Global data underperforming relative to expectations

Global data edged a little bit deeper into the underperformance column, ending the week at minus 9 on Econoday’s Relative Performance Index (RPI) and at minus 19 when excluding price data (RPI-P), the latter indicating greater underperformance in real economic activity.

In the Eurozone, signs that economic activity was disappointingly sluggish last quarter saw the RPI and RPI-P close out the week at minus 11 and minus 18 respectively. Neither gauge is deep in negative surprise territory but sub-zero readings can only boost speculation about another cut in ECB interest rates next month.

Similarly in the UK, the latest data were generally on the soft side of expectations and lowered the RPI to minus 22 and the RPI-P to minus 13. Importantly too, the July CPI surprised on the downside, further boosting the chances of another reduction in Bank Rate at the BoE MPC’s September meeting.

In Switzerland, the RPI (minus 8) and RPI-P (minus 10) show overall economic activity still undershooting forecasts, albeit by rather less than in recent months. In particular, another surprisingly weak inflation update helped to underpin forecasts for a third straight SNB ease next month.

In Japan, surprisingly robust second quarter growth kept the RPI (21) and the RPI-P (41) comfortably above zero, supporting speculation about another hike in BoJ interest rates once financial markets have steadied.

By contrast, in China economic data were again generally weaker than anticipated and reflected in an RPI of minus 29. Indeed, adding to doubts about recovery prospects, the RPI-P at minus 60 shows recent real activity undershooting forecasts by the most since February.

The impact of Hurricane Beryl made for unexpected weakness in several US reports during the week including industrial production and housing starts. The US RPI had been on the rise but moved back to neutral in the last week, at 5 and 3 for the two readings. For Federal Reserve policy, the August employment report on September 6 will be the last hurdle to jump before a September 18 rate cut.

Strong housing starts and less weakness than expected for manufacturing sales gave Canada a lift, ending the week at 18 on the RPI and at 35 when excluding inflation, the latter pointing to significant outperformance for the real economy. But it will be the outcome of consumer prices on Tuesday that will affect expectations for the Bank of Canada’s September 4 meeting and whether a third consecutive rate cut is in store.