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DE | Weekly | Global Markets | More Global Growth Updates This Week – 4/12/19
More Global Growth Updates This Week
In a cheekily positive sign for the global economy, the IMF last week downgraded its economic growth forecasts. With expectations subdued and skepticism about the length of various global expansions still with us, the coming week will bring key updates on global momentum: a higher cadence for corporate earnings reports in the U.S. after a good start Friday, a U.S. retail sales update, Markit PMI data in the Eurozone, and first quarter real GDP growth in China. All will be important after a range of better activity indicators started to appear at quarter-end.
Turning the corner on growth slowdowns, while keeping inflation pressures subdued will determine whether equity market performance is as smooth ahead as behind. While above-2% inflation is no longer likely to prompt a quick Fed response, we haven’t yet seen the central bank break its old habit of treating the 2% inflation target as a ceiling.
Expectations are sufficiently subdued for Q1 S&P 500 earnings results, and it will be important to not get caught up in decelerating y/y rates of growth. A sharp move lower in Q1 has been baked into the cake ever since tax cuts and a confluence of tailwinds juiced growth in early 2018—the key will be run rates as the year goes on, along with guidance and corporate commentary. Taking into account the usual surprise pattern, consensus estimates for a 4% y/y decline are generally consistent with a flat outturn after 14.5% y/y in Q4. DE sees the potential for eking out a 2-3% y/y result for Q1.
The Markit PMIs have continued to show greater weakness in manufacturing than services in Europe and elsewhere, with clear downshifts toward slow growth or contraction in many regions. Data through March show sub-50 readings prevailing across the core of Europe, most of Asia, and China too until a bounce in March. Services PMIs rebounded firmly in the Eurozone in February and March.
Finally in China, first quarter GDP growth may begin to show signs of bottoming after posting 6.4% y/y in Q4, with DE favoring a slight further slide. Stimulus to counteract trade drag has been a key driver of local market gains in 2019, and the real estate market is gaining too. There, several waves of liquidity infusions have meant swings between overheating and malaise over the last ten years, now transitioning back into upswing. Better retail sales growth may come this week here too.
Coming Week’s Key Indicators and Events
|Release||DE / Consensus||Comment|
|U.S.||Mar Retail (Th) Ex Autos||1.3% / 0.9% 1.1% / 0.7%||Vehicles and gasoline prices help stronger quarter-end consumer performance. Housing starts and the NAHB Survey are due as well.|
|Euro||Apr Mfg PMI (Th) Apr Svc PMI (Th)||+0.7 to 48.2 / +0.5 –0.3 to 53.0 / -0.2||Good news was better services momentum in March.|
|U.K.||Feb Unemp (Tu) Mar CPI (We) Mar Retail (Th)||4.0% / 4.0% 1.9% / 2.0% y/y -0.2%/-0.4% m/m||With lengthy Brexit extension ahead, attention turns to data that keep BoE bias toward hike.|
|Japan||Mar CPI (We)||0.4% / 0.5% y/y||Rebound in headline on energy prices, ex-food-and-energy stable around 0.4% y/y. Still soft.|
|China||Q1 GDP (We) Mar IP (We) Mar Retail (We) Mar FAI (We)||6.2% / 6.3% y/y 5.5% / 5.6% 8.5% / 8.3% 6.3% / 6.3%||Activity beginning to recover after earlier weakness, but deceleration in y/y rates of growth continue over near term.|
|Korea||Rate Decision (Th)||Hold / Hold||Extends pause, some chance of easing ahead?|