Overview
Italian political turmoil continues to take its toll
The Eurozone’s 1.7 per cent reading reinforces the drop seen in the recent third-quarter GDP print, which was below trend after weakness in Germany and Italy - although the GEAR remains more sanguine on actual activity levels.
Italy GEAR of 1 per cent is at the bottom of the pile, falling significantly since the beginning of the year as political turmoil takes its toll. France GEAR of 1.1 per cent is only marginally stronger, and it continued to weaken notably. Germany GEAR, at 2.2 per cent, has slowed a little but has been resilient despite the weaker Q3 GDP print, which means a Q4 bounce in the GDP data remains possible. Spain maintains its position as the regional outperformer, with a GEAR of 2.5 per cent.
UK GEAR dropped appreciably, falling to 1.4 per cent, its weakest level since the month after the Brexit referendum. This suggests that the bounce in Q3 GDP data is likely to prove temporary. Consumer confidence is weak, likely linked to the RICS housing survey, which has also been poor. Against this backdrop, it is no surprise to see retail sales also falling materially. Business surveys also paint a pessimistic picture, with the services PMI well below historical averages. One bright spot is construction confidence, though it is doubtful whether this can be sustained, given the weakness seen elsewhere.
Source: Fidelity International, October 2018
China leads EM GEARs lower
EM GEARs remain particularly weak, with China GEAR plunging further to 5.8 per cent, the lowest since April 2015. The weakness there was broad-based, with consumer data particularly poor and both retail sales and car sales falling significantly.
Korea GEAR also appears decidedly weak at 1.4 per cent, a 34-month low, as confidence and hard data deteriorate on the consumer side. India GEAR is holding up okay at 7.4 per cent, recovering after last month’s particularly low reading. But Brazil GEAR at 0.7 per cent is fairly bleak, as it has been for most of the year.
Mexico GEAR is looking stronger at 2.0 per cent, with trade data and new orders picking up, though Chile GEAR at 2.0 per cent has rolled over after a strong period as a global outperformer. Turkey GEAR remains in recessionary territory at -1.6 per cent, extremely soft on almost every metric.
South Africa GEAR at 2.5 per cent continues to defy its very low PMI readings, with manufacturing and import data looking reasonably strong. The CEE3 GEAR, tracking Poland, Czechia and Hungary, stood at 3.1 per cent, showing clear signs of easing off.
Source: Fidelity International, October 2018
Source: Fidelity International, October 2018
US GEAR strength contrasts with weakness elsewhere
US GEAR, in contrast to the other GEARs, continued its strong run at 4.1 per cent, notching levels above 4 per cent since late 2017.
US business surveys have eased slightly at the margin, but remain strong, with the manufacturing ISM a prime example. High readings for small business optimism and the non-manufacturing ISM have been particularly buoyant lately. While the housing market remains a weak spot in the broadly positive picture, permits and starts have shown tentative stabilisation. It is worth monitoring given November’s weak NAHB survey. Retail sales and consumption growth have also softened somewhat, but consumer confidence remains strong, even if the Trump administration’s mooted ‘Tax Cut 2.0’ for the middle classes look unlikely to occur.
