Shocks & Surprises, Week Ending June 22nd

·        Early June industrial data shows the US ‘soft patch’ getting softer and deeper, and lasting longer than previously expected. Labour market data has disappointed for the third week out of four, gnawing at the underpinnings of domestic demand. Labour market weakness is consistent with the worry the US economy’s is growing only at the ‘stall speed’ of around 2%. With the Eurozone crisis also undermining business confidence, economists will start cutting their forecasts of a 2H pickup.

·        The resurgence in intra-Asian trade is the one unequivocal bright spot in the world economy just now. Japan’s May confirmed what we’d already seen in China’s trade data. For Japan, the surge in imports from Malaysia, Philippines and Vietnam represents the first impact of supply-line diversification away from domestic, Chinese and Thai production, after last-years disasters and disruptions. But it is bolstered also by pent-up SE Asian demand, as signalled by the doubling of car-sales in Thailand.

·         Only immediate disaster can sink below European expectations now, whilst even severely bad news can pose as an unexpected surprise. Within these parameters, Germany’s expectations about its own economy shocked this week, but French Services PMI and UK order books, though both contracting, were better than expected.