Thanks to North America the global economy is treading right at expectations, very near the zero line at plus 3 on Econoday’s Consensus Divergence Index (ECDI) and masking significantly negative readings across much of Europe and Asia.
With a European Central Bank meeting coming up this week, let’s look first at the Eurozone. Economic data continue to undershoot expectations. Last week’s suite left the region’s ECDI at minus 10 and the index less prices (ECDI-P) at minus 26; accumulating downside surprises can only increase the chances of no change in key interest rates on Thursday in what, nevertheless, is likely to be a very close call.
Economic news in the UK has been very mixed since the beginning of August, adding to uncertainty about how the Bank of England will vote in the coming week. At minus 18 and minus 5 respectively, the ECDI and ECDI-P show a limited degree of underperformance in the latest data but only after the previous run of surprisingly strong reports. This leaves Tuesday’s labour market update all the more important.
In Switzerland, the ECDI (minus 23) has not been in positive surprise territory for more than half a year now. Much the same can be said of the ECDI-P, bar a very short-lived blip in late July. Persistent weakness has clearly had an impact on speculation about this month’s policy announcement from the Swiss National Bank and the 25 basis point hike once thought to be largely a done deal is now much less assured.
In Japan, economic data continue to fall short of expectations. At minus 39 and minus 50 respectively, both the ECDI and ECDI-P show economic activity falling well short of predictions. The underperformance is once again hitting the yen and with the 150 level versus the dollar in sight, Bank of Japan intervention is a growing risk. In China, the ECDI and ECDI-P at 7 and 10 respectively have bounced back within the consensus range to limit the risk that the economy is undershooting growth targets and in turn limit downside pressure perhaps on the local currency.
Econoday’s Consensus Divergence Index for the US ended the week at plus 24 to indicate that this country’s economic data are handily beating forecasts and pointing squarely at another rate hike for the September 19-20 Federal Reserve meeting. For Canada, the ECDI is at 36 consistent with an economy that is performing appreciably stronger than expected, which will leave the Bank of Canada wanting more proof it was it right to leave rates unchanged at its meeting earlier in the month.