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Macro Watch

Italian budget showdown; EU leaders brace for Brexit summit; UK jobless rate at 43-year low

Home / Perspectives / Macro Watch: Italian budget showdown; EU leaders brace for Brexit summit; UK jobless rate at 43-year low

Silvia Dall’Angelo, Senior Economist
14 October 2018
Macro Economics


The Italian government will submit its draft budget to the European Commission, Brexit negotiations will dominate this month’s European Council meeting, and the UK unemployment rate should remain near a multi-decade low.

After a week of tumult on Wall Street, investors will focus on the third-quarter earnings season. US earnings are likely to hold up on a year-on-year basis, thanks to the tax cuts implemented earlier this year. However, the adverse impact of higher trade tariffs should become apparent in some sectors, such as car manufacturers. Companies will probably flag the ongoing trade tensions between the US and China as a risk to future earnings. Elsewhere, data from the Commerce Department should confirm strong US retail sales in Q3, reflecting solid fundamentals including a tightening labour market and robust consumer confidence. Core control retail sales – which exclude volatile components – are likely to increase by about 5% on an annualised basis in the three months to September. In Europe, the Italian government must submit its draft budget plan to the European Commission. It will subsequently be presented to the Italian parliament before Saturday. The government has already issued its fiscal target – a deficit of 2.4% of GDP in 2019 – and it is likely to stick to it, which means the European Commission could open an excessive deficit procedure against Rome in the coming months. Meanwhile, Italy will probably stay in the market spotlight, with the government's borrowing costs hovering at four-year highs. 

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The closely-watched UK jobs report should continue to show a strong labour market, with the unemployment rate likely to remain near its 43-year low of 4%. Forecasts suggest that wage inflation will be roughly stable at almost 3%.

All 27 EU leaders will review the latest developments in the Brexit negotiations at the October European Council meeting. Last month, European Council President Donald Tusk said a decision would be made on whether “to call an extraordinary summit in November to finalise and formalise the [Brexit] deal”. Other topics for discussion at the European Council meeting include migration and internal security. Elsewhere, having surprised to the upside in August, UK consumer price inflation (CPI) is expected to resume its gradual downward trend in September. Monthly data should show that headline CPI declined to 2.5% on a year-on-year basis, down from 2.7% in the previous month. Across the Atlantic, the US Federal Reserve (Fed) will publish the minutes from last month’s monetary policy meeting. The Fed hiked its benchmark interest rate by 25bps as widely anticipated and reiterated its gradual approach to monetary policy tightening, which is supported by its positive outlook for the US economy. This message will probably be echoed in the minutes, alongside nuances in policymakers’ views.

In Japan, forecasts suggest that core CPI, which excludes energy and fresh food, edged up to 0.5% in September. However, it still remains well below the Bank of Japan’s 2% target. Meanwhile, consensus expectations point to a continued slowdown in Chinese GDP. In Q3, annual GDP growth is expected to come in at 6.6%, down from 6.7% in the previous quarter. The country’s economic outlook is under pressure due to domestic and external developments. De-leveraging measures, which were introduced in 2017, began to adversely impact growth earlier this year, while trade tensions with the US have put additional strains on the economy. With the trade spat likely to continue, Chinese economic growth will probably slow to about 6% in 2019 – lower than the 7% growth rate that the country has experienced in recent years.


Eurozone industrial production rebounds in AugustChart of the week 121018Source: Eurostat, European Commission as at October 2018. 

Eurozone industrial production bounced back in August, up 1% month-on-month, reversing the 0.7% drop in July. So far this year, industrial production data has been sluggish, and in recent months, this has been largely driven by the negative impact from the introduction of new vehicle-emissions rules on car production. Although  surveys suggest that fundamentals for industrial production have deteriorated, the weakness in hard data seems excessive. It is therefore possible that there will be some upward revisions to the figures.


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Silvia Dall’Angelo Senior Economist

Silvia joined Hermes in October 2017. As an experienced global economist, she is responsible for providing macroeconomic analysis and commentary, non-standard macroeconomic modelling, and developing relationships with key central banks and monetary authorities. Silvia previously spent 10 years at Prologue Capital Ltd, latterly as a global economist responsible for the team’s macroeconomic view. She holds a Master of Science in Economic and Social Sciences, as well as a Bachelor in Economic and Social Sciences, from Bocconi University in Italy.

Read all articles by Silvia Dall’Angelo

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