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Macro Report Summary (June 19, 2017)

Core Content

This report provides a detailed analysis of the macroeconomic performance of the Eurozone, US, and Japan for the week of June 19, 2017. It highlights the key economic indicators and their implications for growth, inflation, and monetary policy.

Eurozone Economic Outlook

Main Points

• The June Eurozone Composite PMI is expected to show continued expansion, reflecting a positive growth momentum in the second quarter of 2017.
• The May Composite PMI stood at 56.8, marking the 47th consecutive month of expansion and the highest level since May 2011.
• Manufacturing was the key driver of this expansion, with the May manufacturing PMI reaching 57.0, the highest in six years.
• New orders growth slowed to a 4-month low, but remained historically strong.
• Employment in manufacturing hit a new record high, contributing to the expansion.
• Output prices rose at the second strongest pace since mid-2011, indicating strong demand.
• Business optimism remained high, supporting the positive outlook for the economy.

Growth and Inflation

• The Eurozone GDP growth in Q1 2017 was 0.6% QoQ, twice the US rate of 0.3% QoQ.
• The unemployment rate fell to an eight-year low of 9.3% in May, indicating strong labor market performance.
• The ECB is expected to maintain its loose monetary policy in the near future to support inflation.
• Inflation remains muted, and the ECB ruled out further rate cuts, but emphasized the need for more stimulus.

Challenges and Risks

• Inflation is a mixed blessing, as rising energy prices could reduce consumer spending on other goods unless wage growth keeps pace.
• Political uncertainty related to Brexit continues to pose a downside risk to both the UK and the Eurozone.
• Although political uncertainty has decreased, the overall risks are still tilted to the downside.

US Economic Outlook

Key Data Highlights

• The May CPI inflation fell to 1.9% YoY, below the 2% threshold, and core CPI also dropped to 1.7% YoY.
• Retail sales declined 0.3% MoM, indicating weaker consumer demand.
• Industrial production remained flat at 0% MoM, suggesting weak manufacturing activity.
• FED decided to raise interest rates by 25 basis points, and announced a plan to start reducing its balance sheet in late 2017.

Monetary Policy

• The FED is moving towards policy normalization, with a clear plan for quantitative tightening.
• The FED is expected to continue its tightening cycle, with one more rate hike in 2017 and three in 2018.
• Interest rates are expected to rise to 1.25% by the end of 2017, which is higher than the current level.

Japan Economic Outlook

Key Data Highlights

• The BoJ held its monetary policy unchanged, keeping the 10-year bond yield target near 0% and the excess reserve rate at -0.1%.
• The BoJ reiterated its commitment to expand the monetary base until core CPI rises above 2.0% YoY.
• Industrial production declined in May, but PMI remained above 50, indicating expansion.

Inflation and Consumer Sentiment

• CPI was negative in May, but core CPI increased slightly to 0.5% YoY.
• Consumer confidence has improved, but inflation remains weak, and wage growth is still muted.
• The BoJ emphasized the need for time to shift the public from a deflation mindset to a more inflationary one.

Key Data Publications

Key Forecast Summary

Conclusion

• The Eurozone continues to show strong economic momentum, with expansion in PMI and declining unemployment.
• However, inflation remains weak, and wage growth is lackluster, creating downside risks.
• The US is experiencing mixed economic signals, with lower inflation and weaker retail sales.
• The FED is moving towards normalization, with a clear plan for quantitative tightening.
• Japan is maintaining a loose monetary policy, aiming to stimulate inflation and support growth.
• The overall outlook is positive for the Eurozone, but uncertainty and inflation remain key concerns.