JP Morgan

Economic Research
April 27, 2012
Global Data Watch

Industry is downshifting but consumption gains running near 4% BoJ eases more than expected but is unclear on forward guidance Indias already struggling corporates to be pressured further by fallout from sovereign rating outlook downgrade Dovish COPOM minutes suggest one more 50bp cut; Banxico on hold Next week: stable US April ISM (53.5) and modest job gains (145,000)
Contents
Can Japan maintain domestic demand-driv en recov ery ? Tracking the budgetary data in Italy and Spain Global Economic Outlook Summary Global Central Bank Watch The J.P. Morgan View : Markets Selected recent research from J.P. Morgan Economics Data Watches United States Euro area Japan Canada Mex ico Brazil Argentina Colombia United Kingdom Russia Turkey Australia and New Zealand China, Hong Kong, and Taiw an Korea ASEAN India Asia focus Regional Data Calendars 13 4 6 7 10 11
Policy matters
As growth lifted at the start of this year, fears about the fragility of the global expansion faded and risk assets breathed a sigh of relief. More recent news is serving to dampen hope that this lift might soon deliver above-trend global growth. After a strong start to the year, global manufacturing is cooling off in line with our expectations. That this slowdown is not being driven by weakness in final demand or a spike in commodity prices should prevent a repeat of last years growth scare. But the underlying pace of global demand is lukewarm, and the global economy looks likely to grow at a modestly below-trend pace this quarter. The failure to generate strong global growth is partly tied to repercussions from last years sovereign debt crisis, which will leave Europe in recession through most of this year. However, there are more chronic constraints holding back the expansion. Restrictive fiscal policies are likely to remain a feature across the G3 landscape, and extremely accommodative monetary policies are struggling to gain traction in the face of impaired credit markets and the zero interest rate bound. Policymakers are thus faced with the fundamental question of whether they have tools that can deliver better outcomes. In Japan, the debate has focused on whether further BoJ action can boost growth. We have argued for further stimulus in order to align inflation expectations with the BoJs 1% target and to turn the tide on the damage caused by a rising yen. This week, the central bank delivered more easing than expectedwith a larger-thanexpected JGB purchase plan (10 trillion), an extension of the maturity to be purchased, and an unexpected increase in the equity purchases (ETFs and JREITs). Perhaps more importantly, the BoJ confirmed that its reaction function has changed by tying these actions to a more upbeat economic assessment. However, the BoJs success rests on its ability to convince market participants of its commitment to change. And so the strength of its message was undercut by
Global manufacturing and retail sales volume
%3m, saar; Mar 2012 are preliminary estimates, forecast April-June 15
15 23 29 35 37 39 41 43 45 49 51 53 57 61 63 67 69 72
Our latest Special Report, US: fiscal cliff notes, was published on Apr 26, 2012 and is available on our website.
Bruce Kasman
JPMorgan Chase Bank NA
10 5 0 -5 Jan 10 Jul 10
IP
Retail sales
David Hensley
Joseph Lupton
Jan 11
Jul 11
Jan 12
www.morganmarkets.com
JPMorgan Chase Bank NA, New York Bruce Kasman Joseph Lupton David Hensley
Economic Research Global Data Watch April 27, 2012
Contributions to real GDP growth

%-pt contrib to annualized growth 5 4 3 2 1 0 -1 -2 2010 2011 Government 2012 Private domestic final sales Net exports and inventories
it will not deliver another round of QE this year under its baseline forecast. The path of fiscal policy is the bigger issue. A second consecutive quarter of sharply falling US government spending highlights the fiscal drag already in place and a far larger tightening is incorporated in current law for next year. While concern about this looming drag is unlikely to be resolved until after the election, our forecast incorporates an extension of current tax policy that avoids a fall off the fiscal cliff (see our Special Report US: fiscal cliff notes, Apr 26, 2012).
As IP fades, watch for consumer resilience

