Overview
Emerging markets weakness
The aggregate emerging market GEAR fell to 3.1 per cent this month, reflecting broad weakness across the countries covered.
Turkey dipping deeper into recessionary territory is notable, but slowdown in the China GEAR is perhaps more interesting. It hit the lowest since Q1 2016, making China’s Q3 hard data out later this week even more important to watch. The weakness in recent consumer data stands out, with both retail sales and car sales falling significantly. The Korea GEAR, at 2.0 per cent, also moved sharply lower, driven by weak manufacturing data.
As expected, Brazil’s high GEAR reading last month was an outlier driven by a rebound in industrial production after the truckers’ strike in May. It fell back to 1.3 per cent in September.
Other significant falls this month were the GEARs of India and Chile, both after surprising periods of strength. Conversely, Mexico and Poland bucked the trend with decent increases.
Source: Fidelity International, October 2018
Developed markets hold firm
The aggregate developed markets GEAR held steady in September at 2.6 per cent. The ‘good’ news is that the US ticked up again, almost testing the post-crisis highs. Other developed markets have been fine on balance, but the stuttering downtrend seen all year still looks intact - and it is interesting to see even Switzerland finally joining the downturn after stubbornly outperforming all year.
The US GEAR remains strong at 4.5 per cent, climbing back to levels last seen in May. Survey data continues to run hot, including ISM non-manufacturing and the NFIB small businesses optimism survey. Consumer confidence is robust, as has been the case for some time. However, this isn’t fully matched in hard data such as retail sales and consumption growth. We are keeping a close eye on weaker housing indicators.
The gradual downward trend of the Eurozone GEAR has continued this month. We are now back to 2.0 per cent, equal to the low set in March, making a reacceleration look increasingly unlikely. Business survey data in Europe continues to be a mixed bag, though the trend looks to be downward. Productivity surveys are weak across manufacturing and services. Business confidence surveys point to a more positive environment but this is not mirrored in hard data. The bifurcation of soft and hard data is also present in the consumer-focused measures.
Source: Fidelity International, October 2018
In the UK, the grinding, multi-year downward trend appears to be intact. A GEAR of 2.2 per cent this month points to modest growth but the latest pickup has been very narrow, driven almost exclusively by industrial production. The Japan GEAR, at 1.5 per cent, is comfortably positive despite recent noise. The direction of travel for industrial hard data is positive, even if the levels aren’t particularly stellar.
