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Macro Watch: US consumers upbeat, Canada’s record trade deficit, Britain and Japan’s booming job markets


This week's data releases should show a slight narrowing of the US trade deficit and strengthening consumer confidence, a stabilisation in economic sentiment across the eurozone and an extremely tight labour market in Japan. The length of the UK’s extension of its deadline for Brexit will also be confirmed.  

It is yet another crucial week for the Brexit process in the UK, after the European Union (EU) granted a limited and conditional extension of the exit deadline under Article 50 last week. The new departure date will be determined by the outcome of a third meaningful vote in Parliament on the deal that Prime Minister Theresa May has negotiated with the EU – which could take place as early as Tuesday or Wednesday. If it is approved, the UK will leave the bloc on 22 May. If it is voted down for a third time, the nation will have only until 12 April to either leave without a deal or seek another extension. On Monday, the Commons will debate the neutral motion which accompanied the Government’s statement on Friday 15 March. In addition, Parliament is likely to pass an amendment which would allow MPs to take charge of parliamentary time on the afternoon of Wednesday 27 March. That would allow MPs to hold ‘indicative votes’ in order to identify an alternative Brexit path if a third meaningful vote on Prime Minister May’s deal fails. The situation is fluid as the exact timing and details of the votes can vary at the last minute. Meanwhile, the latest print of the German IFO Business Climate Index should continue the subdued trend of recent months. The index has declined in the last year, in line with developments in other economic activity surveys, such as purchasing managers indices (PMIs). The index declined to 98.5 in February, from 99.3 in January. It is now running well below its cyclical high of 104.8 in November 2017 and is close to its long-term average of 97.6.

US housing data are likely to show subdued activity and well-contained price growth in early 2019, extending a trend that emerged last year. Housing starts plateaued at about 1.25m units in 2018. Permits, which ran at 1.32m in January, suggest there is modest upside for starts in the coming months but that’s far below previous cyclical peaks of about 2m. Meanwhile, house prices have moderated recently. According to the S&P/Case-Shiller measure, annual house price inflation declined to 4.7% in December 2018 from a cyclical high of 10.8% in October 2013. That’s well below the 14.5% peak reached in September 2005. Elsewhere, consensus expectations for US consumer confidence are for an increase to 132 in March from 131.4 in February. The robust labour market and the recent equity-market strength should support consumer confidence.


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Chinese industrial profits are likely to be soft in the opening months of 2019, continuing the downward trend from a peak of 21.9% in April 2018 to -1.9% in December. Meanwhile, the US trade deficit is expected to narrow slightly to $57bn in January from $59bn in December but remain at an elevated level. Across the border, Canada produced a record trade deficit of C$4.59bn in December as the value of its exports slumped by the most in more than 11 years due to lower crude oil prices. However, even when energy products are excluded, the volume of exports was essentially unchanged in December, which probably reflects weak external demand. Oil prices have recovered somewhat since December, which should allow for a smaller trade deficit in January. However, external demand remained weak in early 2019, which should continue to weigh on export performance. In Frankfurt, Mario Draghi, President of the European Central Bank (ECB), and other officials will speak at the 20th ECB and its Watchers conference. The main topics of the conference will be the central bank’s next steps in monetary-policy normalisation, the international ramifications of monetary policy and financial stability concerns, and the independence of central banks. On the other side of the globe, the Reserve Bank of New Zealand should keep the country’s benchmark interest rate unchanged at 1.75%. Economic data for New Zealand has been decent recently, with GDP increasing by 0.6% quarter-on-quarter, but the central bank is likely to maintain a neutral view due to external downside risks.

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A US delegation led by Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer will travel to China for a new round of trade talks. Last week, press reports suggested that a much anticipated meeting between US President Donald Trump and his Chinese counterpart Xi Jinping could take place as late as June, implying that a trade deal requires more work. The eurozone Economic Sentiment Indicator is likely to show tentative signs of stabilisation. The gauge started 2019 on a weak note, extending the downward trend that had prevailed in 2018, and came in at 106.1 in February – its lowest level since November 2016. Yet the pace of the decline had slowed down and the survey subcomponents, notably services and consumer indices, showed signs of stabilisation. This should continue in the coming months, mainly reflecting the more supportive international policy environment – the dovish Federal Reserve (Fed), easing trade tensions between China and the US, and monetary and fiscal stimulus in China. Among central banks, the Bank of Mexico and the South Africa Reserve Bank are expected to leave benchmark interest rates unchanged at 8.25% and 6.75% respectively. Meanwhile, consensus expectations are for the Japanese unemployment rate to edge lower to 2.4% in February, from 2.5% the previous month. The current level is the lowest since 1993, suggesting that the labour market is tight. Both industrial production and retail sales were weak in January, falling 3.4% month-on-month and 1.8% month-on-month respectively, but are likely to bounce back in February. In Paris, Fed Vice Chairman Richard Clarida will speak about how economies and markets can cope with global shocks at a conference hosted by the Bank of France. It’s a relevant topic, given that the Fed’s dovish turn has been largely justified by external developments.

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UK consumer confidence is likely to remain soft in March, amid enduring Brexit uncertainty. It has declined steadily since its cyclical peak of +7 in mid-2015 and came in at -13 in February, below the index’s long-term average of -9. In other developments, the March flash reading of the eurozone harmonised indices of consumer prices might edge up to 1.6% from 1.5% in February, reflecting a modest increase in energy prices. Core inflation will probably be little changed at about 1%. For 2018 overall, we expect only a modest improvement in core inflation, which would leave it well below the ECB’s 2% target. Across the Atlantic, the US Core Personal Consumption Expenditure Price Index, the Fed’s favoured gauge of underlying inflation, will probably edge down to 1.8% year-over-year in January from 1.9% in December, given the soft Consumer Price Index and Producer Price Index reports.


UK unemployment hits four-decade low amid tepid GDP growth

Source: Reuters Datastream, ONS, Bank of England as at March 2019.

The UK unemployment rate fell to 3.9% in January, its lowest level since early 1975, suggesting that the labour market is tight and that inflationary pressures are likely to build gradually. However, this labour-market strength has been accompanied by lacklustre GDP performance, suggesting that trend growth in the economy is low.


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Central banks have already considered climate-related risks in the context of financial stability – should they use monetary policy as a tool to reduce carbon intensity? Bruegel, the economic think tank, investigates.

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