The outlook anticipates a sharp downshift in global manufacturing. Factory output is expected to decelerate from a close to 6% annualized pace last quarter to a soft 2% pace over the current quarter. Relative to last quarter, the move will translate into almost a full percentage point loss from GDP growth that we expect to be partly cushioned by a pickup in nonmanufacturing activity, including a return to normal weather-related utilities output growth. More importantly, however, will be the signal taken from this downshift in the industrial sector. According to our view, the loss of momentum should not be viewed as a directional signal for 2H12, but rather as the fading of one-off adjustments related to a rebound in Asian outputas the Thai-flood impact wanesalong with a modest adjustment of the pace of inventory accumulation. In light of these temporary factors, the directional signal for the global recovery should be taken from the pace of final sales growth. While still preliminary, our latest estimate continues to show a remarkably stable pace of expansion in global retail sales volumes ever since rebounding in the middle of last year. Based on indicators of goods spending for the US, China, and Japan, and our forecast for next weeks EMU report, outlays are up a solid 3.8% annualized in the three months through March, and up by the same magnitude for 1Q12 as a whole. Part of this resilience owes to a surge in January spending, but momentum should be supported by a move down in oil prices (US retail gasoline prices are already moving down), a rise in confidence, and past equity market gains. Consequently, assuming labor markets hold up, the 2Q12 downshift in global GDP growth will be short-lived, and economic activity will reaccelerate in 3Q12 in line with our forecast.
forward-looking guidance signaling that its 1% inflation goal will be achieved without additional action. Despite this signal, we expect that the BoJ will follow through with further action, easing again in July when it conducts its midterm review of economic forecasts. In the Euro area, the macro policy debate is much broader and raises questions about the efficacy of both fiscal policy and monetary policy. The first round of the French presidential election and the collapse of the Dutch government highlight the growing pushback against fiscal austerity. This pressure could prove constructive if it forestalls attempts to tighten further in the face of cyclical slippage on fiscal targets. ECB President Draghi gave his support this week to the idea of a growth pact related to structural reform. The steps likely to be taken on this frontan expanded role for the European Investment Bank and a more aggressive deployment of the structural funds in the EU budgetwont lift growth much. The central bank also seems to be lobbying for an area-wide resolution of the problem of insufficient capital. Movement in this direction, along with further ECB easing, would provide the best hopes for an economic recovery in the region later this year. There is reason to be concerned that frustration is also directed toward the fiscal pact agreed in March. The pact is a document about the destination for the regiona low-debt equilibrium that is sustained by balanced budget rules, specified in terms of structural rather than cyclical budget positions. Backing off of these goals will raise the ECBs concern about being drawn into a period of ongoing deficit and debt monetization and limit its flexibility to ease. A retreat from these goals also makes it more difficult for Germany to agree to fiscal burden sharing beyond its current commitments. In contrast to Japan and the Euro area, stronger growth has taken pressure off US policymakers. The Fed has signaled
2
The UKs odd recession

According to this weeks report, UK GDP has fallen by a cumulative 0.5% since 3Q11. And yet over that period, employment has risen, and core export volumes have risen significantly despite the weakness in the Euro area. More-
UK real GDP and employment

2q% chg, saar; both scales 5 Real GDP 1.5
below 7% this fiscal year. Even so, India corporates also need to roll over a large amount of foreign debt that falls due this year. If these funding needs are pushed to domestic capital markets, lending rates could rise sharply while lower foreign inflows would further weaken the currency.
0.0
RBA gets the green light to ease

-5 Employment -1.5
-10 2006
2007
2008
2009
2010
2011
2012
-3.0 2013
over, consumer confidence has been low but stable, measures of business confidence have risen, and business survey readings on activity have suggested modest growth over the period. We are thus inclined to believe the official data are understating the recent path of GDP, which will ultimately be revised upward. Regardless of any potential revisions, however, the path of UK output will likely remain a disappointment. A case for further policy easing can easily be made, but as with the US, Japan, and the Euro area noted above, the policy tools are becoming more limited. Political realities suggest a reconsideration of the fiscal course is unlikely. And after a prolonged overshoot of its inflation target, the MPC is apparently feeling constrained in extending QE further by the recent stickiness in inflation outturns. Although further QE alongside the May inflation report has an outside chance, most likely is that policymakers choose to wait and see whether growth is better than the GDP data suggest.
Signs of a sharp downshift in Australian inflation have opened the door for a rate cut at the RBAs policy meeting next week. The unexpectedly low 1Q12 inflation reading this week removed the last obstacle of a move. Indeed, there already was evidence that the cost of restructuring in the domestic economy, partly triggered by elevated AUD, was offsetting the less obvious benefits of the mining boom. The recent period of sub-trend growth was underscored by the low CPI print, even if it partly reflected a plunge in fresh fruit prices. We now anticipate a quarter-point rate cut from the RBA Tuesday, and another in early June. Across the Tasman in New Zealand, the RBNZ left the cash rate steady, as was expected, but the commentary flagged that the elevated NZD, if it persists, may prompt a reassessment of monetary policy settings. We interpret this as hinting that the start of policy normalization may be delayed from our current call of September.
Banxico leaves door open, BCB to walk in

