Your Weekly Economic Cheat Sheet

Last Week

The focus of the global economy shifted entirely to Europe last week, and the continued lackluster economic numbers were among the main reasons we saw such massive volatility and selling in risk assets. At the moment, U.S. and Chinese data are firmly in the backseat (barring any major disappointments).

Specifically within Europe, focus was on Germany last week and the data simply weren’t good: Monday it was August manufacturers’ orders, which slumped —declining -5.7% vs. (E) -2.5%. Tuesday it was August industrial production, which fell -4% vs. (E) -1.1%). And then Thursday exports dropped -5.8% in August—completing a trifecta of negative data from Germany.

Now, to be fair, August is typically a bad data month in Europe, and especially the export numbers were hurt by the timing of a holiday. But at this point the No. 1 concern for the market is global growth and, specifically, whether Europe is backsliding into a recession. And as Germany goes, so goes Europe. So, the bad data elevated fears about global economy growth.

While the European data were the most important last week, the most followed/anticipated release was the FOMC minutes, which surprised markets by being exceptionally dovish. The main takeaway was the “core” of the Committee appears much more concerned about growth in Europe, global growth and the stronger dollar than most people thought. As a result, they seem to be putting a lot of weight behind these risks, implying they may be more dovish than the market thinks.

Oddly, these “dovish” minutes were somewhat contradicted by FOMC officials’ comments later in the week, as multiple Fed presidents—including former Vice Chair Dudley and current Vice Chair Fischer—implied “lift off” for interest rates remains mid-2015. That muddled message added to the volatility in stocks last week.

Muddled message aside, the market took the Fed is dovish last week, and Fed Fund futures are now pricing in a rate hike sometime in Q4 2015.

Turning to actual data in the U.S., it was sparse but what we got was good: the 4-week moving average for jobless claims fell to an 8-year low, while both the Kansas City Fed Labor Market Index and the new “Labor Market Conditions Index” both showed further improvement in the jobs market (some tried to spin the LMCI as dovish, but it wasn’t).

Finally, Chinese composite PMI slightly missed expectations but remained solidly above 50, and the market largely ignored the release.

Bottom line is the main concern of the market is the health of the global economy, and last week’s data were not reassuring.

This Week

It’s going to be a busy week, as there are multiple reports from all regions of the globe (U.S., Europe and Asia), although as mentioned, the European data will be the most important.

Starting with that, then, we get multiple readings on inflation and growth from Europe.

First, the growth numbers to watch (in order of importance): EMU industrial production comes Thursday (it’s going to be bad—just a question of how bad). The German ZEW Business Survey is released Tuesday night (look at the expectations component), while Italian GDP is released Wednesday (there are fears that Italy is already in a recession).

Turning to inflation, we get final inflation readings for September (we got the “flash” readings two weeks ago). There shouldn’t be any major surprises, but given the concern about deflation, if the flashes are revised down even by just -0.1%, look for that to pressure the market.

Italian CPI comes Tuesday, Germany CPI is released Wednesday, EMU HICP comes Thursday, and French CPI comes Friday.

Again, this is all about Europe at the moment, so any good news on the growth or inflation front will be welcomed by risk assets.

Turning to the U.S., it’s also a busy week. By all accounts, U.S. growth remains “fine,” but this market is unsettled and it needs a confidence boost. Good data this week, especially from Empire State manufacturing and the Philly Fed (Wed/Thurs), could help sentiment. That’s because they are the first look at October data and will remind everyone growth here is still good.

Also on the calendar are retail sales (Wednesday) and industrial production (Thursday), as well as weekly claims and housing starts (Friday). Again, while none of these numbers will change anyone’s outlook on growth for the U.S., they will affect confidence, so good numbers are needed.

Finally turning to China, its trade balance was better than expected, while CPI and PPI are tomorrow. Again, not to be repetitive, but the No. 1 concern is about global growth—if the trade numbers are a disappointment, that’s going to be a headwind.

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