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Disappointing mid-level data – weekly update 20 May

A look back over macroeconomic and market events for the week ending 17 May 2019.

Published on 20 May 20198 minute read

Disappointing mid-level data coupled with fresh US-China trade tensions impacted sentiment, providing mixed returns from equities but seeing core fixed income bid up and sterling come under pressure. The next couple of weeks have more economic data scheduled but little in the way of big ticket items.

The UK unemployment rate hit a multi-decade low

While the UK unemployment rate hit a multi-decade low, there continues to be signs that labour market growth is cooling. UK unemployment fell 0.1% to 3.8% versus expectations for no change, putting it at the lowest rate since 1974. But wage growth slowed more than expected, as average weekly earnings for the three months to April came in at 3.2% year on year (yoy), down from 3.5% in the previous month, and worse than the marginal slowdown to 3.4% that had been expected. For core earnings, stripping out bonuses, the dip was less dramatic, falling from 3.4% to 3.3% as expected. In addition to cooling earnings growth, we are also seeing a dip in the number of open vacancies and other evidence from businesses that labour demand is softening. Given our focus on the risk of inflation coming through, cooling wage growth means there is likely to be a little less pressure on the Central bank to hike interest rates.

Latest batch of data from China proved disappointing

The latest batch of data from China proved disappointing, coming as tensions with the US are showing signs of flaring back up. Industrial Production growth was sharply lower, and worse than expected, coming in at 5.4% yoy in April, down from 8.5% (6.5% was expected). Retail Sales growth slowed from 8.7% to 7.2% yoy (versus expectations for a marginal moderation to 8.6%), while Fixed Asset Investment growth dipped from 6.3% to 6.1% yoy (year-to-date basis) against hopes for a pick-up to 6.4%. While there is little in the data to raise serious concerns, it doesn’t help sentiment in the market.

US retail sales dipped

US retail sales dipped, but there are few signs of a significant downward trend in what has been a pretty volatile series. The advance measure of Retail Sales fell -0.2% month on month (mom) in April, worse than the 0.2% growth that had been forecast, but this comes after a bumper 1.7% reading in March. Whilst autos were the biggest detractor, there was general weakness on a one-month-view across the board. Industrial Production also disappointed, with a slowdown from 0.2% to -0.5% mom, some way below the flat-line reading expected. However, these series, especially Retail Sales, have been quite volatile of late, and the yoy Retail Sales rate remains at a reasonable 2.8%.

Last week’s other events

  • Eurozone Industrial Production fell from -0.1% to -0.6% yoy (but was head of the -0.8% expected), and the ZEW survey results for business expectations showed a deterioration from 4.5 to -1.6
  • In Japan, Bank Lending growth picked up from 2.3% to 2.4% yoy, whilst the Eco Watchers Survey showed the Outlook measure dip slightly from 48.6 to 48.4 (but was ahead of the 48.0 forecast)
  • In the US, the University of Michigan reported its Sentiment index as picking up from 97.2 to 102.4 (no change was expected)

The markets

There were clear signs of nervousness in the market last week with US and emerging market equities at the epicentre, and the risk-off currencies of the US dollar and Japanese yen seeing demand. Sterling was notably weaker, falling just over 2% against the US dollar, though this did help the UK equity market; gold was surprisingly weaker.


It was a mixed week for major equity markets. UK equities were the best performing, aided by the currency tail wind to return 2.1%. European equities (excluding the UK) were also up, returning 1.4%, with Japan just about positive at 0.3%. US and emerging markets equities both suffered though, with concerns over a re-acceleration of the trade war weighing on investors’ minds – the USA index slipped -1.9% and the emerging markets index fell -2.9% (all indices are MSCI, total return basis in local currency terms).


Bonds picked up a bid as markets became more risk conscious. 10-year US Treasury yields fell -8 basis points (bps) to 2.39% by Friday, while the equivalent UK government bond yields were -10 bps lower to 1.03%. 10-year German bund yields legged another -6 bps lower to -0.10%, falling below 10-year Japanese Government Bonds (JGBs) which were largely unmoved at -0.05%.