Markets got a surprise this week from central banks in the two regional heavyweights in Latin America. In this weeks communications, the central banks of Brazil and Mexico left the door open for rate cuts although the driver of the dovish bias differs in magnitude and nature. In Brazil, the central bank remains focused on slower-than-expected domestic demand growth and sees limited risks for inflation. Minutes from last weeks policy meeting have led us to revise down our year-end Selic forecast to 8.5% with one more cut of 50bp at the next COPOM meeting on May 30. Given our upbeat outlook for growth, we believe the central bank will then end the current easing cycle. By contrast, Banxicos main concern is the behavior of international financial markets and spillover to the currency. The central bank left its policy rate unchanged at Fridays meeting. Although markets were looking for a cut, the inaction should have come as little surprise given the improved growth outlook along with inflation concerns associated with a weakened currency. We continue to believe Banxico will keep the reference rate on hold with a small chance of rate cuts if the exchange rate strengthens significantly and inflation remains stable.
Editor Sandy Batten
India downgrade hurts corporates most

Lost fiscal opportunities, unclear monetary policy, and political turmoil have been weighing on India. This week, these drags were officially noted as S&P lowered its outlook for Indias sovereign credit from stable to negative and warned of a rating downgrade to below investment grade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms falters. Although markets were generally not impacted by this expected move, the timing of the announcement was surprising given that the FY13 budget is still being discussed in Parliament. The governments interest costs are unlikely to be affected by the downgrade as it does not borrow in global markets, but funding costs of corporatesthat rely increasingly on foreign capital given elevated domestic ratescould rise markedly. Higher foreign funding costs would further weaken corporate investment and could push GDP growth
JPMorgan Chase Bank, New York David Hensley Joseph Lupton Carlton Strong
Global economic outlook summary

