Global data summary
- Recognition that G-4 growth is set to be weak at best, combined with the recent tightening of EM domestic financial conditions, has prompted some unexpected policy easing in the emerging economies. So far the moves have been limited to a handful of countries and pretty modest, consistent with our view that EM policymakers will not exercise much of their latent policy flexibility to cushion growth. None theless, the isolated easing moves bear watching because they represent a break with past practice, including the experience of 2008 (pre Lehman). In recent weeks, central banks in Brazil, Israel, and Turkey surprised with rate cuts. Today Bank Indonesia followed suit, easing 25bp to 6.50% (market was unanimously expecting no change). Today’s policy rate cut is the first by any central bank in EM Asia this cycle. BI will likely take a wait-and-see approach the rest of 2011, mindful of the need to keep the IDR stable to avoid unwanted inflationary pressures. Indeed, after its FX reserves hit a record high $125 billion in August, BI spent about $10 billion last month defending the IDR and stressed today that reserves are adequate to support the IDR should capital outflows persist.
- Brazil’s retail sales unexpectedly contracted in August, raising downside risk to our estimate of 3Q growth in consumer spending and GDP (GDP 1.9%q/q, saar). Presumably the central bank will view this as validation of its preemptive policy easing, with another 50bp move expected by our colleagues on the 19th.
- Our global PMI rose modestly in September, with small increases in the services activity and manufacturing output indexes. Other, less watched survey data are showing a similar pattern of stability or modest improvement in the month as well. The US small business NFIB survey edged up in September. In Australia, the NAB monthly business survey bounced in September, following the plunge to a post-recovery low in August. Japan’s small business Economy Watchers survey fell for a second straight month in September, although it remains at a reasonably good level. Japanese consumer sentiment rose modestly last month, as has been seen in numerous other countries.
- UK data continue to be on the soft side, with manufacturing output down 0.3%m/m in August. In Malaysia, factory output rose in August. However, Matt Hildebrandt notes that similar to the increases in Singapore (boosted by pharmaceuticals) and Thailand (boosted by autos), Malaysia’s IP was led by non electronics, whereas electronics output fell 2.6% on the month following a larger 5.8% decline in July. The pattern of sliding tech output is quite pervasive in Asia.
Global retail sales ticked down in August
With consumer confidence moving down sharply across the developed and emerging markets and the positive impulse from the Japan recovery continuing to fade, it is not surprising that global retail sales volumes contracted 0.1%m/m sa in August. Sequential month-to-month growth slowed in both the DM and EM, though the smoothed 3m/3m annualized global rate firmed to 2.5%. This sub-trend growth rate is the strongest since February, but has more to do with shifting base effects than a material improvement in underlying spending trends. Considering the lack of lift in sentiment in September and the looming Euro area recession, global retail sales growth should continue to be weak in the months ahead.
Developed market retail sales volume edged down 0.2%m/m sa in August, the third month of outright contraction since March. US real personal expenditures on goods fell 0.2%, the fifth decline in six months. In the more than sixty years of data, this is only the third such occurance and the first outside a recession. Japan’s Cabinet Office reported a second consecutive 0.1% monthly decline in spending in August, a further sign that the household consumption recovery may have run its course. Our colleagues in Tokyo expect a 2.0%ar consumption gain in 3Q followed by a more moderate increase in the current quarter. Euro area retail sales volumes (ex autos) dropped 0.3% in August. Overall consumer spending looks to be tracking flat for the quarter, which would represent a modest improvement from the near 1%ar drop in 2Q.
Adjusted for inflation, EM retail spending rose 0.5%m/m in August, a step down from the prior month. The always volatile EM Asia data were especially so in August, with double-digit m/m swings in Hong Kong and Indonesia (in opposite directions), making it difficult to get a clear read on regional performance. Despite the regional noisiness, Chinese spending growth has been remarkably consistent of late, with sales rising 0.8% in August, in line with each of the prior three months. After a very strong three month run, Korean real spending edged down 0.2%. Latam real spending looks to have fallen for the second straight month in August. With a 2.3%m/m August drop following on the heels of a small July decline, the trend in Brazilian spending growth has slumped considerably after a very strong 1H11. Chilean spending was also down for the second month in a row, sliding 0.5%. The only region to report stronger spending gains in August was EMEA EM, though its exposure to flagging DM Europe could weigh on growth in the remainder of the year. Russian real retail sales popped 1.0% in August. Poland and the Czech Republic both posted strong August sales figures after small declines in July.
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J.P.Morgan
Global FX Strategy