Real Time Economics: China Slows, Companies Flee and Mexico Hits the Skids


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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

China slows and no one seems to care, the 2020 election is making a pair of economists famous and the jobless rate is losing some of its shine as the preeminent economic indicator. Good morning. Brian Blackstone here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.

Feeling the Heat

China’s economic growth decelerated to its slowest pace in decades, weakened by trade tensions with the U.S. and businesses that held back from making big investments despite encouragement from Beijing. The economy grew by 6.2% in the second quarter, down from 6.4% in the period before. Investments remained weak on a quarterly basis, even though the month of June saw the beginning of a Continue reading “Real Time Economics: China Slows, Companies Flee and Mexico Hits the Skids”

Real Time Economics: Factory Weakness Keeps Central Banks in Play


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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Good morning. Brian Blackstone here to take you through the latest on Europe’s factory slowdown, the most recent central-bank decisions and U.S. corporate-profit repatriation. Send us your questions, comments and suggestions by replying to this email.

Dark Clouds

Factory output has weakened in a number of key economies, a worrying sign for the global economy that strengthens the case for fresh stimulus from central banks, Paul Hannon writes. Europe has suffered the sharpest turnaround, and there is little relief in sight, according to a June survey of purchasing managers conducted by data firm IHS Markit. The purchasing managers index for manufacturing rose to 47.8 from 47.7 in May, but a reading below 50.0 points still points to a decline in activity. Readings for the three months Continue reading “Real Time Economics: Factory Weakness Keeps Central Banks in Play”

Swiss Are World Sports Champs…When It Comes to GDP


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When it comes to economic statistics, economists love “core” readings. These strip out volatile factors to give a cleaner picture on underlying trends.

That’s why we have core inflation readings that strip out food and energy prices. And retail sales that exclude automobiles. Or durable goods excluding transportation.

Switzerland has taken this a step further by reporting gross domestic product excluding…sports?

That’s right. The Swiss economics ministry reported that first-quarter gross domestic product rose a solid 0.6% on a quarterly basis, or 2.2% from the same period a year ago. But it also said that, excluding sporting events, GDP grew a more modest 0.4% on a quarterly basis.

It isn’t that Switzerland is particularly sports crazed. Rather, it is home to a lot of international sports organizations like the International Olympic Committee and International Federation of Association Football, known as FIFA, which organizes soccer’s World Cup. The Continue reading “Swiss Are World Sports Champs…When It Comes to GDP”

Why the Swiss Central Bank’s Stock Is Up 150% in a Year


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Shares of the Swiss National Bank have been on a tear this week after the central bank said it expected to report a 2017 profit of 54 billion francs ($55 billion). SNB shares were up 5% midday Friday at 4,800 francs, a record, capping a three-day surge of 17%.

It raises a fascinating question: why own shares of a central bank? The SNB is a rare breed of central banks—than includes those in Belgium and Japan—that even have listed shares.

For the SNB the answer is simple: it is a very large money manager—which about 760 billion francs worth of foreign stocks and bonds—and gets to print its own money. That’s a recipe for success.

But on the negative side, private shareholders of the SNB don’t have the same kinds of rights and profit potential that investors of other banks and companies have. Other than a tiny dividend, Continue reading “Why the Swiss Central Bank’s Stock Is Up 150% in a Year”

Adecco Offers Window Into Europe’s Labor Market


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ZURICH—Global staffing firm Adecco Group posted strong third-quarter revenue growth in southern Europe but more sluggish results in big economies like the U.S. and U.K., offering a window into the state of global labor markets as Europe’s laggards catch up to the rest of the world.

Just as global industrial giants like Caterpillar Inc. provide a window into the global economy, Adecco and other staffing firms offer similar clues to labor markets.

Typically, temporary hiring rises when economies are in the early phase of recovery, and permanent hiring increases when those recoveries mature. After growth has run for a few years, it becomes harder to fill open jobs.

Here’s a quick country-by-country rundown of Adecco’s results, which showed overall organic revenue growth—which strips out the effects of currency fluctuations, acquisitions and divestments—of 5% last quarter compared with the same period in 2016.

Economies that struggled during Europe’s Continue reading “Adecco Offers Window Into Europe’s Labor Market”

Think a Strong Currency Hammers Trade? Don’t Tell Switzerland


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A big chunk of Switzerland’s trade surplus during the first half of the year came from what would seem an unlikely source given the Swiss franc’s strength: the U.S.

The dollar dropped 6% against the franc during the first six months of the year. That’s supposed to have juiced U.S. exports to Switzerland while making Swiss products more expensive in the U.S.

But the opposite happened. Switzerland’s overall trade surplus through June was 19 billion francs ($19.8 billion), the customs office said Thursday. Half of that, 9.5 billion francs, came from the U.S., thanks to a 7% rise in exports from the same period in 2016 and a 14% drop in imports.

