Global data flat to underperforming: China and US both weak

Global data on net are posting near consensus estimates, at minus 7 and just below the zero line on Econoday’s Relative Performance Index (RPI). Yet when excluding what have been as-expected to firmer-than-expected inflation data, the index less prices (RPI-P) falls to minus 18 to indicate modest underperformance in economic activity.

In China, unexpectedly firm inflation news was not enough to lift either the RPI (minus 14) or the RPI-P (minus 40) back above zero. Still, the stronger tone to prices will help ease deflation worries and so reduces the likelihood of another cut in central bank interest rates.

The US sits at minus 24 both overall and less prices. These scores are near the lowest of the year and speak to noticeable underperformance especially since they’re being posted against moderating forecasts. Extended underperformance would seem to guarantee a rate cut at the Federal Reserve’s September 17-18 meeting.

Canada is at minus 4 and plus 10, both near enough to zero to indicate that results on net have been roughly as expected but, like the US, are coming against downgraded estimates. A third consecutive rate cut at the Bank of Canada’s next meeting, on September 4, shouldn’t be ruled out.

In the Eurozone, surprisingly sluggish household spending in June helped to trim the RPI-P to minus 11. However the RPI, at plus 11, shows that recent surprises on inflation have been tilted to the upside so another cut in ECB interest rates next month remains uncertain.

In the UK, the RPI (14) and RPI-P (10) both moved back above zero for the first time since mid-July. However, current readings point to only limited upside surprises and the bigger picture still shows unexpected weakness in overall economic activity.

In Switzerland, the probability of another cut in the SNB’s policy rate continues to rise as a strengthening franc adds to the easing pressure caused by low inflation and general economic underperformance. The RPI closed the week at minus 8 and the RPI-P at minus 10.

In Japan, both the RPI (19) and RPI-P (47) held in positive surprise territory despite a mixed report on June household spending. BoJ interest rates are going up but the current high level of volatility in the financial markets argues for a steady policy stance near-term.