US and UK outperforming ahead of rate announcements, Switzerland underperforming

Outperformance by Canada and the US continues to offset underperformance in Japan and the Eurozone, keeping Econoday’s Relative Performance Index (RPI) just north of the zero line at plus 3 to indicate that global economic data in sum are coming in fractionally above forecasts.

ECB guidance that rates may now have topped out should be no surprise given that the Eurozone’s economy has been falling short of expectations for months, currently at minus 20 and at minus 39 less prices (RPI-P). Indeed, this trend is reflected in the central bank’s marked downward revisions to GDP forecasts.

In the UK, a surprisingly poor July for the economy has now been overshadowed by other data pointing to a possible upside surprise in August. At 9 and 19 respectively, the RPI and RPI-P moved back above zero and will help strengthen the hand of the Bank of England’s hawks at Thursday’s policy announcement.

In Switzerland, further signs of weakness in pipeline inflation pressures kept this RPI mired in negative surprise territory at minus 23. With the RPI-P also still firmly sub-zero at minus 27, the economy in general continues to disappoint. Even so, the Swiss National Bank remains perhaps the most inflation-focused central bank anywhere so another 25-basis-point hike in its policy rate on Thursday is still a very real possibility.

Economic data in Japan were again generally softer than expected last week. At minus 44 and minus 50 respectively, both the RPI and RPI-P show economic activity still falling well short of predictions. Accordingly, investors should remain alert to possible Bank of Japan intervention to prop up the yen.

Last week’s cut in Chinese bank reserve requirements followed a string of largely sub-zero RPI and RPI-P results going back to May. August’s surprisingly firm retail sales and industrial production reports point to some improvement but at 7 and minus 10, neither the RPI nor RPI-P yet signal any significant outperformance.

At 29, Canada is once again at the top of the list in strength, which if extended over the next month could begin to build expectations for a resumption of Bank of Canada rate hikes. The US is right behind at 28 though this country’s outperformance isn’t expected to trigger a surprise rate hike at Wednesday’s Federal Reserve announcement.