Switzerland runs a big deficit with the eurozone, which makes more sense given the franc’s strength against the euro.

So while it appears that weak currencies don’t necessarily have the stimulative effect Continue reading “Think a Strong Currency Hammers Trade? Don’t Tell Switzerland”

Switzerland’s Nice Views Don’t Come Cheap for Tourists


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ZURICH—One of the biggest surprises in the global economy has been Switzerland’s ability to keep activity humming with low unemployment and a high trade surplus in the face of the super-strong Swiss franc.

Just don’t tell that to the country’s tourism industry, which was pummeled last year by the strong currency that makes Switzerland an awfully expensive place for foreigners.

Switzerland’s tourism sector posted its first-ever trade deficit last year since the government started keeping track in the 1970s, according to data Friday from the federal statistics office, meaning the Swiss spent more abroad than foreigners did in Switzerland. The 2016 deficit was 252 million francs ($263 million), with 16.3 billion francs in Swiss spending abroad exceeding the 16 billion francs of receipts.

The main culprit behind this: the “franc shock” of early 2015, when the Swiss central bank’s stunning decision to abandon a ceiling on the franc’s value against the Continue reading “Switzerland’s Nice Views Don’t Come Cheap for Tourists”

Beer, Not Bonds, May Hold Answer to Boosting Inflation


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Andreas Steinfatt of the Paulaner brewery unveils a model of a huge beer mug in preparation for the 182nd Oktoberfest, which opens in Munich, Germany, on Sept. 19.
Reuters

Economists at UniCredit may have found the solution to chronically weak inflation in Europe: More Oktoberfests.

Saturday kicks off the 182nd Oktoberfest in Bavaria. And based on UniCredit economist Thomas Strobel’s forecasts, prices look set to jump this year.

UniCredit’s Wiesn Visitor Price Index, or WVPI, should rise 3.6% this year, up from 2% last year. The index includes the cost of public transportation plus two liters, or Mass, of beer and half a grilled chicken. The beer-only component is expected to rise 3%, the bank forecasts, with the average price of a Mass of beer crossing the psychologically important €10 ($11.27) threshold.

That compares with annual German and eurozone inflation of 0.1% in August, according Continue reading “Beer, Not Bonds, May Hold Answer to Boosting Inflation”

5 Points to Watch in the ECB’s September Meeting


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Bloomberg News

Is it time to take the European Central Bank’s stimulus off cruise control?

This is the key question heading into Thursday’s policy meeting. The ECB has been buying roughly €60 billion ($67.7 billion) per month in public and private bonds–mostly government bonds–since March. The program, known as quantitative easing or QE, is intended to run at least through September 2016.

Until recently, economists expected the ECB to remain steadily on this course, and that any debate on extending the purchases was unlikely until sometime next year.

But events in financial markets and China–coupled with lower oil prices–have narrowed that calendar. Annual inflation was 0.2% last month, far below the ECB’s target near 2%. Given the plunge in oil prices last month that has yet to work through the economy, consumer prices are likely to stay super low for months.

The ECB can take some comfort from

Continue reading “5 Points to Watch in the ECB’s September Meeting”

5 Things to Watch at the ECB’s July Press Conference


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Bloomberg News

It’s been a long six weeks since the European Central Bank’s last policy meeting on June 3. In that time Greece’s debt crisis escalated, reached a boiling point with the July 5 referendum and, just when it looked like Greece’s prospects for staying in the euro were dimming, Athens struck an 11th-hour deal with its creditors for fresh financing.

The ECB has played a central role, in particular on June 28 when it decided to freeze emergency lending to Greek banks, making it impossible for the banks to offset a steady flight of bank deposits. The decision prompted capital controls, shuttered banks and put a €60 ($66)-per-day limit on ATM withdrawals.

With the ECB’s quantitative easing program running at about €60 billion per month and interest rates essentially as low as they can go, additional policy stimulus is highly unlikely on Thursday. ECB President Mario Draghi’s post-meeting press

Continue reading “5 Things to Watch at the ECB’s July Press Conference”

Social-Media Sentiment Presages Market Moves, ECB Paper Says


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Agence France-Presse/Getty Images

Twitter has a new follower: the European Central Bank.

A paper published Tuesday by the ECB examined the effect that bullish, or bearish, aspects of Twitter content and Google searches has on overall investor sentiment and, finally stock markets.

The results, the authors say, is that investor moods expressed on Twitter and Google turn out to be a pretty good leading indicator for stock market returns, with Tweets being a particularly strong predictor.

