Global data summary
• With the global recovery still struggling to reach escape velocity, policymakers are being forced to delay the handoff to the private sector as the engine of growth. Fiscal policy has reached its limit; indeed, it has either become a sizable drag on activity (UK, EMU) or a source of concern with regard to the need for eventual tightening (US, Japan). In the US, President Obama’s $447bn (3% of GDP) proposal for renewed stimulus is already facing vocal opposition in Congress. Currently, our US forecast has not yet built in any new stimulus. This contrasts with the consensus forecast which implicitly assumes roughly $150bn of the stimulus gets passed (assuming the same multipliers in our forecast and all else equal).
• The limitation on fiscal policy leaves a heavy burden for monetary policy. Nowhere is this more clear than in the Euro area, where the ECB’s grudging foray into sovereign debt purchases has lead to the resignation of its biggest hawk, Juergen Stark (Stark’s scheduled speech for this Thursday should be most interesting). If our forecast is right, all G-4 central banks will have ramped up their unconventional policy measures within the next few months: the ECB’s government debt buying program and the BoJ’s asset purchase program are already in action; we expect the Fed to extend its balance sheet duration at next week’s meeting and the BoE to expand its QE by early next year at the latest. In the EM, the timeline for policy normalization has been pushed back. In whole, global monetary policy will remain unprecedentedly easy well into next year at least.
• The easing of inflation pressures is no doubt providing cover for this shift in the global monetary policy conversation from exits to easing. The settling of commodity prices is beginning to have a visible imprint on year-ago inflation rates. The impact on sequential inflation rates through July has been even more striking. Both the developed and emerging market regions have seen a complete unwind of their roughly 4%-point surge in inflation as of July. Perhaps more important for monetary policy is that the 1.5%-point spike in developed market core inflation (%3m,saar) earlier this year has already been unwound, while roughly 1/2 of the 2.5%-point jump in EM core inflation has been unwound.
• August CPI data continue to filter in. Consumer price inflation in France edged up on a year-ago basis, while core inflation was unchanged. We expect EMU inflation (headline and core, %oya) to be unchanged (out Thu). A similar move in both headline and core (%oya) was also seen in the UK, where levels of inflation remain quite elevated. We maintain that UK inflation will fall sharply as a number of special factors fade (e.g. VAT adjustments). In the US, nonpetroleum import prices were reported to have accelerated in July, adding upward pressure to consumer prices (out Thu).
• Today’s July trade report for the UK showed only a partial reversal of the June decline in trade volumes. The rebound was stronger for imports, pointing to a larger than anticipated 3Q net trade drag.
• Exports out of the Philippines picked up in July, another encouraging sign that the global industrial cycle has found a bottom. Non-electronic exports soared 14%m/m after having contracted sharply since April, while electronics posted a second straight strong monthly increase. Elsewhere in the EM, retail sales jumped 1.4%m/m in Brazil in July, in line with expectations.
• [CLARIFICATION] Yesterday’s DEB referred to the GDP experiences surround the defaults in Argentina and Iceland by way of comparison to a potential Greek default. In Iceland’s case, this was not a sovereign default but a default of the banking sector—perhaps one of the biggest in history relative to GDP—alongside a failure of the country’s deposit guarantee fund.
Latest Manpower surveys inch down
Our GDP-weighted global average of the Manpower employment outlooks surveys fell 1.3pts to 9.0 in 4Q, the lowest reading since 3Q10. The index continues to run well below its previous expansion average, and while the contours of the three indicators are similar, the Manpower index has recovered less than either the employment PMI or our global employment aggregate since the three bottomed in early 2009. After firming last quarter, our DM aggregate of the Manpower indexes fell 0.7pts to 6.7. The EM Manpower indexes made a sharper move down, with our aggregate falling 4.6pts to 21.9, its lowest level since 2Q10.
Statistical analysis reveals the Manpower surveys to be most useful as coincident indicators of employment growth, despite their forward-looking framing. For this reason we graphically represent the index with a one-quarter lag (eg today’s 4Q figure is plotted in line with the 3Q employment PMI). Today’s reports are further confirmation that global employment growth has slowed, qualitatively consistent with the rolling-over in the all-industry employment PMI and the weak run of US jobs reports.
The modest softening in the DM indexes was fairly broad. The US Manpower index ticked down to 7. It’s unclear how much should be read into this small decline. The US Manpower index has been relatively inert since the recovery took hold in early 2010. The Euro area indexes were mixed, showcasing the divergence of strength in the currency zone. The German index continues to build momentum, rising 1pt to 12 in 4Q. This is just below the series high (the German index started in 2003). However, the ex German core posted a broad 2.3pt decline to 3. The indexes for each of France, Belgium, the Netherlands, and Austria moved down. The peripheral figures were varied. Italy’s index dropped 4pts to -10, just a hair above its recession trough. However, both the Irish and Spanish indexes improved to near the neutral zero level. The Japan Manpower survey inched up to 10, its best reading in three years.
The large drop in the EM aggregate was narrowly centered in India. The Indian survey plunged 15pts, but, at 30, still represents extremely robust hiring growth. The other EM indexes held up better. The Chinese Manpower index edged down to 20. In recent months the China employment PMI has fallen to just above 50, so the still elevated level of the Manpower is encouraging. Taiwan’s index held at 37 for the second straight quarter while Hong Kong’s inched up to 21. The Latam surveys held roughly steady. The Mexican index fell 3pts to 13 as Peru’s rose 1pt to 17. Manpower’s CEEMEA coverage is limited to South Africa, where the index held at 3 for the fourth straight quarter.
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J.P.Morgan
Global FX Strategy