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GlobalEconomicAnalysisFUNGGLOBALRETAIL&TECHNOLOGY

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Weekly Macro Commentary: US Consumer Sentiment Remains Favorable; China’s Price Environment Firms

1) US:IntheUS,theUniversityofMichiganIndexofConsumerSentimentretreatedfromitsJanuarypeak,whichwasthehighestreadinginadecade,butremainedatarelativelyfavorablelevel.USPresidentDonaldTrump’sgovernmentpoliciesappeartobesignificantlyaffectingconsumerconfidence,withnearlysixin10consumerssurveyedtakingastanceovergovernmentpolicies’influenceontheeconomy;thefigurerepresentedthehighestnumberthathadweighedinonthequestionsincethesurveybeganbeingconductedin1946.TheProducerPriceIndex(PPI)signaledafirmingpriceenvironmentinthefactorysector.

2) Europe:Intheeurozone,GDPwasreviseddownward.Thenewlyreleaseddatawereweak.IndustrialproductiondecreasedandtheZEWIndicatorofEconomicSentimentsawabigdrop.However,theUK’sproductionsectorpostedastronggaininDecember.

3) Asia-Pacific:China’sPPIsurged,largelydrivenbytherecentcommodityrally,whichindicatesthatfactoryreflationmightnotbesustained.China’sConsumerPricesIndex(CPI)readingbodeswellfortightermonetarypolicy.Japan’sGDPexpansionwasweakerthanexpected.

4) LatinAmerica:InflationinBrazilappearstohavestabilizedafterpeakingatover10%yearoveryearaboutsixmonthsago.Themonth-over-monthinflationarypressurewasexpectedtobeshort-lived.Mexico’sCPIshowedasharpincreasethatwasattributabletohigherdomesticgasolineprices.Gaspricesincreasedlastmonthfollowingregulatorychangesthatweredesignedtoreducegovernmentsubsidies.

February17,2017

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Our View

USPresidentDonaldTrumpreaffirmedtheUS’srecognitionofthe“OneChina”policyinaphonecallwithChinesePresidentXiJinping,easingsomeconcernsoveraworseningUS-Chinarelationship.WhileTrump’sexecutiveordersregardingconstructionofawallalongtheUS-Mexicoborderandtravelrestrictionsfromsevenmajority-MuslimcountriestriggeredtensionswiththosecountriesandprotestsintheUS,heseemedtobemorecautiousandlessoutspokenaboutChina,easingfearsaboutatradewarbetweenthetwocountries.

USFederalReserveChairJanetYellencommentedthatwaitingtoolongtoraiseinterestrateswouldbeunwise,therebysignalingapossibleratehikeinMarch.Yellenalsomentionedtheimportanceoffiscalpolicyinboostingtheeconomy.WeexpecttheFederalOpenMarketCommitteetowaittoseethemagnitudeofataxreformplanthatTrumppledgedtoannounceinthenextfewweeksbeforeitdecidesonthetimingofaratehike.

Figure1.GlobalMacroIndicatorsReleasedtheWeekofFebruary8–15,2017

Country/Region Indicator Period Actual Survey Prior ImpactonEconomy*

US UniversityofMichiganIndexofConsumerSentiment(Prelim.) Feb 95.7 98.0 98.5 +

US UniversityofMichiganCurrentEconomicConditionsIndex(Prelim.) Feb 111.2 – 111.3 +

