JPMorgan Econ FI-Global Data Watch We will do everything we can to support a ...-109990114

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Global Economic Research

23 August 2024

JPMORGAN

www.jpmorganmarkets.com

Contents

Brazil: The case for (and against) BCB rate

stability 11

RBNZ cuts: Expecting a slow reaction in housing 13

Global Economic Outlook Summary 4

Global Central Bank Watch 6

Economic Activity Tracking 8

Selected recent research from J.P. Morgan

Economics 10

Data Watches

United States 15

US Focus: Beryl and July jobs 20

Euro area 21

Japan 27

Japan Focus: The drivers of weak export trends 31

Canada 32

Mexico 34

Brazil 36

Argentina 38

Andeans 40

United Kingdom 42

Sweden and Norway 44

Emerging Europe 46

South Africa 49

Australia and New Zealand 50

China, Hong Kong, and Taiwan 52

Korea 56

ASEAN 57

India 61

Regional Data Calendars 63

Economic and Policy Research

Bruce Kasman

(1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton

(1-212) 834-5735

joseph.p.lupton@jpmorgan.com

JPMorgan Chase Bank NA

Nora Szentivanyi

(44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

J.P. Morgan Securities plc

Global Data Watch

•Powell risk bias pivot points to policy rate step-down by year-end

•Firm inflation and weak supply-side point to limited Fed pass-through

•Flash PMIs move up but manufacturing weakness persists

•Next week: US profits and real PCE up; modest EA core HICP

We will do everything we can to support a strong labor

market

Discussion in these pages has recently focused on a shifting assessment of

macroeconomic risk. While making no material changes to growth or inflation

projections over the past two months, we see more downside risk to both. There has

been a midyear loss of momentum in the Euro area and China amid weakening

global manufacturing surveys. US GDP growth is tracking a solid pace of gain, but

labor demand has softened with hints of slowing labor income gains and rising

layoffs. We do not see weakness ahead but this news warrants a modest increase

in our assessment of near-term recession risk.

Downside inflation risk is concentrated in the US where a sharp core inflation slide

aligns with positive supply-side performance not evident elsewhere. We have

argued that modest complementary shifts in risk can have a powerful impact on

central bank behavior. Our recent Fed forecast change reflects the view that recent

developments will produce a shift in risk management that shakes the Fed from its

gradualist guidance. This week’s communication—from the FOMC minutes and

Chair Powell’s Jackson Hole speech—confirms that the Fed has been shaken and

should deliver a roughly 100bp step-down in rates by the end of this year.

This week’s activity indicators have, on balance, calmed global growth fears.

Although the August flash manufacturing PMI continues to show weakness, the

all-industry DM reading moved higher, due to a broad-based rise in services

(Figure 1). The Euro area August bounce realigns the survey to our current-quarter

14 16 18 20 22 24

DI, sa; August is flash estimate

Figure 1: DM PMI: activity

Source: S&P Global, J.P. Morgan

Services

Mfg

Composite

-2

-1

60 65 70 75 80 85 90 95 00 05 10 15 20

%6m, saar; orange line incl. benchmark rev. thru Mar

Figure 2: US employment, private payrolls

Source: BLS, J.P. Morgan

See page 72 for analyst certification and important disclosures.

Bruce Kasman (1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

joseph.p.lupton@jpmorgan.com

Nora Szentivanyi (44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

Global Economic Research

Global Data Watch

23 August 2024

JPMORGAN

growth forecast but may reflect a temporary boost from the

Olympics and Taylor Swift. Elsewhere the survey points to

more sustained strength and we nudged higher 2H24 GDP

forecasts for the US, UK, and Japan in recent weeks. If we

are right, next week’s US releases should further calm con-

cerns as we expect 2Q24 profits and July real PCE to post

solid gains.

The main concern in this week’s reports comes from the US

BLS benchmark revision. A scaling back of last year’s boomy

job growth was anticipated and is already incorporated in per-

sonal income data. But the larger-than-expected estimated

revision to jobs in the year ending in March enhances con-

cerns about the recent momentum loss. Indeed, US private

sector job growth has not slowed below a 1%ar on a six-

month basis at any time during a sustained expansion since

1960, a pace we may have touched in 1Q24 based on factor-

ing in the estimated revision smoothly across the benchmark

period (Figure 2).

