Econoday’s Relative Performance Index for the global economy moved a bit lower, ending the week at minus 7 and at minus 10 less inflation (RPI-P). The US, at minus 26 for the RPI and minus 39 for the RPI-P, is increasingly underperforming relative to expectations in a three-week slump that started with the April employment report and now includes April retail sales and April housing starts and building permits.
In contrast to the US, overall economic activity in the Eurozone continues to outperform market expectations, extending a pattern seen at the start of the month. An RPI of 32 and an RPI-P of 43 show forecasters still falling some way short on the pace of the recovery. Even so, subsiding inflation pressures should mean that a June cut in ECB interest rates is all but a done deal.
In the UK, a varied labour market report will help to ensure another split vote at June’s BoE MPC meeting. Yet economic activity is generally running well ahead of expectations. At 44 and 55 respectively, the RPI and RPI-P currently play into the hands of the more hawkish members.
Switzerland’s real economy continues to disappoint and the RPI-P ended the week at minus 20. Since early February, it has hardly broken above zero. However at 3, the RPI crept back into positive surprise territory (albeit only just) for the first time since mid-March. Reflecting unexpectedly firm producer prices, the RPI’s move may temper speculation about the SNB cuttings its policy rate again next month.
In Japan, the recent bias towards downside surprises was reflected in an unexpectedly sharp contraction in first quarter GDP. At minus 27 and minus 16 respectively, neither the RPI nor the RPI-P signal major shocks but both readings suggest that the BoJ needs to be careful over the timing of its next interest rate hike.
For China, a mixed bag of data last week was on balance weak enough to reduce the RPI to minus 21 and the RPI-P to minus 30. Having outperformed for most of March and early April, the latest readings will help sustain speculation that another cut in banks’ reserve requirements or even key interest rates cannot be ruled out.
Canada’s RPI (minus 13) and RPI (minus 7) both moved higher last week but neither gauge managed to break above the zero mark. Accordingly, a June ease by the BoC remains a possibility although Tuesday’s CPI report could throw a spanner in the works.