US UniversityofMichiganIndexofConsumerExpectations(Prelim.) Feb 85.7 – 90.3 –

US PPIFinalDemand(MoM) Jan 0.6% 0.3% 0.2% +

US PPIFinalDemand(YoY) Jan 1.6% 1.5% 1.6% +

US PPIexFoodandEnergy(MoM) Jan 0.4% 0.2% 0.1% +

EZ GDP(Prelim.,SA,QoQ) 4Q 0.4% 0.5% 0.5% –

EZ IndustrialProduction(SA,MoM) Dec (1.6)% (1.5)% 1.5% –

EZ ZEWIndicatorofEconomicSentiment Feb 17.1 – 23.2 –

UK IndustrialProduction(MoM) Dec 1.1% 0.2% 2.0% +

UK IndustrialProduction(YoY) Dec 4.3% 3.2% 2.2% +

CN PPI(YoY) Jan 6.9% 6.5% 5.5% +

CN CPI(YoY) Jan 2.5% 2.4% 2.1% +

JP AnnualizedGDP(Prelim.,SA,QoQ) 4Q 1.0% 1.1% 1.4% –

BZ IBGEInflationIPCA(MoM) Jan 0.4% 0.4% 0.3% +

BZ IBGEInflationIPCA(YoY) Jan 5.4% 5.4% 6.3% +

MX CPI(MoM) Jan 1.7% 1.7% 0.5% +

MX CPI(YoY) Jan 4.7% 4.7% 3.4% +

MX CoreCPI(MoM) Jan 0.6% 0.5% 0.5% +

*FungGlobalRetail&Technology’sevaluationoftheactualfigure’simpactontheeconomyrelativetohistoricalbenchmarksandthecurrentmacroeconomicenvironment:+indicatesapositivesignalforthecountry’seconomy,–indicatesanegativesignaland=indicatesanegligibleimpact.Source:UniversityofMichigan/USBureauofLaborStatistics/Eurostat/UKOfficeforNationalStatistics/NationalBureauofStatisticsofChina/InstitutoBrasileirodeGeografiaeEstatística(IBGE)/InstitutoNacionaldeEstadísticayGeografía(INEGI)/FungGlobalRetail&Technology

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US:ConsumerSentimentStaysataHighLevel;FactoryPriceEnvironmentFirmsIntheUS,theUniversityofMichiganIndexofConsumerSentimentretreatedinFebruary,dropping2.8pointsto95.7afterhittingitshighestpointinadecadeinJanuary.ThedeclinecenteredontheIndexofConsumerExpectations.USPresidentTrump’sgovernmentpoliciesappeartobeaffectingconsumerconfidence,as30%ofconsumerssurveyedindicatedtheyfeltpositiveabouthispolicies,while29%feltnegativeaboutthem.Thatmeansnearlysixin10consumerssurveyedtookastanceovergovernmentpolicies’influenceontheeconomy.Thefigurerepresentedthehighestnumberthathadweighedinonthequestioninthelonghistoryofthesurveys,whichhavebeenconductedsince1946.

Figure2.US:UniversityofMichiganIndexes

Source:UniversityofMichigan

ThePPIincreasedby0.6%monthovermonthandby1.6%yearoveryearinJanuary;theincreaseswerehigherthanthemarkethadestimatedinbothcases.ThecorePPI,whichexcludespricemovementsoffoodandenergy,increasedby0.4%monthovermonth.Thegaugessignaledafirmingpriceenvironmentinthefactorysector.

Figure3.US:PPIFinalDemand(NonseasonallyAdjusted),YoY%Change

Source:USBureauofLaborStatistics

111.2

85.7

95.7

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

Feb12 Feb13 Feb14 Feb15 Feb16 Feb17

CurrentCondinons ConsumerExpectanons ConsumerSennment

1.6

(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

Jan12 Jan13 Jan14 Jan15 Jan16 Jan17

TheUniversityofMichiganIndexofConsumerSentimentretreatedinFebruaryafterreachingitshighestpointinadecadeinJanuary,butremainedatarelativelyfavorablelevel.

TheUSPPIreadingssignaledafirmingpriceenvironmentinthefactorysector.

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Europe:EurozoneGDPRevisedDownward;UKIndustrialProductionPostsaStrongGainIntheeurozone,realGDPgrewby0.4%quarteroverquarterinthefourthquarter,whichwasweakerthanthepreviousquarter’s0.5%growth.InDecember,industrialproductionintheeurozonedroppedby1.6%monthovermonth,trailingthemarket’sestimate,butincreasedby2.0%yearoveryear.TheZEWIndicatorofEconomicSentimentdeclinedsignificantly,from23.2inJanuaryto17.1inFebruary.EconomicsentimentinGermanyalsosawasharpdecrease,fallingfrom16.6inJanuaryto10.4inFebruary.