Real GDP
% over a year ago
Real GDP
% over previous period, saar
Consumer prices
% over a year ago
2011 The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Norway Sweden United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets Memo: Global PPP weighted 1.7 2.5 4.3 8.9 2.9 6.0 5.9 7.8 3.9 6.9 4.2 -0.7 2.0 1.4 7.0 9.2 5.0 7.0 6.5 3.6 5.1 3.7 4.9 4.0 0.1 4.8 3.1 1.5 3.1 31 1.7 0.5 2.7 4.0 0.7 4.8 1.7 1.7 1.7 4.3 2.5 4.3 8.5 2.6 1.3 5.8 3.5
2012 2.4 2.3 3.8 4.5 3.1 5.0 5.0 4.0 3.8 5.5 4.0 2.0 3.0 2.9 6.5 8.2 2.8 7.1 5.3 3.3 3.9 4.3 3.7 3.3 5.1 2.9 2.7 -0.4 0.6 06 0.3 -1.9 1.4 -0.3 0.1 2.8 1.5 -0.2 0.5 3.2 0.8 3.7 2.5 2.3 1.2 5.0 3.2
2013 2.2 2.5 4.0 4.0 4.5 4.5 5.0 4.0 3.5 7.0 1.0 1.3 3.3 2.7 7.1 9.1 4.2 7.3 5.5 4.0 3.2 4.8 4.0 4.8 3.5 4.4 3.6 0.4 1.4 14 0.7 -0.7 1.8 1.7 1.9 3.5 2.5 1.7 1.5 3.0 2.7 3.7 4.5 2.6 1.5 5.6 3.5
4Q11 3.0 1.8 2.4 3.2 1.3 8.2 5.4 4.1 1.7 2.8 3.5 -0.7 1.7 1.4 4.6 8.8 1.6 3.8 9.9 1.3 4.8 3.5 -2.5 -0.6 -36.4 3.2 3.2 -1.2 -0.7 07 0.6 -2.6 2.5 -4.4 -1.2 4.6 -0.5 1.2 4.5 -0.8 6.4 1.5 0.6 4.0 2.4
1Q12 2.2 2.1 3.7 0.0 2.6 5.1 4.5 2.0 5.1 5.2 6.0 2.8 3.1 5.1 8.3 6.8 3.0 13.0 5.0 3.7 5.0 4.3 9.9 6.0 45.0 0.8 2.3 -0.5 0.3 03 0.0 -2.5 0.0 -0.5 -0.8 1.2 -0.8 -0.3 2.8 -1.2 1.5 2.4 1.2 5.8 3.6
2Q12 2.5 2.6 5.1 5.5 5.7 4.9 4.9 3.5 3.9 5.8 6.0 2.0 1.9 2.1 6.7 7.8 4.0 5.5 5.0 4.0 2.0 4.9 6.6 4.8 20.0 3.2 2.6 -0.8 1.0 10 0.0 -2.5 0.0 -0.5 -1.0 1.4 -1.0 0.3 2.0 -1.5 2.0 2.2 1.0 5.3 3.1
3Q12 3.0 2.3 4.3 6.5 5.5 4.6 4.1 4.0 2.0 6.2 4.0 1.4 3.7 3.7 7.1 9.5 5.5 6.3 4.5 4.5 2.0 5.7 3.2 5.0 2.0 6.1 2.8 -0.5 0.8 08 0.3 -1.5 1.0 0.5 2.5 3.0 1.1 1.0 2.5 0.8 4.0 2.6 1.5 5.7 3.6
4Q12 2.0 2.4 4.1 5.0 5.7 4.7 3.0 4.0 3.2 7.3 -3.0 1.2 4.1 3.0 7.3 10.0 6.0 6.5 5.0 4.0 2.5 4.9 2.0 5.3 0.5 7.4 3.2 0.3 1.3 13 0.5 -1.0 1.0 1.0 1.5 3.1 2.3 1.5 3.0 2.4 3.5 2.5 1.3 5.8 3.6
1Q13 1.5 2.7 4.4 3.0 4.5 4.5 5.7 4.0 4.9 8.0 0.0 1.0 4.5 0.9 7.0 9.1 3.0 6.7 5.5 4.0 4.0 4.5 4.5 4.5 5.0 4.5 3.8 0.5 1.5 15 0.8 -0.5 2.0 2.0 2.0 3.5 3.3 1.5 3.0 2.5 4.0 2.5 1.3 5.7 3.6
2Q13 2.3 2.4 3.8 4.0 4.5 4.4 6.0 4.0 2.8 8.0 0.0 1.2 2.0 3.4 7.0 8.7 3.5 7.5 5.5 4.0 4.5 4.5 4.5 4.6 6.5 2.8 3.5 0.5 1.5 15 1.0 -0.5 2.5 2.3 2.0 3.2 -1.3 2.0 3.0 3.0 4.0 2.6 1.5 5.5 3.6
4Q11 3.3 2.7 7.2 9.6 6.7 4.0 3.9 5.5 3.5 4.5 28.5 -0.3 3.1 1.8 4.9 4.6 5.7 8.4 4.1 4.0 3.2 4.7 5.5 1.4 4.0 2.5 6.1 2.9 2.6 26 2.6 3.7 0.9 2.3 4.6 6.4 2.4 4.1 4.6 3.4 6.8 9.2 3.6 2.8 5.7 4.1
2Q12 2.1 1.7 6.4 10.0 5.1 4.2 3.6 5.3 4.2 3.9 23.9 0.1 2.5 1.2 3.9 3.3 4.5 7.8 3.9 3.0 2.6 3.9 4.6 1.3 3.7 2.3 6.0 2.4 2.3 23 2.6 3.6 0.9 1.1 3.0 5.0 2.7 5.8 3.9 3.3 3.9 9.0 2.7 2.0 4.8 3.2
4Q12 1.8 1.7 6.3 10.0 5.1 3.9 3.3 4.7 4.0 3.1 23.4 0.1 3.3 2.5 4.4 3.6 3.6 8.2 7.4 3.5 2.2 4.0 3.4 1.7 3.5 2.5 6.2 2.2 2.1 21 2.3 4.0 1.4 1.1 3.0 5.5 2.9 5.9 3.5 4.4 6.1 6.8 2.7 1.8 5.1 3.3
2Q13 1.6 2.0 6.9 11.0 5.3 3.4 3.0 4.7 3.8 3.0 31.7 -0.1 3.0 2.7 4.9 4.6 3.2 8.5 7.3 3.8 1.8 4.0 2.8 1.2 3.2 2.1 5.9 1.7 1.7 17 1.9 3.6 1.7 1.5 2.7 6.1 2.5 3.8 2.8 4.0 6.8 8.8 2.7 1.6 5.6 3.4
Note: For some emerging economies, 2011-2013 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts.
JPMorgan Chase Bank, New York David Hensley Joseph Lupton Carlton Strong
G-3 economic outlook detail

