Global data lagging expectations; China, US underperforming

Global economic data have been missing expectations since the end of May, a sustained trend that points to central-bank rate cuts and a decline for Econoday’s Global Policy Rate (a weighted average of the major central banks) that currently stands at 4.29 percent. The global Relative Performance Index is at minus 16 and falls slightly further to minus 18 less inflation data (RPI-P), the latter offering a specific reading on real economic activity.

US data in the week mostly underperformed, leaving this country’s RPI and RPI-P both at minus 17 to indicate underperformance but not severe enough underperformance, at least yet, to push the Federal Reserve into a rate cut at its July 31 announcement. Canada, by contrast, is at 21 on the RPI though this slips to 8 when excluding inflation. The Bank of Canada next meets on July 24 and continued outperformance, despite June’s soft labour force survey, would ease talk of a second consecutive rate cut.

In the Eurozone, the RPI (8) and RPI-P (2) both moved back above zero for the first time since the end of May. Even so, the latest readings only really show economic activity in general performing much as expected, which means growth remains sluggish. That said, the latest inflation data were too firm to open the door to another cut in ECB interest rates next week.

In the UK, the bias towards underperformance continued, albeit only modestly. Closing out the week at minus 4 and minus 5 respectively, the RPI and RPI-P show only limited net downside misses that provide little fresh guidance for speculators ahead of the August Bank of England meeting.

In Switzerland, the shortfall in economic activity is more acute and reflected in an RPI of minus 36 and an RPI-P of minus 25. With negative readings in part attributable to downside surprises on inflation, recent data have been supportive of the Swiss National Bank’s decision last month to cut its policy rate for a second time this year.

In Japan, economic news continued mixed but, with the RPI at 1 and the RPI-P at minus 7, on balance much as expected. However, the data still lack the momentum needed to provide the ailing yen with any real support and currency developments will be a major focus at the Bank of Japan meeting at the end of the month.

In China, early signs that economic activity slowed more sharply than expected last month trimmed the RPI to minus 43 and the RPI-P to minus 42. The economy is moving forward but recent data have generally disappointed and the 5 percent growth target set by the government for this year still looks ambitious.