Global data hit forecasts: US outperforms, UK underperforms

Economists are nailing their forecasts based on Econoday’s Relative Performance Index (RPI) which is sitting right at the zero line, at plus 2 to indicate only the most marginal outperformance relative to expectations. When excluding prices, the RPI-P is at plus 1 to indicate that global inflation forecasts are also dead on.

At 16 on the RPI, the US remains on a gradually rising trend of outperformance supported in the last week by surprisingly strong GDP. Though the outperformance is still only modest in degree, the strength allows the Federal Reserve to remain patient and points to no action for Wednesday’s policy announcement.

In the Eurozone, recent economic data have largely matched market expectations, as reflected in an RPI of minus 5 and an RPI-P of minus 3. Still, since the start of June there has been a clear downside bias amidst signs that second quarter growth could disappoint (flash report due Tuesday). Some on the ECB’s Governing Council will almost certainly want to cut key interest rates again in September but for most, this week’s flash HICP report (due Wednesday) will be a more important determinant.

In the UK, forecasters have been overly optimistic to an even greater extent as the RPI and RPI-P ended last week little changed at minus 29 and minus 31 respectively. Ahead of Thursday’s BoE announcement, this plays into the hands of the MPC’s doves though high inflation in services remains an issue for many policymakers and investors are quite evenly split over the chances of a cut in Bank Rate.

In Japan, unexpectedly soft July inflation ensured that the RPI (minus 23) remained well below zero. With the RPI-P (minus 13) also showing some downside bias to the real economy surprises, recent data have done little to boost speculation about a possible BoJ interest rate hike this week.

In China, cuts in a range of central bank interest rates over the last week or so confirmed that economic activity is not recovering as quickly as the authorities were hoping. To this end, although both the RPI (minus 7) and RPI-P (zero) currently show no major forecast errors, both measures have spent most of the last four months quite deep in negative surprise territory.

There were no significant data releases from Canada last week but mainly downside surprises over the last three months meant that the BoC’s 25 basis point cut on Wednesday was widely expected. Indeed, without some improvement, at currently minus 30 and minus 21 respectively, the national RPI and RPI-P warn of probable further monetary easing to come.