US Personal Income and Spending

In the United States we await signs of health from the consumer today with personal income and personal spending data.

Personal income is a lot more useful than something like average hourly earnings, which is a largely meaningless statistic, as it better captures income derived from self-employment, and self-employment is an increasingly important part of the US economy.

Of course, consumers have also been hit with tax cuts and tax increases (tariffs).

About a third of the income from the tax cuts should be spent on imports, so the rest of the world should focus on the consumer spending number as a source of demand for their exports.

The Trump consumer tax increase of tariffs on imports are probably not visible for the consumer yet and should not disrupt spending at the moment. It took several months for the washing machine tariffs (tax) to work their way through into higher prices for instance.

The personal consumer expenditure deflator will include the effect of the Trump tariff (tax) increases on the inflation measure when they are passed through.

Euro Area Annual Inflation and more

In the Euro area, flash estimates from Eurostat, the statistical office of the European Union show that the annual inflation rate is expected to edge up to 2.1 percent in July, up from 2 percent in June, beating market expectations of 2 percent. It is the highest inflation rate since December of 2012, mainly boosted by oil prices.   

We got also the unemployment rate in the Euro Area that remained unchanged at 8.3 percent in June, the same as the previous month’s revised figure and in line with market expectations. It remains the lowest jobless rate since December of 2008.

Neither of these figures is massively important to financial markets, but of the two, consumer price inflation matters most.

The thing is that the European Central Bank (ECB) has set out what they are going to do over the next 12 months with admirable, but also somewhat boring clarity. No, there is no fun in second guessing the ECB’s policy stance any more.

ECB President Draghi is not going to be persuaded to an appropriate tightening of monetary policy by a little thing like inflation “beating” its target.

Besides that, GDP of the Euro area rose 0.3 percent in second quarter, just below median forecast.

Bank of Japan Meeting

The Bank of Japan (BoJ) met and did not nothing that is worth mentioning. The Bank of Japan is good at that. It’s had a lot of practice of doing nothing worth mentioning.

However, the Bank of Japan does now stand alone amongst the major central banks, the Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE), in persisting with an aggressively accommodative policy.

One can debate the extent with the European Central Bank (ECB) or the Bank of England (BoE) are actually tightening policy. Removing liquidity as liquidity demand declines is not really a tightening of liquidity conditions after all.

But the Bank of Japan (BoJ) is not engaging in such intellectual games in keeping its collective foot on the liquidity accelerator.

The problem for the Bank of Japan is that the economic data does not appear to be responding too much. In June, industrial production decreased 12 percent in year-over-year and fell 2.1 percent month-over-month, which is the first time in nearly 2 years. The ministry of Economy, Trade and Industry, ever masters of spin, described the decline and kept its basic assessment that industrial production is ‘picking up slowly.’

There are concerns about the domestic refocusing of China’s economy, which may leave less demand for Japanese exports.

Unemployment rose, but the headline pickup in the unemployment probably exaggerates any weakness in the state of the labor market.

Emerging Markets – Turkey Inflation

Turkey’s central bank’s quarterly inflation report shows the bank sharply raising its 2018 inflation forecast to 13.4 percent from 8.4 percent previously.

The Turkish lira remains at its low of about 4.90 per dollar, bucking a broader strengthening trend across emerging markets.

The threat of U.S. sanctions continues to weigh. If the sanctions come through there is no doubt whatsoever this situation will deal another blow to Turkey’s already fragile economy.

Consumer-price data due Friday may probably show inflation accelerated a fourth month in July, which will add to the concern that the central bank’s “limited” ability to contain prices that has been compromised.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.