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Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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June 2017 | World Economics


World Economics Monthly - Developed Economies

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Fed raises rates and signals further tightening this year...
Despite the fact that consumer price inflation continues to weaken in the USA (the annual rate of increase in core prices decelerated for the fifth month in a row during May, from 2.3% in January to 1.7%), the Fed raised its funds rate by 25 basis points, to 1.25%, at its June meeting. Moreover, it reinforced expectations of a further 25-basis-point rise before the end of this year.

...as labour and housing markets tighten
At just 4.3%, the rate of unemployment was at a ten-year low during May, while the annual rate of median wage growth has now been higher than 3.0% for seven months (it stood at 3.4% in May) and house prices remain buoyant. The Case-Schiller 20-City Composite House Price Index rose by 5.7% y-o-y during May, pushing nominal house prices to their highest level since August 2007. Unsurprisingly, consumer confidence is robust, with the Conference Board Index rising from 117.6 to a reading of 118.9 between April and May, with consumers’ assessment of current conditions reaching its highest level since July 2001.

Manufacturing and exports remain buoyant in Japan...
Japanese exports exhibited their fastest rate of monthly growth since January 2015 during May, rising by 14.9% y-o-y. Industrial output increased at an annual rate of 5.7% during April – its sixth successive month of expansion and its fastest rate of growth in just over three years. However, the Nikkei Flash Japan Manufacturing PMI declined from 53.1 to a seven-month low of 52.0 between May and June, amid a decreasing backlog of work and declining inventories.

...but low unemployment is not boosting wages
Amid an ageing and declining population, Japan’s unemployment rate stood at a 22-year low of 2.8% in April, unchanged from the previous month. While this is not yet feeding into higher wages, consumer confidence remains close to a three-and-a-half-year high, rising from 43.2 to a reading of 43.6 between April and May.

German confidence indicators hit multi-year highs
The German Ifo Business Climate Index rose for the sixth successive month during June, from 114.6 in May to 115.1. This represents a record high for a series that began in 1991. The annual rate of growth in industrial output accelerated from 2.2% to 2.9% between March and April, close to a three-year high. The GfK Consumer Climate Indicator hit its highest level since 2001 during June, increasing from 10.2 in May to a reading of 10.4. But inflationary pressure remains relatively subdued, with the annual rate of growth in core consumer prices decelerating from 1.7% to 1.4% between April and May.

Accelerating French employment growth feeds into retail
Labour-market conditions continue to improve in France. Despite the fact that the IHS Markit Flash France Composite PMI declined from 56.9 during May to a five-month low of 55.3 in June, companies in France raised their staffing levels for the eighth month in a row, with the rate of employment growth close to a ten-year high. A more vigorous labour market is buoying consumer spending, with the seasonally adjusted HIS Markit France Retail PMI rising from 51.8 in April to 53.3 during May, with the largest increase in like-for-like retail sales since October 2011.

As UK inflation accelerates, real wages decline
Inflationary pressure continues to mount in the UK, with the headline rate of consumer price inflation accelerating from 2.7% to a 47-month high of 2.9% between April and May. Core consumer price inflation accelerated from 2.4% to 2.6% over the same period. Real wages fell at an annual rate of 0.6% during the three months to April, their most rapid rate of decline since August 2014. With the exchange-rate value of sterling weakening once again, after June’s election produced a minority government that may find it difficult to navigate the Brexit process, inflationary pressure is likely to remain moderately elevated and continue to weigh on living standards in the short term.

German Consumer Confidence GfK

UK Consumer Price Inflation

Japanese Industrial Production