2011 United States Real GDP Private consumption Equipment investment Non-residential construction Residential construction Inventory change ($ bn saar) Government spending Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) Excluding food and energy (%oya) Federal budget balance (% of GDP, FY) Personal saving rate (%) Unemployment rate (%) Industrial production, manufacturing Euro area Real GDP Private consumption Capital investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (HICP, %oya) ex unprocessed food and energy General govt. budget balance (% of GDP, FY) Unemployment rate (%) Industrial production Japan Real GDP Private consumption Business investment Residential construction Public investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) General govt. net lending (% of GDP, CY) Unemployment rate (%) Industrial production Memo: Global industrial production %oya 1.7 2.2 10.4 4.6 -1.3 34.6 -2.1 6.7 4.9 1.8 -0.2 0.1 3.1 1.7 -8.6 4.7 9.0 4.3 1.5 0.2 1.5 0.0 6.3 3.9 0.4 0.1 1.1 2.7 1.7 -4.7 10.2 3.6 -0.7 0.0 1.0 5.1 -3.2 2.1 0.0 5.8 0.5 -0.5 -0.7 -0.3 -9.0 4.5 -2.3 3.8 2012 2.4 2.4 6.4 1.9 11.4 57.5 -1.6 4.5 3.6 2.1 0.2 0.1 2.1 2.0 -7.7 3.8 8.1 5.7 -0.4 -1.0 -1.6 -0.7 2.3 0.1 -1.0 -0.4 1.0 2.4 1.7 -3.7 11.2 -2.2 2.0 2.0 3.6 -0.2 2.7 1.4 2.1 3.8 2.0 0.1 -0.2 0.1 -9.1 4.3 4.3 3.1
Percent change over previous period; seasonally adjusted annual rate unless noted
2011 2013 2.2 1.8 5.9 7.0 11.9 51.5 -0.4 6.5 5.3 2.2 -0.1 0.1 1.7 1.6 -6.2 4.3 7.9 3.2 0.4 -0.2 0.4 -0.2 3.8 3.1 -0.1 0.0 0.4 1.7 1.6 -3.1 11.5 0.8 1.3 0.8 2.2 2.4 -2.2 0.6 4.4 3.6 0.9 0.2 0.2 -0.2 -9.1 4.1 3.8 3.7 4Q 3.0 2.1 7.5 -1.0 11.7 52.2 -4.1 2.7 3.7 1.4 1.8 -0.3 3.3 2.2 4.5 8.7 5.6 -1.2 -1.8 -1.8 -1.0 -1.6 -5.3 -1.6 -1.1 1.5 2.9 2.0 10.5 -7.3 -0.7 1.4 20.7 -2.7 -8.4 1.5 -11.8 4.3 2.8 -0.9 -2.6 -0.3 4.5 1.7 0.5 2.3 1Q 2.2 2.9 1.7 -12.0 19.0 69.5 -3.0 5.4 4.3 1.6 0.6 0.0 2.8 2.2 3.9 8.3 10.4 -0.5 -1.0 -2.5 -0.5 2.0 0.0 -1.1 -0.2 0.9 2.7 1.9 10.8 -3.0 2.8 3.0 -3.0 -9.0 10.0 1.8 1.0 -1.0 2.3 0.2 0.3 0.3 4.5 4.6 5.8 2.4
2012 2Q 2.5 2.8 5.0 5.0 10.0 54.8 0.8 4.0 3.0 2.8 -0.5 0.1 2.1 2.1 3.8 8.2 3.5 -0.8 -1.5 -1.5 -1.0 3.0 1.5 -1.3 -0.1 0.7 2.4 1.8 11.1 -2.0 2.0 1.0 1.5 3.0 12.0 1.5 4.0 4.0 1.9 0.0 0.1 0.1 4.4 3.0 2.8 3.3 3Q 3.0 2.8 8.0 8.0 12.0 54.6 -0.6 6.0 5.0 2.9 0.0 0.1 1.7 1.9 3.8 8.1 4.5 -0.5 -1.0 -2.0 -1.0 3.0 2.0 -1.2 0.1 0.5 2.3 1.6 11.3 -1.0 1.4 1.0 2.0 3.0 -5.0 0.4 6.0 4.0 1.0 0.0 0.4 0.0 4.3 3.5 3.7 2.9 4Q 2.0 2.0 6.0 8.0 12.0 51.0 -0.8 6.0 6.0 2.2 -0.1 -0.1 1.8 1.8 3.8 8.0 3.0 0.3 -0.5 0.0 -0.5 3.0 2.0 -0.4 0.1 0.5 2.2 1.6 11.5 0.0 1.2 1.0 2.0 3.0 -5.0 0.4 5.0 4.0 0.6 0.3 0.3 0.1 4.1 3.0 3.5 3.8 1Q 1.5 1.0 4.0 6.0 12.0 49.5 -0.6 7.0 5.0 1.4 0.0 0.2 1.6 1.7 4.0 8.0 2.0 0.5 0.0 1.0 0.0 4.0 3.5 0.2 -0.1 0.4 1.7 1.6 11.5 1.0 1.0 0.5 2.0 3.0 -5.0 0.4 4.0 3.5 0.6 0.2 0.2 -0.1 4.1 3.0 3.7 3.3
2013 2Q 2.3 1.5 6.0 6.0 12.0 53.2 -0.3 7.0 5.0 2.0 0.1 0.2 1.7 1.6 4.3 7.9 3.0 0.5 0.0 1.0 0.0 4.0 3.5 0.2 -0.1 0.4 1.7 1.7 11.5 2.0 1.2 0.5 2.0 0.0 0.0 0.8 4.0 3.0 0.7 0.2 0.2 -0.3 4.1 5.0 3.9 3.7 3Q 2.5 2.0 7.0 8.0 12.0 51.9 0.0 7.0 6.0 2.5 0.0 0.0 1.7 1.6 4.4 7.8 4.0 1.0 0.5 1.5 0.5 5.0 4.5 0.7 -0.1 0.4 1.7 1.7 11.4 2.0 1.3 0.5 3.0 2.0 0.0 0.8 4.0 3.0 0.8 0.2 0.2 -0.3 4.1 5.0 4.1 3.8
Note: More forecast details for the G-3 and other countries can be found on J.P. Morgans Morgan Markets client web site.
JPMorgan Chase Bank N.A., New York David Hensley Joseph Lupton Michael Mulhall
Central Bank Watch