This week’s minutes of the July FOMC meeting are notable

in showing a broad shift in the committee’s risk bias in

advance of the latest employment report. “Several” partici-

pants had contemplated cutting 25bp at that time and a “vast

majority” expressed a readiness to cut in September. While

the most recent Fed speakers continue to describe the Fed’s

path ahead as gradual, Chair Powell shifted his risk assess-

ment more forcefully this week. His statement that labor mar-

ket “conditions are now less tight than just before the pan-

demic” contrasts with his July 31 press conference comment

that “conditions in the labor market have returned to about

where they stood on the eve of the pandemic.” Reinforcing

this shift he argued that it is now “unlikely that the labor mar-

ket will be a source of elevated inflationary pressures” and

that “we do not seek or welcome further cooling in labor mar-

ket conditions.” While not pre-judging the size of moves

ahead, the risk of labor market weakness now appears to be

the primary concern. With supply-side performance boosting

disinflation confidence, a quicker closing of the gap between

our balanced u-rate Taylor rule guide and the current policy

stance is warranted (Figure 3).

jpn emu swe aus nor can gbr usa

Actual Taylor (output gap) Taylor (U-rate)

%p.a

Figure 3: Policy rate, Taylor rule-implied (3Q24) versus actual

Source: J.P. Morgan Global Economics. Details on request. Actual is current policy rate.

We expect a shift away from gradualism by other central

banks to take place only where a similar shift in risk bias is

taking hold. In Europe, this shift appears underway in Swe-

den. The Riksbank followed this week’s anticipated ease with

guidance pointing to 3-4 cuts by year-end. In contrast to the

Euro area and the UK, there has already been a significant

labor market correction with the unemployment rate up

1.5%-pts over the past year. In contrast to the US, the jump in

the Swedish unemployment rate is driven by an employment

decline and weak domestic demand. With forward-looking

indicators also pointing to further increases in the unemploy-

ment rate, there is a rising risk that the Riksbank will start

cutting in 50bp increments.

In the Euro area, Taylor rule estimates highlight the divergent

signal on policy from tight labor markets—which reflects the

region’s weak supply-side conditions—and still soft levels of

domestic demand. This week’s ECB minutes point to a con-

tinued focus on actual wage and price performance with a

statement. The final July HICP points to moderating services

price pressures and the latest negotiated wage data came in on

the soft side. However, the ECB will likely interpret this news

with caution, particularly as wage moderation reflects the

timing of one-off payments in Germany. Overall, we think the

recent news is consistent with the ECB easing gradually, with

25bp cuts in September and December.

Standing between the Riksbank and ECB is the Bank of Can-

ada, which is on track for a steady pace of 25bp rate cuts

through year-end. This week’s July CPI report broadly

aligned with expectations lowering the BoC’s preferred core

measures to a 2.6%oya rate. That said, the exclusionary core

rate has firmed recently alongside nominal wage growth. The

BoC remains comfortable with its forecast that “excess sup-

ply” will continue to inject disinflationary pressure. With our

forecast for a rising unemployment rate at 1.25%ar 2H24

GDP growth a steady pace of rate cuts seems likely.

Divergence in global inflation performance

Global core inflation slowed to a 2.8%ar in the three months

to July down from the first half’s elevated 3.4%ar gain. The

outcome is line with our views but the composition of recent

inflation performance has delivered two surprises:

•US slides while ROW sticks. We have been anticipating

the US would lead the 2H24 downshift. But the US

decline has been greater than expected while pressures

elsewhere have stayed firmer. This rotation has been par-

ticularly pronounced in the service sector.

•No narrowing in sectoral gap. We forecast service sector

moderation alongside a firming in goods inflation that has

yet to play out. A deepening in US core goods deflation

(-1.9%ar), weighed down by sharp declines in auto prices,

Bruce Kasman (1-212) 834-5515

bruce.c.kasman@jpmorgan.com

JPMorgan Chase Bank NA

Joseph Lupton (1-212) 834-5735

joseph.p.lupton@jpmorgan.com

Nora Szentivanyi (44-20) 7134-7544

nora.szentivanyi@jpmorgan.com

Global Economic Research

23 August 2024

JPMORGAN

masks a firming in the rest of the world where a combina-

tion of still-solid goods demand and rising transportation

costs have pushed core goods inflation up to a 1.3%ar in

July. At the same time, global service price inflation

remains firm even as the US is recording a substantial

slide (Figure 4). US services inflation fell to 2.7%ar basis

in the three months through July but was up to 5.4%ar in

the rest of the world.

