In this briefing:
- Japan – Policymakers Panicking, We Are Not
- FLASH: BoE Blocked by Brexit Uncertainty
- FLASH: UK Retail Surges into Christmas 2018
- FLASH: UK Nov-18 Inflation Slows as Expected
- Time-Out Not Time up for Trade War
1. Japan – Policymakers Panicking, We Are Not
Japanese policymakers are panicking. Economic activity contracted in 3Q. Inflation is slowing, up 0.8% YoY in December vs 1.4% YoY previously. Exports are flat lining. Unsurprisingly the BoJ left monetary policy unchanged this month while Abe’s cabinet, taking no chances approved a record initial budget for fiscal 2019 this week. We see few real signs of the economy slowing yet though. We remain overweight Japanese equities and are forecasting 1% nominal GDP growth in 2019, the same as the first three quarters of 2018.
2. FLASH: BoE Blocked by Brexit Uncertainty
- The MPC voted unanimously for no policy change in December, as widely expected.
- Near-term GDP growth and inflation forecasts were both trimmed, but the extent may have been exaggerated by missing some recent news.
- Judging the appropriate policy stance was deemed to depend on the data in light of Brexit clarity. That should have occurred in time for a May-19 hike, in my view.
3. FLASH: UK Retail Surges into Christmas 2018
- UK retail sales surged by 1.2% m-o-m in Nov-18, which takes the level well above trend. Black Friday sales helped but discounting is not responsible.
- Sales in December have had a strong positive correlation with November since 2014. I pencil in +0.5% m-o-m before sales normalise lower in the new year.
- The latest rise raises my Nov-18 monthly GDP forecast to 0.2% m-o-m and removes the downside risk to my 0.3% q-o-q forecast for 4Q18.
4. FLASH: UK Nov-18 Inflation Slows as Expected
- UK inflation matched Consensus expectations in Nov-18 as it slowed to 2.3% on the CPI and 3.2% on the RPI with the index printing at 284.6.
- Food price inflation slowed sharply, consistent with my proprietary pricing data. Beer and tobacco prices were stronger than I expected, but both were broadly in line with my new database, which I intend to assign more weight to incrementally.
- Further falls in headline inflation are likely to occur in the coming months. An earlier December index date would weigh on airfares, and Ofgem’s energy cap comes into force for January. Sub-2% inflation currently looks likely through 2019.
5. Time-Out Not Time up for Trade War
- Xi and Trump walk away from Buenos Aires with something to sell at home
- But trade negotiations will be dominated by fraught disagreements
- After 90-day negotiations, further delays to tariff escalation are likely