Official rate Global excluding US Developed Emerging Latin America EMEA EM EM Asia The Americas United States Canada Brazil Mexico Chile Colombia Peru Europe/Africa Euro area Refi rate United Kingdom Bank rate Czech Republic 2-wk repo Hungary Israel Poland Romania Russia South Africa Turkey Asia/Pacific Australia New Zealand Japan Hong Kong China Korea Indonesia India Malaysia Philippines Thailand Cash rate Cash rate O/N call rate Disc. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo 2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Top of IRC Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Current Change since (bp)
1
rate (%pa) 05-07 avg Peak 2.04 2.80 0.58 5.97 6.74 6.06 5.63 1.20 0.125 1.00 9.00 4.50 5.00 5.25 4.25 1.82 1.00 0.50 0.75 7.00 2.50 4.50 5.25 5.25 5.50 11.50 3.48 4.25 2.50 0.05 0.50 6.56 3.25 5.75 8.00 3.00 4.00 3.00 -228 -153 -278 -109 -439 -13 -22 -419 -430 -269 -640 -342 38 -199 24 -191 -189 -444 -160 -19 -174 -6 -325 N/A -265 N/A -62 -164 -482 -15 -542 48 -85 -412 114 -22 -307 -75
Trough 40 54 5 125 62 210 136 15 0 75 25 0 450 225 300 37 0 0 0 175 200 100 0 N/A 0 N/A 50 125 0 0 0 125 125 0 325 100 0 175
Last change
Next mtg
Forecast next change
Forecast (%pa) Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 2.00 2.75 0.57 5.85 6.51 5.77 5.63 1.17 1.98 2.73 0.57 5.80 6.52 5.56 5.63 1.17 0.125 1.00 8.50 4.50 5.50 5.25 4.25 1.74 1.00 0.50 0.75 6.50 2.50 4.50 5.25 5.25 5.50 9.00 3.45 3.75 2.75 0.05 0.50 6.56 3.25 5.75 8.00 3.00 4.00 3.00 1.875 2.01 2.77 0.58 5.87 6.52 5.56 5.76 1.19 0.125 1.25 8.50 4.50 5.50 5.25 4.25 1.74 1.00 0.50 0.75 6.00 3.00 4.50 5.25 5.25 5.50 9.00 3.52 3.75 3.00 0.05 0.50 6.81 3.25 5.75 8.00 3.00 4.00 3.00 1.875 2.04 2.81 0.59 5.95 6.76 5.67 5.77 1.25 0.125 1.50 9.00 4.50 5.50 5.25 4.25 1.76 1.00 0.50 0.75 6.00 3.00 4.50 5.50 5.50 5.50 9.00 3.53 3.75 3.25 0.05 0.50 6.81 3.25 5.75 8.00 3.00 4.00 3.00 2.00 2.10 2.88 0.60 6.13 6.88 5.81 5.98 1.28 0.125 1.75 9.25 4.50 5.50 5.25 4.25 1.78 1.00 0.50 0.75 6.00 3.25 4.50 6.00 5.75 5.50 9.00 3.66 3.75 3.75 0.05 0.50 7.06 3.50 6.00 8.25 3.00 4.00 3.00 2.125
-297 -243 -363 -201 -697 -272 -131 -481 -513 -350 -1075 -525 -325 -475 -225 -321 -325 -525 -300 -400 -300 -200 -500 N/A -650 N/A -134 -300 -575 -47 -625 -91 -200 -700 -100 -50 -350 -200
16 Dec 08 (-87.5bp) 20 Jun 12 8 Sep 10 (+25bp) 18 Apr 12 (-75bp) 17 Jul 09 (-25bp) 12 Jan 12 (-25bp) 24 Feb 12 (+25bp) 5 Jun 12 8 Jun 12 30 Apr 12
On hold 4Q 12 (+25bp) On hold On hold On hold
0.125 1.00 8.50 4.50 5.25 5.25 4.25 1.77
30 May 12 30 May 12 (-50bp) 17 May 12 17 May 12 (+25bp)
12 May 11 (+25bp) 10 May 12
8 Dec 11 (-25bp) 5 Mar 09 (-50bp) 6 May 10 (-25bp) 23 Jan 12 (-25bp) 8 Jun 11 (+25bp) 29 Mar 12 (-25bp) 14 Sep 11 (-25bp) 18 Nov 10 (-50bp)
3 May 12 10 May 12 3 May 12 28 May 12 9 May 12 2 May 12 Apr 12 24 May 12
On hold On hold 3Q 13 (+25bp) 3Q 12 (-50bp) 1Q 13 (+25bp) On hold 1Q 13 (+25bp) 1Q 13 (+25bp) On hold 29 May 12
1.00 0.50 0.75 7.00 2.50 4.50 5.25 5.25 5.50 10.00 3.45
20 Dec 11 (+50bp) 29 May 12
21 Feb 12 (-100bp) 29 May 12
6 Dec 11 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 6 Jul 11 (+25bp) 9 Feb 12 (-25bp) 17 Apr 12 (-50bp) 5 May 11 (+25bp) 1 Mar 12 (-25bp) 25 Jan 12 (-25bp)
1 May 12 14 Jun 12 23 May 12 10 May 12 18 Jun 12 3 May 12 14 Jun 12 2 May 12
1 May 12 (-25bp) 3Q 12 (+25bp) On hold On hold 4Q 12 (+25bp) 3Q 13 (+25bp) 2Q 13 (+25bp) 2Q 13 (+25bp) On hold On hold On hold 1Q 13 (+12.5bp)
3.75 2.50 0.05 0.50 6.56 3.25 5.75 8.00 3.00 4.00 3.00 1.875
17 Dec 08 (-100bp) 21 Jun 12 10 Jun 11 (+25bp) 10 May 12
Taiwan Official disc. 1.875 -62.5 -175 62.5 30 Jun 11 (+12.5bp) 28 Jun 12 1 Refers to peak rate between 2007-08 and trough rate from 2009-present
Bold denotes move since last GDW and forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages.
JPMorgan Chase Bank, London Jan Loeys
The J.P. Morgan View: Markets
The paradox of austerity