Growing tensions in the Middle East helped push oil up to US$72.21 per barrel (Brent Crude) while gold was a little softer despite the sentiment, closing on Friday at US$1,278 per ounce. Copper closed slightly down at US$2.75 per lb.


Sterling was sharply weaker across the board, down -2.1% versus the strengthening US dollar which picked up the risk-off trade, along with the Japanese yen. Sterling closed on Friday at US$1.27, €1.14 and ¥140.

Two Weeks Ahead

There are more data releases over the next couple of weeks though no single big-ticket item. On Tuesday 21, the UK reports CPI inflation, expected to have ticked up from 1.9% to 2.2% yoy and then on Thursday 23 we have the latest batch of PMI readings, including Japan, the Eurozone and the US (Markit readings). Friday 24 offers up UK Retail Sales numbers in the morning (4.5% yoy expected from 6.7% previously) and US Durable Goods Orders in the afternoon (-2.0% mom from 2.6% expected). Away from the data, this first week also has minutes released from the latest US and Eurozone monetary policy meetings, and the European elections. The week following the bank holiday is pretty quiet, with the highlights being on Friday 31 when China reports the latest official PMI readings and the US reports Personal Consumption Expenditure (PCE) inflation (no change at 1.5% yoy expected). The daily breakdown is as follows:

Monday 20 May: Japan reports the first estimate of first quarter GDP growth (-0.2% annualised quarter on quarter expected from 1.9%). In the afternoon, the Chicago Fed reports its National Activity Index.

Tuesday 21 May: Japan reports department store sales in the morning, and then later in the morning, the Confederation of British Industry reports on activity trends in the UK. In the afternoon, Eurozone Consumer Confidence is reported as well as Existing Home Sales.

Wednesday 22 May: Japan reports Core Machine Orders early in the morning, followed by UK inflation, covered above (as well as headline, Core CPI inflation is forecast to tick up from 1.8% to 1.9% yoy). In the evening, the US releases the minutes from the latest Federal Open Market Committee meeting.  

Thursday 23 May: The day is dominated by PMI releases, starting with Japan where Manufacturing PMI is due out early in the morning, with Eurozone PMI out later in the morning (Composite is forecast to rise from 51.5 to 51.7 with both Manufacturing and Services subcomponents expected to improve). The latest IFO German business survey results are also released in the morning. In the afternoon, US PMIs from Markit are expected to show improvements in both Manufacturing (52.7 from 52.6 expected) and Services (53.5 from 53.0 expected) subcomponents. Later in the afternoon, it is the turn of the Kansas City Federal Reserve to report its Manufacturing Activity index.

Friday 24 May: Japan reports CPI inflation a little after midnight, UK time (0.9% from 0.5% yoy expected). Later in the morning, UK Retail Sales will be in focus, while the US Durable Goods Orders report in the afternoon will be of interest (covered above).

Monday 27 May: Many people will be enjoying a bank holiday, and there are no real data releases of note scheduled.

Tuesday 28 May: Eurozone Business and Consumer Confidence measures are reported in the morning. In the afternoon, the US Conference Board reports on US Consumer Confidence and the Dallas Federal Reserve releases its latest Manufacturing Activity index.

Wednesday 29 May: It’s a relatively quiet mid-week, with only the UK Shop Price Index from the British Retail Consortium and the Richmond Federal Reserve Manufacturing index of any note.

Thursday 30 May: Another fairly quiet day. The second estimate of US GDP is released and US Pending Home Sales are also out.

Friday 31 May: The main activity comes at the end of the week. A minute after midnight, UK Consumer Confidence is reported from GfK along with the Lloyds Business Barometer reading. We then have Japan Industrial Production and Retail Sales out early in the morning before official China PMI numbers are reported around 2am UK time. Later in the morning, UK Consumer Credit and money supply activity is updated. In the afternoon, US Personal Income and Spending data are out, along with the PCE inflation measure (covered above), which is the Federal Reserve’s preferred gauge.

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