Industrial production surges but the details reveal more moderate activity. Headline industrial output jumped 0.9% but it was largely attributed to the post-hurricane rebound. Excluding the storm impact, output was only up 0.3%. Looking ahead, we anticipate fiscal stimulus and firm global demand to support upbeat industrial activity in 2018.
Gains in both fuel and nonfuel import prices pushed October's import price index up 0.2% in October. The recent 11.1% three-month surge in fuel prices has pushed import price inflation to 2.5% y/y. Beyond the surge in fuel-related import prices, nonfuel import price inflation continues to firm from subdued levels and now stands at 1.4% y/y.
Progress on Brexit negotiations has been frustratingly slow since Theresa May’s Florence speech, with talks seemingly still deadlocked. As a result, we have lowered our view of the chances of a successful deal to 65%.
Our view that a deal is more likely than not is largely due to the consequences of failure. As our recent research found, a ‘no deal’ scenario would be far more damaging for the UK than for the rest of Europe. This reality should ultimately force the government to make the necessary compromises.
Eurozone inflation was confirmed at 1.4% in October. We still see inflation moderating in the coming months on energy-related base effects. But the recent rise in oil prices combined with a slight weakening of the euro from its peak means the decline will be milder than initially expected.
French unemployment rose to 9.7% in Q3, but this is partially a function of a rising participation rate as the economic outlook brightens. Eurozone car registrations declined in October, but the typically volatile series still shows strong growth in annual terms.
Late night discussions in Berlin will decide whether the potential coalition partners have found enough common ground to transition to the next phase of prolonged negotiations. Despite plenty of noise a compromise remains more likely than not. A moderate fiscal easing remains the most likely economic outcome of an eventual coalition with parties lacking ambition elsewhere.
Positive omens! In our global macro chartbook for November, we summarise our views on current global themes and asset markets. We focus on upward revisions to our 2018 forecasts for global trade and GDP and the gradual nature of policy tightening in major economies.
While the media headlines will no doubt focus on the first year-on-year decline in retail sales volumes for four-and-a-half years, this was largely a function of unfavourable base effects and the underlying performance of the retail sector remained surprisingly good in October. That said, sales growth has clearly been softer in 2017 as higher inflation has weighed on spending power. And though we are probably close to the peak in inflation, the recovery in spending power is likely to take time to play out.