Global data slightly outperforming: Eurozone and US lead

Econoday’s Relative Performance Index moved from slightly negative ground in the prior week to slightly positive ground last week, to plus 4 and to plus 8 less price data (RPI-P). Though more neutral than positive, the latest levels are the best since mid-May to indicate that results are now coming in above economic forecasts.

In the Eurozone, after a surprisingly soft run of data through June, early July reports have been firm enough to boost the region’s RPI to 23 and the RPI to 28. Both measures show a moderate degree of overall economic outperformance and, with confirmation of sticky core inflation last month, help to justify the ECB’s decision last week to keep policy rates on hold.

Lifted by better-than-expected retail sales data, the US moved into positive ground at 16 both overall and at 16 for the RPI-P for some of the best scores of the last several months. Yet given how subdued forecasts have been, modest outperformance isn’t likely to quiet talk of a Federal Reserve rate cut.

Based on economic underperformance, a rate cut at Wednesday’s Bank of Canada meeting would be no surprise. Pulled lower by weak retail sales data, the country’s RPI is at minus 30 and, when excluding what have been lower-than-expected inflation results, the RPI-P is at minus 21.

Stable inflation and a mixed jobs report have left investors uncertain about the outcome of next week’s BoE MPC meeting. However, at minus 30 and minus 32 respectively, the RPI and RPI-P for the UK show overall economic activity currently falling quite well short of the consensus which almost certainly means that at least two MPC members will want an immediate cut.

In Switzerland, pipeline inflation pressures were slightly less than expected in June and ensured that both the RPI at minus 36 and RPI-P at minus 25 remained well below zero. Economic activity in general has been unexpectedly weak for most of the period since the middle of March.

In Japan, June’s inflation report was a little softer than anticipated and probably reduces the likelihood of a hike in BoJ interest rates at the end of the month. To this end, overall, economic data have also typically surprised modestly on the downside since mid-May and, at currently minus 17 and minus 12 respectively, the RPI and RPI-P both show activity still running a little behind market expectations.

Chinese GDP moderated a bit more than expected though monthly data on industrial production beat the consensus, leaving the country’s RPI at minus 7 and the RPI-P at exactly zero. Overall economic activity is now moving in line with forecasts but only after surprising mainly on the downside over the last couple of months.