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German research institutes lower 2019 GDP forecast amid weakening economic outlook

  
Analysis, Economy

IfW and DIW slash their 2019 GDP forecasts for the German economy

Germany

  • IfW now sees German economy expanding by 0.4% this year (previously 0.6%)
  • Sees 2020 GDP at 1% (previously 1.6%)
  • Notes that German economy likely shrank by 0.3% in Q3
  • Therefore, falling into a technical recession
  • DIW now sees German economy expanding by 0.5% this year (previously 0.9%)
  • Sees 2020 GDP at 1.4% (previously 1.7%)
  • Further risk next year comes from no-deal Brexit
  • If that happens, it would slash a further 0.4% off 2020 economic growth
Looking at both the downgrades, it pretty much reaffirms the negative growth outlook seen in the German economy in the second-half of this year. A technical recession isn’t confirmed just yet but the signs and data released so far are suggestive of one.
Notably, DIW says that Germany needs a long-term government investment program to help lift economic confidence and the growth outlook. Yeah, that doesn’t look like one is coming any time soon after yesterday’s budget announcement.

China ready to sweeten deal by buying American goods – report

  
Analysis, Economy

Officials discussing text of the deal

This has been doing the rounds for the past 15 minutes. It outlines what would be a broad deal on trade and it highlights that officials are already working on a text.
They cited an anonymous source.

As part of the discussions, China has offered to buy American products in exchange for a delay in a series of US tariffs and easing of a supply ban against Chinese telecommunications giant Huawei Technologies.

The source said China could also offer more market access, better protection for intellectual property and to cut excess industrial capacity, but would be more reluctant to compromise on subsidies, industrial policy and reform of state-owned enterprises.

This sounds like an interim deal while they work out more, something that has been rumored. But it could also be read as a broad deal.
Ominously, the report also notes that Beijing increasingly believes that any deal now is simply a ceasefire and that the US is committed to curbing China in the long term.

In Beijing, the leadership is putting the focus on the longer term, suggesting that a trade deal with the US would be just a trade war truce.

In a speech last Tuesday, Chinese President Xi Jinping urged the Communist Party to embrace a long-term struggle against a range of risks.

This is beginning to get some traction and helping risk trades.

China trade balance data for August – surplus comes in below median estimate

  
Analysis, Economy
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Trade balance data out from China Sunday will not be viewed as a positive input for China-related risk markets.

The counter to this is, of course, the expectation of stimulus from China, some of which we have already indeed seen (eg. only on Friday we got news of  the cut to the RRR) and more is forecast.

Yuan terms trade balance data

Surplus for the trade balance of 239.60bn … miss

  • expected CNY 299.3bn, prior was CNY 310.26bn

Exports +2.6% y/y … miss … slowing global growth and US tariffs key points for exports missing

  • expected +6.3%, prior was +10.3%

Imports -2.6% y/y  – falling imports are often associated with domestic economic weakness -this result not as sharp a fall as expected.

  • expected -3.1%, prior was +0.4%

USD terms

China trade balance: $+34.84

  • expected $44.3bn, prior was $44.58bn

(more…)

Eurozone Q2 final GDP +0.2% vs +0.2% q/q second estimate

  
Analysis, Economy

Latest data released by Eurostat – 6 September 2019

  • Final GDP +1.2% vs +1.1% y/y second estimate
The secondary reading can be found here. No change to the quarterly estimate with only a minor upwards tweak to the annual reading. The details see that household consumption grew by 0.2% on the quarter relative to the 0.4% growth posted in Q1.
It still shows that euro area growth is still hanging on modestly as sluggish economic conditions continue to weigh on the region.

Ray Dalio dials back his recession forecast probability – 75% chance no recession this year or next

  
Analysis, Economy

Bloomberg with an overnight piece on the views of Bridgewater founder Ray Dalio

I double checked, even put new batteries in my abacus and yep, that’s a  75% chance of no recession.
I also did some Googling.
  • He was 35% chance of a recession back in February
  • 40% in August
(according to an admittedly non ccomprehensive search)
On his latest forecast of 25/75:
  • central bankers will be limited in addressing it
  • (it being a recession … I’d suggest ‘Return to Sender’ )
  • The Federal Reserve, European Central Bank and Bank of Japan “have to face the fact that when the next downturn comes there will not be the power to reverse it in the same way that existed before”
  • recommends the Fed cut interest rates slowly
More at the link above
Bloomberg with an overnight piece on the views of Bridgewater founder Ray Dalio

Its nonfarm payroll day in the US – preview

  
Analysis, Economy

NFP report is due Friday, some comments from Goldman Sachs on what they expect

Estimate the headline nonfarm payrolls +150k
  • Our forecast reflects a 15-20k boost from Census canvassing activities, but a slower underlying pace of private-sector job gains in part reflecting the return of the trade war
Further forecasts:
  • unemployment rate unchanged at 3.7%.
  • average hourly earnings +0.2% m/m and 3.0% y/y

Liu He: China is fully capable, confident to deal with any difficulties

  
Analysis, Economy
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China vice premier, Liu He, is on the wires

  • China’s economy faces increasing downward pressure
  • China has sufficient macro policy tools
  • To increase lending to small and private firms
  • Will improve monetary policy transmission mechanism
More of the same stuff coming from Chinese authorities as they continue to try and shore up market confidence. Nothing that really stands out here.
Markets continue to be more optimistic on the day with USD/JPY rising to 106.70 currently from 106.50 levels earlier amid the more buoyant risk mood.
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