21 May 2019
The US GEAR is perhaps most interesting for the global picture. The latest print is down 1.4 percentage points from 2018’s strong average rate, which makes it seem as if the US downtrend is well intact. Second-quarter GDP could show deterioration, after the first quarter’s underlying weakness was masked by huge contributions from volatile components, such as net exports and inventories. This is not necessarily worrying, given that the US is considerably earlier in its slowdown than the rest of the world.
Crucial to watch China GEAR
Marked improvement in emerging markets - specifically, China - has underpinned the Global GEAR’s year-to-date improvement. Business surveys remain above the lows, although investment data has slumped again. Real estate indicators have been surprisingly strong, as some policy restrictions are loosened. However, the overall poor quality of China’s April dataset - particularly, the weak private investment picture, with counterbalancing reliance on state-owned enterprises and real estate - combines ominously with the latest US tariffs on Chinese imports. Next month’s China GEAR will be crucial to watch.
Japan back in expansion, global outlook mixed
The other developed market GEARs continue to edge lower on aggregate, although Italy and Japan are out of contraction. But these will likely take their cue from the rest of the world. Japan’s GEAR is back in expansionary territory, although this may reflect lower base effects after a very weak start to 2019. Exports have bounced back from two-year lows, while retail sales have also jumped - though the latter could be derailed by a sales tax hike planned for October.
The global outlook is mixed and uncertainties abound. The Fidelity Leading Indicator (FLI) and China’s surprisingly-large stimulus in the first quarter would suggest that the next major move could still likely be upwards; conversely, tariff disruptions, the latest GEAR, and any prolonged hit to markets would suggest that we could be at these subdued activity levels for some time yet.
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