Figure4.Eurozone:RealGDP,QoQ%Change

Source:Eurostat

TheUK’sproductionsectorpostedastronggaininDecember,drivenbyasurgeinmanufacturingoutput.UKindustrialproductionincreasedby1.1%monthovermonthandby4.3%yearoveryearinDecember.Thefigureswereabovethemedianestimatesof0.2%month-over-monthgrowthand3.2%year-over-yeargrowth.

Figure5.UK:IndustrialProduction(SeasonallyAdjusted),MoM%Change

Source:UKOfficeforNationalStatistics

0.4

(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16

1.1

(4.0)

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

Dec11 Dec12 Dec13 Dec14 Dec15 Dec16

Intheeurozone,realGDPgrewby0.4%quarteroverquarterinthefourthquarter,whichwasweakerthanthepreviousquarter’s0.5%growth.

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Asia-Pacific:China’sPriceEnvironmentBodesWellforTighterMonetaryPolicyChina’sPPIincreasedby6.9%yearoveryearinJanuary,upfroma5.5%increaseinDecemberandexceedingexpectationsofa6.5%increase.Thegaugereflectedacombinationofrobustdemandandsurgingcommodityprices.Thefactthatthesurgeinproducerpriceswastiedtothecommodityrallysuggeststhatfactoryreflationmightnotbesustained.

China’sCPIroseby2.5%yearoveryearinJanuary.January’spleasingeconomicdataaddincentiveforthegovernmenttocontinuetighteningmonetarypolicyasitleansagainstexcessleverage,capitaloutflowsandinflationarypressure.

Figure6.China:CPIandPPI,YoY%Change

Source:NationalBureauofStatisticsofChina

Japan’srealGDPexpandedby1.0%onaquarter-on-quarterannualizedbasisinthefourthquarter,downfroma1.4%increaseinthepreviousquarter.

LatinAmerica:Brazil’sInflationStabilizesBrazil’sIPCAinflationmeasureincreasedby0.4%monthovermonthinJanuary,inlinewiththeconsensusestimate.Brazil’sinflationratestabilizedonayear-over-yearbasis,fallingfromover10%approximatelysixmonthsagoto5.4%inJanuary.Weexpectthemonth-over-monthpricepressuretobeshort-livedandtoeasesignificantlyoverthefirstquarter,giventhatitoriginatedfromthereadjustmentofregulateditems,suchastransportation,communication,waterandsewage

Figure7.Brazil:IPCAInflation,MoM%Change

Source:IBGE

2.5

6.9

(10.0)

(5.0)

0.0

5.0

10.0


CPI PPI

0.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


China’sPPIreflectedacombinationofrobustdemandandsurgingcommodityprices.

Brazil’sinflationratestabilizedonayear-over-yearbasis,fallingfromover10%sixmonthsagoto5.4%inJanuary.Weexpectthemonth-over-monthpricepressuretobeshort-livedandtoeasesignificantlyoverthefirstquarter.

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InMexico,headlineCPIincreasedby1.7%monthovermonthandby4.7%yearoveryear;bothincreaseswereinlinewithestimates.Thesharpincreasewasattributabletohigherdomesticgasolinepricesfollowingregulatorychangesaimedatreducinggovernmentsubsidies.ThecoreCPIincreasedslightlyfasterthanexpectedat0.6%monthovermonth,largelydrivenbypesodepreciation.

Figure8.UpcomingEconomicDataReleases

Date Country Indicator PeriodCovered

Feb19 SK PPI(YoY) Jan

Feb19 UK RightmoveHousePrices(MoM) Feb

Feb19 UK RightmoveHousePrices(YoY) Feb

Feb20 JP ConvenienceStoreSales(YoY) Jan

Feb20 JP NikkeiJapanManufacturingPMI(Prelim.) Feb

Feb21 JP SupermarketSales(YoY) Jan

Feb21 JP NationwideDepartmentStoreSales(YoY) Jan

Feb21 JP TokyoDepartmentStoreSales(YoY) Jan

Feb21 US MarkitUSManufacturingPMI(Prelim.) Feb

Feb21 US MarkitUSServicesPMI(Prelim.) Feb

Feb21 US MarkitUSCompositePMI(Prelim.) Feb

Feb22 UK GDP(Prelim.,QoQ) 4Q

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comCharliePoonResearchAssistant

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