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Macro Watch: investors eye flash PMI data for November

Your guide to this week's big economic events 

Key points

  • Flash Purchasing Managers’ Indices (PMIs) will provide an indication of global growth momentum in November
  • No surprises are expected from Federal Reserve (Fed) and European Central Bank (ECB) minutes
  • Economic activity in South Africa likely stalled in Q3

Early activity indicators: flash PMIs in focus

The flash PMIs are the most comprehensive and timely leading indicators for global economic activity. The flash readings for the US, the eurozone and Japan, which are scheduled for release this week, will shed light on growth momentum in November. In October, the global composite PMI edged down to 50.8 from 51.1, marking its lowest level since early 2016. While the global manufacturing PMI has shown tentative improvements in recent months (mainly reflecting developments in China), the services PMI has softened somewhat, suggesting that some contagion has occurred. Geographically, indices for the eurozone and China posted modest gains (from depressed levels) in October, while PMIs for Japan and the US continued their gradual descent. Meanwhile, consumer confidence surveys for the US and eurozone will probably show that sentiment remained upbeat in November, reflecting the health of the labour market. Indices for both regions are likely to continue to run above their long-term averages. However, some softening is possible as employment growth has slowed recently, especially in the eurozone. Separately, South Korea will release export and import data for the first 20 days of November, which will provide an early sense of global trade activity in the month.

Figure 1. Holding steady: US and eurozone consumer confidence

Source: Refinitiv, University of Michigan, European Commission, as of October 2019. 

Central banks hold fire, but caution against downside risk

The minutes from the October Fed and ECB monetary policy meetings are likely to confirm that easing measures from both major central banks are on hold, for now. At his Congressional testimony last week, Fed chair Jerome Powell reiterated the appropriateness of the bank’s current monetary policy stance but cautioned that the Fed would adjust its approach should the economic outlook change. The minutes will probably confirm the view that US growth is steady, which justifies a pause in rate cuts, but they will also acknowledge downside risks (notably, from trade policies) and low inflationary pressures. Likewise, the ECB accounts will probably show that the governing council is in a wait-and-see mode as it takes some time for the September easing package to affect the economy.  The October meeting was also Mario Draghi’s final monetary policy meeting as ECB President. As such, praise for his crucial contribution during his eight-year term is likely to overshadow the criticism made by governing council members about the last round of measures taken under his leadership. A speech by new ECB President Christine Lagarde on Friday could provide more insight into her views on monetary policy, after her first speech avoided the topic. Elsewhere, China will publish loan prime rates based on data collected from banks on Wednesday. The release will likely show that the modest 5bp cut to the rate on the Peoples Bank of China’s medium-term lending facility was transmitted to bank lending rates, thus marginally easing credit conditions. Finally, Japanese core consumer price inflation (CPI) (excluding fresh food and energy) will probably be little changed at about 0.5% year-on-year in October. The Bank of Japan’s measures of underlying inflation (trimmed mean, weighted median and mode) are also likely to be subdued (they came in between 0% and 0.3% in September), providing yet another reason for the central bank to keep policies accommodative.

Figure 2. Japan inflation: still subdued

Source: Refinitiv, national sources, as of October 2019. 

Emerging-market focus: South Africa and Russia

This week Russia will release October data for industrial production, retail sales and unemployment. GDP growth picked up to 1.7% year-on-year in Q3, up from 0.9% in the previous quarter. This growth was probably flattered by some one-off factors in agriculture and wholesale trade, which means the boost may reverse in Q4. Nonetheless, surveys suggest the underlying trend has improved slightly in recent times. For example, the composite PMI increased to 53.3 in October from an average of 51 in the third quarter. Consensus forecasts point to growth of 1.1% in 2019, accelerating to 1.6% next year. Monetary policy should remain supportive in the next six months or so, as suggested by recent comments from Russia’s central bank officials. The bank has cut rates by 125bps since the end of Q1. In South Africa, recent dismal manufacturing data suggests that economic activity likely stalled in Q3, following a volatile H1 in which output dropped -3.1% and then rebounded 3.1% in quarter-on-quarter annualised terms in Q1 and Q2 respectively. In addition, CPI is expected to decline to 3.9% in October from 4.1% in the previous month, edging towards the lower bound of the central bank’s target range of 3%-6%. The bank faces diverging pressures: weaker growth and contained inflation would justify a more accommodative stance, but likely fiscal slippage ahead limits its room for manoeuvre. At its meeting this week the South African Reserve Bank is expected to keep rates unchanged at 6.5%.

Figure 3. Russia and South Africa: sustained sluggish growth

Source: Refinitiv, national sources, as at October 2019.

Other events we're watching

  • The Organisation for Economic Cooperation and Development (OECD) will publish an updated economic outlook. In its September interim forecasts, the OECD downgraded its expectation for global growth to 2.9% and 3% for 2019 and 2020, respectively. It will likely continue to flag risks related to trade uncertainty, the China slowdown, Brexit and financial stability.
  • US-China trade tensions. The waiver that allows American companies to do business with telecommunications giant Huawei will expire on Tuesday. It is unclear whether the US will renew it.
  • Hong Kong’s local elections will take place on Sunday, 24 November. The election does not directly shape the makeup of the city’s powerful Legislative Council, but it has a high symbolic value amid forceful protests in recent months. Pro-democracy candidates will stand in almost all 452 seats and a record number of voters have registered.

What we're reading right now

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Impact Report, Q3 2019

In the latest Quarterly Impact Report, the Hermes Impact Opportunities team presents its impact measurement philosophy and demonstrates how it is applied using two case studies.

How the US should deal with China

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