20160803-招商证券_香港_-Global_Macro_Weekly_Digest__Issue_49__July_PMI_data_showed_deterioration_of_UK_economy_after_Brexit,_BoE_policy_may_be_loosened_this_week_17页_1mb_1mb

Macro Report Summary

1. UK Economic Outlook and BoE Policy

• UK PMI Data: July PMI data showed a significant deterioration in the UK economy, with services PMI dropping from 52.3 to 47.4 and manufacturing PMI falling to 49.1, its lowest since February 2013. The economic sentiment index also fell to 102.6, the lowest since June 2013.
• BoE Policy Meeting: The Bank of England (BoE) is expected to announce easing measures this week (August 4th), following signals in its July meeting minutes that most members expect further monetary easing in August.
• Market Expectations: High market expectations for easing are due to the BoE's signals and the PMI data, which suggest a need for action.
• Economic Indicators: Despite the PMI and sentiment data, other "hard" data such as 2Q GDP growth at 2.2% YoY and stable price levels (including resilient housing prices) suggest the economic deterioration is limited.
• Potential Measures: A mild easing is more likely, such as a 25bp rate cut, with little or no resumption of QE purchases.
• Uncertainty Factors: The low business activity is mainly due to uncertainty about the UK's future access to the EU single market and trade arrangements, so monetary easing may not significantly boost business activity.
• Long-term Outlook: The BoE may save most of its policy ammunition for future use. If the BoE does ease, the impact on the pound will be limited in the short term, but the currency is expected to weaken in the long run due to the ongoing economic uncertainty from Brexit.

2. US Economic Data and Federal Reserve Outlook

• US GDP Growth: The US second-quarter GDP growth was 1.2% YoY, below expectations, and the third-quarter growth is expected to be 2.1%.
• Consumer Spending: Personal consumption expenditures grew by 4.2% YoY, contributing significantly to GDP growth.
• Private Investment: Private inventory and fixed investment fell sharply, dragging down GDP growth.
• Nonfarm Payrolls: The June nonfarm payrolls were 287,000, with market expectations of 180,000.
• FOMC Decision: The Fed kept interest rates unchanged in July, maintaining the federal funds target rate at 0.25% - 0.5%, and will continue reinvesting in quantitative easing.
• Interest Rate Outlook: The Fed is likely to raise rates in December, with a 33% probability of a rate hike in September, given the current economic environment.

3. Eurozone Economic Outlook

• HICP Inflation: Eurozone July HICP inflation rose to 0.2% YoY, above market expectations of 0.1%, indicating a slight recovery from the impact of Brexit.
• GDP Growth: Eurozone second-quarter GDP growth was 0.3% seasonally adjusted, below the previous quarter's 0.5%, showing a slowing growth trend.
• France's Impact: France's economic slowdown was a key factor in the Eurozone's lower growth, due to large-scale strikes affecting consumption and investment.
• Policy Implications: The ECB may face increased pressure to take action, but the data suggest the recovery is still fragile and uncertain.

4. Japan Economic Outlook

• Industrial Production: Japan's June industrial production rose by 1.9% YoY, exceeding expectations, indicating a slight recovery in demand.
• CPI Data: Japan's June CPI fell by 0.4% YoY, with energy prices dropping 11.8% as the main factor. Core CPI rose slightly to 0.4%, still far from the 2% target.
• Monetary Policy: The Bank of Japan announced a small expansion of its quantitative easing policy, increasing ETF purchases to 6 trillion yen annually, but the move was seen as symbolic and did not meet market expectations.
• Market Reaction: The yen rose and the Nikkei index fluctuated significantly. The BOJ may need to adjust its monetary policy framework in the coming months to better align with fiscal stimulus.
• Future Outlook: The BOJ may consider a more aggressive easing policy in the future to support economic growth and inflation.

Key Data Publications This Week

Data	Date	Prior	Consensus
US July ISM Manufacturing PMI Index	August 1	52.9	52.9
Japan July PMI Composite	August 3	49.0	-
EMU July PMI Composite	August 3	52.9	52.9
UK BoE Announcement	August 4	-	-
US July Nonfarm Payrolls (thousand people)	August 5	287	180

Main Forecast

Country	GDP	CPI	Unemployment	Current Account/GDP	Fiscal Balance/GDP	Policy Rate	Dollar Index	EUR/USD
US	2.4%	0.1%	5.3%	-2.7%	-2.6%	0.50%	98.7	-
Eurozone	1.6%	0.0%	10.9%	3.2%	-2.1%	0.05%	101.0	1.09
Japan	0.5%	0.8%	3.4%	3.3%	-6.7%	0.10%	120.2	1.05

Conclusion

• The UK economy is showing signs of deterioration post-Brexit, but the impact is limited.
• The BoE is expected to take easing measures this week, likely in the form of a 25bp rate cut, but the effects may be minimal in the short term.
• The US economy is showing signs of slowing growth, with a focus on consumer spending and weak private investment.
• The Eurozone is experiencing a fragile recovery, with France as a key drag on growth.
• Japan's economy is showing slight signs of recovery, but inflation remains low, and the BOJ's policy adjustments may be needed to support growth.