Asset allocation: The shallowness of the correction in risk assets and the lack of a convincing reason to go short will likely pull investors back in, creating further upside over coming months. Economics: Data are tracking a mild deceleration of global growth in 2Q, driven by excess inventories. Solid consumption data are signalling that this slowdown should be temporary and are setting the stage for better growth in 2H. Fixed income: Flat duration, bearish on Euro area peripherals. Equities: The reporting season is delivering significant positive surprises in both the US and Europe. Credit: We move to marketweight EM $ sovereigns overall although NEXGEM sovereigns offer a good investment opportunity. Foreign exchange: BoJ easing should keep USD/JPY in the low 80s. Commodities: Central bank buying still supporting gold. Risk markets rebounded this week on continued good US earnings, a supportive FOMC, and an OK Italian bond auction. The dollar eased modestly in line with its safeasset image, while bonds are largely unchanged. Global equities remain about 2% below their YTD peak in March. Given the news flow this week, which contained a lot of political fireworks from Europe and an upside surprise on US claims, one would have expected risk markets to have traded lower this week. We like to interpret the upmove as supporting our view that the main driver of this years rally in credit and equities will not be a surplus of good news, but a lack of enough bad news relative to the risks already priced into markets. To put this into finance jargon, risk is high, but risk premia are even higher. This strategy depends on the Value force, which we know does not work reliably from week to week, but has to be assessed on a three- to 12-month basis. A lot of more tactical players have covered their longs in risk assets recently, on event risk in Europe, and so have many of our product strategists. We understand the reasoning, but also find that most investors retain a positive medium-term view on equities and credit and will thus be looking for a point to re-
enter the market. Our medium-term strategy, therefore, stays long risk. The prevalence of defensive positionsin cash and safe debtis largely due to concerns about US growth, a fiscal gridlock at year-end (the so-called fiscal cliff), military conflict in the Middle East, the Chinese economy, and Europe. We judge that the sum total of these risks has become less acute, even as it is too much to say that they are fading away. The US continues to be on a stable 2-handle growth path with little volatility. The first quarter came in a bit weaker than we thought last week, but better than we thought a month ago. There will be no information about what compromise the two sides of the US aisle will make late this year to prevent a fiscal crisis or recession until after the elections. The risk of a worse slowdown in China is receding with each passing data release. And risk of a new war in the Middle East this year is also rapidly fading, as evidenced by the recent fall in oil prices. That leaves Europe. The European political news is showing strong resistance, in both periphery and core, to more austerity. This is not mere short-sighted complacency, but a conviction that austerity is not working and may even be counterproductive. At the country level, signs that a government is slacking on its austerity commitments tend to push its debt and equity prices down. But evidence that EMU-wide austerity is depressing its economic activity is also a negative. This is of course nothing other than the Paradox of Thrift, the economic application of what is known as the Fallacy of Composition in logic. What is right and good for the individualto save moreis not necessarily right and good for the groupa recession. You cant have your cake (austerity) and eat it too (growth). The experience of non-EMU countries (US, UK, Japan) is instructive on how markets will and should react to austerity. The US and Japan are clearly showing even less fiscal discipline than Spain or Italy, while the UK is showing more in our view. But the US and Japanese economies are growing and their equity markets have produced doubledigit returns YTD. The UK economy, in contrast, is flat on its back and its equity market is barely up on the year. But each of their government bond markets has performed better than the Euro periphery as their central banks are active buyers of their debt. If you have your own central bank, then equity markets do not like excessive austerity. To judge euro asset prices, we do not merely look at whether countries are serious in pursuing austerity. Instead, we look at evidence that EMU members are working to-
JPMorgan Chase Bank, London Nikolaos Panigirtzoglou
Economic Research The J.P. Morgan View: Markets April 27, 2012
gether and coordinating fiscal policies and funding, whether toward more or less austerity. A go-it-alone strategy by individual member countries away from their fiscal commitments is a clear negative. A go-it-together strategy by member countries toward a growth strategy and away from pure austerity should be a positive for euro assets if it is combined with more cooperation on funding. We do not see it as a negative that there is a heated discussion and disagreements on austerity in Europe. This is what should happen and is happening among parties in the same country. By Washington standards, the spat between Merkel and Hollande is genteel. Maybe this debate is simply evidence that the Euro area is growing into a political unit, exactly what is needed to make EMU work.
YTD returns through Apr 27 %, equities in lighter color. 15 10 5 0