“Twitter bullishness has a statistically and economically significant predictive value in respect of share prices in the United States, the United Kingdom and Canada,” wrote the paper’s trio of authors, Huina Mao and Johan Bollen from Indiana University and Scott Counts of Microsoft Research. It is less relevant for China, the authors wrote, “perhaps because Twitter has been shut down” there.

“We further observe that high Twitter bullishness indicates an increase in daily returns Continue reading “Social-Media Sentiment Presages Market Moves, ECB Paper Says”

5 Points to Watch in the ECB’s June Presser


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European Pressphoto Agency

The European Central Bank meets Wednesday against a backdrop of a slowly improving economy and rising consumer prices, as the bank’s quantitative easing program gains traction.

That doesn’t mean ECB President Mario Draghi will be in for an easy time at his post-meeting press conference, where he will likely face questions about the ECB’s willingness to keep propping up Greek banks, the inflation outlook in Europe and the recent disclosure of market-sensitive information by a top ECB board member to an audience that included hedge funds and investors.

Here are five things to watch for Wednesday.

#1: How much patience does the ECB have for Greece?

As Greece’s talks with its international creditors drag on, the country’s banks have become increasingly dependent on ECB funds amid deposit outflows. If Athens starts missing payments to the International Monetary Fund this month, the ECB’s support of Greece — and

Continue reading “5 Points to Watch in the ECB’s June Presser”

ECB Increases Purchase of Public, Private Debt Securities in May


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General view of the new headquarters of the European Central Bank. Of the €63 billion in bond purchases last month, around €52 billion were of public-sector debt.

FRANKFURT—The European Central Bank purchased just over €63 billion ($68.75 billion) in public and private debt securities last month under its three-month-old quantitative easing program, according to ECB data released Monday.

The May figure is slightly higher than the €60 billion monthly purchase target that the ECB has set for the program, which is intended to run through at least September 2016. Last month, ECB executive board member Benoît Cœuré said the central bank would offset an expected summertime lull in market activity by “moderately front-loading its purchase activity in May and June.”

Of the €63 billion in bond purchases last month, around €52 billion were of public-sector debt, which includes primarily government bonds but also debt issued by European Union institutions.

The Continue reading “ECB Increases Purchase of Public, Private Debt Securities in May”

BOE’s Carney Expects U.K. to Close Its Output Gap in Next Year


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Pedestrians walk down Oxford Street in central London. BOE Gov. Mark Carney said much of the recent weakness in U.K. inflation has been due to food and energy prices.
European Pressphoto Agency

SINTRA, PortugalThe U.K. economy should close its economic output gap within the next year, Bank of England Gov. Mark Carney said Friday, adding that much of the recent weakness in inflation is due to food and energy prices.

“We think we can close the output gap within the next year,” Mr. Carney said at a conference organized by the European Central Bank. Much of that is because the U.K. economy’s growth potential has slowed, Mr. Carney said.

Economists typically define the output gap as the difference between where output stands now and where it would be if the economy had been growing at its long-term potential based on such forces as demographics and Continue reading “BOE’s Carney Expects U.K. to Close Its Output Gap in Next Year”

ECB to Stop Giving Journalists Advance Copies of Speeches


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The ECB will no longer distribute to journalists advance copies of speeches under embargo following a snafu earlier this week with a speech by Executive Board member Benoit Coeuré.
Bloomberg News

The European Central Bank will no longer release in advance the speeches of its executive board members to journalists under embargo, a bank spokesman said Wednesday.

The decision, which has been under consideration for several months by the ECB’s communications department, is aimed at ensuring the widest possible access to ECB speeches, the spokesman said, adding that it was becoming increasingly difficult to determine which journalists should have access to embargoed comments. ECB speeches at times contain market relevant information.

The ECB will post speeches of its board members on its website when they are scheduled to begin, without making them available to journalists ahead of time under embargo as the ECB had done for many years.

The decision, Continue reading “ECB to Stop Giving Journalists Advance Copies of Speeches”

ECB Coeuré: Global Economy Seeing Divergence in Monetary Policy Cycles


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Benoît Coeuré, executive board member of the ECB, says the divergence between the monetary policies of large economies isn’t unprecedented.
Bloomberg News

FRANKFURT—The divergence between the monetary policies of large economies is elevated but not unprecedented, European Central Bank executive board member Benoît Coeuré said on Wednesday, adding that central bankers must be mindful of the side-effects of their policies.

“The global economy is currently characterized by an environment of diverging monetary policy cycles,” Mr.Coeuré said in prepared remarks of a speech in Zurich.

“While the U.S. Federal Reserve (and to a lesser extent the Bank of England) has signaled its willingness to embark on steps towards monetary policy normalization, many central banks across the world are on an easing bias,” Mr. Coeuré said, noting that over 20 central banks have eased policy so far this year.

