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DE | Weekly | Global Markets | Answers to Growth Questions Delayed

Posted February 8, 2019 by rvillareal

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Answers to Growth Questions Delayed

A revised Q4 GDP figure in the Eurozone this week will join releases in Japan and the U.K., rounding out global growth tracking for Q4, save for the notably still-absent U.S. figure (due Feb 28). It’s well-established that the ex-U.S. environment has been marked by clear slowdown from a rapid pace of expansion in late-2017 and 2018—the heatmap below of global manufacturing PMI data give a visual representation of the hesitation, and no clear sign of bottoming.

Eurozone GDP growth slowed from 2.8% y/y in late-2017 to 1.2% y/y in the advance estimate for Q4, while Japanese growth last posted 0.0% y/y in the third quarter after 2%-plus in Q4 2017.

Deceleration in Europe and Japan does follow above-trend growth in both regions, with estimates of “potential growth” slower in both regions than in the U.S.; roughly 1.5% in the former, and 0.5% in the latter. The nagging sense is of course that growth “should” be better given zero and negative policy rates.

The answer to why it’s not to us still rests with a confluence of likely-transitory factors that built in recent quarters, including Italian fiscal drama, French protests, German auto and trade weakness, Brexit haggling, and Chinese slowdown plus the trade war, coupled with the lagged effects of Fed tightening.

While the headwind from monetary policy is now decidedly absent at the Fed and elsewhere, there is still plenty of uncertainty on the China front. The data flow is limited given the lunar new year, and early-year data are notoriously volatile. As we suspected last week, this week brought news that Trump and Xi will not be meeting in coming weeks, which boosts the odds that a tariff ratchet due March 1st will be delayed. Investors will need to get comfortable with operating in a fog of risk, and opportunity, for several more months.

Coming Week’s Key Indicators and Events

  Release DE / Consensus Comment
U.S. Jan CPI (We)

Ex-food/energy

Dec Retail (Th)

Ex-autos

UMich Sentiment

0.0% / 0.1% m/m

0.2% / 0.2% m/m

0.1% / 0.1%

unch / unch

Activity data holding up to start Q1, recession risks remain low.

Weak nominal result a function of soft price inflation, better ex-autos and gas.

Confidence key post-shutdown.

Euro Q4 GDP (Th)

(Germany)

0.2% / 0.2% q/q

0.1% / 0.2% q/q

Revision includes initial German estimate after Q3 contraction.
U.K. Q4 GDP (Mo)

Jan CPI (We)

0.3% / 0.3% q/q

2.0% / 2.0% y/y

Rebound rests on avoiding cliff-edge Brexit.
Japan Q4 GDP (Th) 0.2% / 0.3% q/q

 

Disappointing end to the year, economy posted 0% y/y growth in Q3.
China M2/Loans (TBD)

Jan Trade (Fr)

Jan CPI (Fr)

Jan PPI (Fr)

 

$40B / $32B

1.8% /

0.6% /

Range of second-tier indicators, prices continue along a softer path, New Year contributes. Trade talks important, but won’t be resolved soon.