Global economic data are trending at the top end of the consensus ranges reflected in the Relative Performance Index (RPI) at 8 and the index less prices (RPI-P) at 10, both a bit above the zero line representing as-expected performance.
The US at 22 on the RPI and 24 for the RPI-P continue to lead other economies, benefiting in the latest week from the fourth quarter’s surprisingly strong 3.3 percent GDP growth. With the jobs market healthy and consumer spending strong, the Federal Reserve may see little reason to cut interest rates anytime soon.
Last week’s decision by the European Central Bank to leave policy on hold was widely anticipated and a reflection of recent data largely living up to expectations. Since the central bank’s prior meeting in December, the region’s RPI has averaged just 2 and the RPI-P 9, both values close enough to zero to indicate overall economic activity moving essentially in line with forecasts. The first cut in key interest rates remains crucially dependent on upcoming inflation news (flash January report due Thursday) and wage developments.
In the UK, early warnings signs of a surprisingly weak economy in January ensured that both the RPI (minus 7) and, more clearly, the RPI-P (minus 20) ended the week below zero. Still, since the Bank of England’s December meeting upside and downside shocks have broadly cancelled each other, supporting a strong market conviction that Bank Rate will not be cut on Thursday.
In Japan, the BoJ’s decision to leave policy on hold last week came as no surprise to anyone. Moreover, with the economy and, crucially, inflation falling short of expectations, the decision is justified by the latest data. At minus 14 and minus 17 respectively, both the Japanese RPI and RPI-P point to a modest degree of overall underperformance.
There were no significant economic data out of China last week but the unusual pre-announcement of a cut in banks’ reserve ratios next month underscored policymakers’ concerns about the health of the local economy. At currently zero and 10 respectively, the Chinese RPI and RPI-P show activity in general largely meeting forecasts but those projections were already weak.
There were also no significant data out of Canada whose central bank kept policy steady in the week but softened its hawkish tone amid sluggish economic growth; both the RPI and RPI-P are holding in the negative single digits.