sep) New Zealand RBNZ mtg: no chg Philippines BSP mtg: no chg Singapore IP (Sep) United Kingdom GDP (3Q) United States Durable goods (Sep) Pending home sales (Sep)
26 October
Brazil BCB credit report (Sep) Colombia BanRep mtg: no chg France INSEE bus conf (Oct) Germany GFK cons conf (Nov) Italy ISAE bus conf (Oct) Japan CPI (Sep) Korea GDP (3Q) Mexico Banxico mtg: no chg United States GDP (3Q) UMich cons sent fnl (Oct)
Japan Japan Shoko Chukin survey (Oct) Reuters Tankan (Oct) Trade report (Sep) BoJ loan officer surv (3Q) Shirakawa speech
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