-2

18 19 20 21 22 23 24

%3m, saar

Rest of the world

Figure 4: Services CPI

Source: National sources, J.P. Morgan. Details on request. RoW excludes China and Türkiye.

North Asia tempers global IP concern

A third straight decline in this week’s August flash DM man-

ufacturing output index has raised concerns that a modest

1H24 recovery may now be ending. Against these concerns,

North Asia remains a bright spot as incoming data remain

consistent with an upturn. The disconnect with global dynam-

ics is in part explained by the region’s strong reliance on tech,

which should continue to benefit from global AI-driven

investment. A pickup in tech drove a strong rebound in Tai-

wan’s July export orders as well as Korea’s 20-day exports

for August. After underperforming in 1H24, Japan also now

looks to be benefiting from a regional tech cycle upswing.

Signals on non-tech activity have been more mixed but sup-

port a constructive outlook on global capex. Taiwan’s

machinery orders have gained momentum in recent months

and Japan’s auto exports—which had been soft through much

of the summer due to temporary production suspensions—

also rebounded in July.

BoJ guides to gradual rate hikes

Despite recent market turbulence that has pushed the yen

higher, BoJ governor Ueda’s message to the Diet this week

continued to emphasize the gradual normalization of “highly

accommodative” monetary policy, reiterating that the current

level of the policy rate remains accommodative. Although

this week’s July CPI indicated some moderation in underlying

price momentum, we expect this to reverse toward 4Q. Firm

inflation and solid domestic demand and wages gains likely

will prompt the next policy rate adjustment late in the year as

the BoJ moves on a track to raise policy rates to at least 1%,

boosting confidence in sustainably achieving the price target.

We continue to expect the BoJ to raise the policy rate by 25bp

to 0.5% in December this year, followed by two more hikes in

2025.

China policy support in progress

China’s efforts to ramp up policy support have had limited

impact on economic activity so far. Growth momentum

remained soft through July and we recently revised down our

current-quarter GDP forecast to a subpar 3%ar. We still look

for accelerated special local government bond issuance (with

expanded use) and further measures to stabilize the housing

market to lift growth to a 5.5%ar next quarter. Government

bond issuance picked up steam in August and news reports

suggest local governments may be allowed to buy unsold

homes for conversion into affordable housing. Such policy

developments could help to improve the effectiveness of fis-

cal (credit) support measures, although the real source of

weakness still appears to be a lack of sufficient demand.

With pressure abating, EM Asia can ease

We added monetary easing in Asia following the change in

our Fed forecast but episodic currency weakness appeared to

pose a constraint on the speed with which regional policy-

makers would act. The recent turnaround in FX markets thus

increased conviction for easing before year-end. Thailand’s

BoT turned more dovish this week and looks to be increasing-

ly sensitive to the near-term growth drag from household debt

deleveraging; we bring forward the start of easing by a quar-

ter to 4Q24. For Indonesia, global financial conditions remain

key and if the rupiah’s rebound holds we expect 50bp of eas-

ing in 4Q. Dovish signals from the Bank of Korea this week

make us more comfortable about a 25bp cut in 4Q24, which

we look for in November.

BCB and Banxico: torn differently

A hawkish turn in Brazil’s BCB rhetoric has increased the

risk of a hike at the next meeting. While a significant turn

toward hikes would help to re-anchor inflation expectations,

it could also hurt growth more than necessary. Monetary poli-

cy is already tight and fiscal policy will become increasingly

restrictive. We maintain our view of stable rates until mid-

2025, but acknowledge this has become a close call.

Mexico’s Banxico is expected to continue cutting rates after a

delayed start to its easing cycle, but also faces a dilemma.

Soft economic growth and the ongoing core inflation declines

(finally below 4% for the first time since 2021) validate a

dovish stance amid still high policy rates. At the same time,

the risk of currency weakening inflation is non-negligible. We

continue to expect split decisions that produce intermittent

rate cuts for the rest of the year. The Fed factor and institu-

tional noise related to the start of congress sessions in Sep-

tember will further complicate Banxico’s guidance.

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GlobalEconomicResearch23August2024JPMORGANwww.jpmorganmarkets.comContentsBrazil:Thecasefor(andagainst)BCBratestability11RBNZcuts:Expectingaslowreactioninhousing13GlobalEconomicOutlookSummary4GlobalCentralBankWatch6EconomicActivityTracking8SelectedrecentresearchfromJ.P.MorganEconomics10DataWatchesUni...

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