This pattern is not unusual based on historical experience, Mr. Coeuré Continue reading “ECB Coeuré: Global Economy Seeing Divergence in Monetary Policy Cycles”

Mario Draghi Pens Pieces to Parliamentarians


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European Central Bank Governor Mario Draghi arrives for an Economic Affairs Committee meeting at the European Parliament in Brussels on March 23, 2015. (AP Photo/Geert Vanden Wijngaert)
Associated Press

As if Mario Draghi wasn’t busy enough.

In addition to keeping tabs on Greece’s debt talks and implementing a €60 billion-a-month quantitative easing program, the European Central Bank president has been writing lots of letters to European parliamentarians.

The ECB released nine such letters on Friday, which are responses by the ECB head to questions posed to him by members of European parliament.

The topics run the gamut from the ECB’s QE program to electronic moneyCypriot banks, non-performing loans and even the ECB’s new skyscraper headquarters. Mr. Draghi doesn’t break much new ground in his letters, but they do show his latest thinking on monetary policy and other matters.

Here are some of the highlights.

Quantitative Continue reading “Mario Draghi Pens Pieces to Parliamentarians”

ECB Paper Takes Stab at Measuring 2012 Euro Break-up Fears


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The risk that eurozone countries would be forced to abandon the euro and go back to their old, devalued currencies was a major factor pushing up Spanish, Italian and French bond yield spreads at the height of the euro debt crisis in 2012, an ECB paper showed Monday. (Photo by Michel Porro/Getty Images)
Getty Images

The risk that eurozone countries would be forced to abandon the euro and go back to their old, devalued currencies was a major factor pushing up Spanish, Italian and French bond yield spreads at the height of the euro debt crisis in 2012, according to a paper published Monday by the European Central Bank.

In the study, ECB economist Roberto De Santis constructed a measure of redenomination risk using spreads for credit default swaps denominated in euros and U.S. dollars for Italy, Spain and France. He then compared these measures against Germany, which Continue reading “ECB Paper Takes Stab at Measuring 2012 Euro Break-up Fears”

Eurozone Economy Showing Clear Signs of Improvement, Says ECB’s Nowotny


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WASHINGTON—The European economy is poised to contribute to the global economic recovery after years of languishing through stagnation and recession, Austria’s central bank Governor Ewald Nowotny signaled in an interview, as the region reaps the benefit of lower oil prices, a weaker exchange rate and stepped up investment.

“There clearly is a feeling of improvement particularly for industrial countries,” Mr. Nowotny said in an interview with The Wall Street Journal during meetings of the International Monetary Fund. “Europe has the potential to be a growth engine.”

The comments by Mr. Nowotny, who is a member of the European Central Bank’s governing council, underscore the upbeat message conveyed by ECB officials during the weekend meetings of global finance leaders.

“The economic situation and the short-term outlook for the euro area are currently brighter than they have been for several years,” ECB President Mario Draghi said Friday.

The eurozone’s gross domestic product expanded by 0.3% on a quarterly basis, or around 1.4% annualized, during the fourth quarter, and is expected by economists to have expanded at a stepped-up pace last quarter. In March, the ECB raised its GDP forecasts for this year and next and projected 2.1% growth in 2017, the first time in a decade that the ECB forecasted growth above 2%.

The IMF also raised its GDP forecasts for the eurozone, though it isn’t as optimistic as the ECB.

Having double-barreled growth from the U.S. and eurozone—the world’s two largest economies—would give a significant boost to the global economy and offset weaker growth in China and deeper problems in Russia and Brazil. The U.S. and eurozone combined for 40% of global GDP in 2014, according to IMF data. Yet these economies haven’t posted growth above 2.5% at the same time since 2006, and Europe last year barely escaped its third recession in six years.

“The U.S. has been a growth engine. Europe up until now has not been a growth engine,” Mr. Nowotny said.
The eurozone’s outlook is by no means robust. Given the positive boost from low oil prices, a weaker exchange rate and the ECB’s massive, €60 billion ($64.84 billion) a month bond-buying program that will run at least until September 2016, growth in the 1.5% to 2% range seems subdued. In addition, after years stagnation and recession, the eurozone should have a lot more pent-up business and consumer demand.

And there have been false dawns in the past. The eurozone posted solid growth in 2010 only to fizzle as the debt crisis that started in Greece swept through Portugal and Ireland and threatened Spain and Italy. The financial calm brought on by Mr. Draghi’s famous “whatever it takes” pledge in July 2012 to save the euro failed to generate a recovery as France and Italy stayed mired in slumps. The Ukraine crisis and tensions with Russia temporarily knocked Germany off track last summer.

Mr. Draghi insisted that this time is different. Unlike past attempts at recovery, both Continue reading “Eurozone Economy Showing Clear Signs of Improvement, Says ECB’s Nowotny”