Brief Macro: Raw Materials and Retail Pricing and more

In this briefing:

1. Raw Materials and Retail Pricing
2. Trade During Lunar New Year
3. Why China’s Stimulus Will Disappoint
4. FLASH: UK GDP Resurgence Raises 1Q19 Forecast
5. Preview: UK Fiscal Spring Statement Beside Brexit

1. Raw Materials and Retail Pricing

What the pricing data seems to imply is that consumer prices remain relatively steady but trending slightly downward, likely from weakness in household consumption that mirrors the broader economic trends. Corporate and producer sector data is driven by weakness in commodities and raw materials that seem hard pressed to accelerate in 2019 given the high base effect from 2018. 

2. Trade During Lunar New Year

An underlying issue regarding February data is just how pressurized it is. Between cross armed speculations about trade talk negotiations and the biggest Chinese holiday, it should come as no surprises that February data is underwhelming. Chinese markets are still grappling with a way forward in the trade talk quagmire, but February numbers are in many ways seasonal, due to the holiday snapshot it encompasses.

3. Why China’s Stimulus Will Disappoint

By Lawrence Brainard, Chief Emerging Market Economist at TS Lombard

• In a Chinese version of QE the PBoC is flooding markets with liquidity
• Commercial banks will be slow to use it to boost lending to SMEs

4. FLASH: UK GDP Resurgence Raises 1Q19 Forecast

• UK monthly GDP exceeded all expectations by surging 0.5% m-o-m in Jan-19. Construction rebounded by even more than I expected, as did manufacturing, while services remained resilient relative to the biased surveys.
• The level of GDP is already 0.35% above the 4Q18 average, so I raise my forecast for 1Q19 by 0.1pp to 0.4% q-o-q. The BoE’s 0.2% forecast is looking woefully gloomy, although Brexit remains critical to the policy outlook.

5. Preview: UK Fiscal Spring Statement Beside Brexit

• The Spring Statement is intended to be more of a fiscal update than a significant event, and limited forecast changes further shrink its relevance, especially relative to Brexit. However, I expect the new remit for 2019-20 to be £128bn.
• Reforms to the RPI have become a market concern again, but now would be a terrible time for the Chancellor to rock the boat. A consultation could be launched into reforms of the index’s use, rather than construction, though.