MSCI Europe* US High Grade US High Yield EM $ Corp. EMBIG US Fixed Income MSCI EM* US cash Europe Fixed Income* EM Local Bonds** MSCI AC World* S&P500 Gold Global Gov Bonds** GSCI TR EM FX Topix*
Fixed income
Bonds edged a little higher, with German and Australian benchmarks recording new all-time yield lows, in a week of data disappointments. Intra-EMU spreads held in despite a wobble both at the start of the week, on the fall of the Dutch government, and its end, on the Spanish downgrade. We maintain a bearish outlook on peripheral bonds, with the slowing of bank buying leaving the balance of supply and demand precarious. One factor supporting bonds even at these low yields has been strong buying from bond mutual funds, which even based on incomplete data posted the strongest inflows since 2010 in 1Q. Flows into both bond and equity funds are strongly related to past returns, and with capital gains on bonds surely limited from here, this source of bond demand seems likely to slow over the rest of the year. Euro money market rates fell on the week, so much so that they now imply a reasonable likelihood that the ECB will cut not just its main policy (refi) rate, but also its deposit rate, which sets a floor for unsecured rates. We think any such move is more likely to come this summer than next year and so recommend euro money market steepeners (see GFIMS Derivatives, Wadhwa and Bassi). We remain flat duration overall, with weakish data, supportive central banks, and Euro area jitters counterbalancing the low level of yields.
2012 global GDP growth forecasts: J.P. Morgan versus consensus %

3.8 3.4 3.0 2.6 2.2 1.8 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 J.P. Morgan Consensus
With more than half of the S&P 500 companies having reported so far, 75% have beaten expectations and the S&P 500 1Q EPS is up 8% vs. bottom-up analysts expectation at the beginning of the month (based on Bloomberg data). The $1.5-$2 surprise in the 1Q S&P 500 EPS creates upside to our 2012 EPS forecast of 106.4 according to our US Equity Strategist Tom Lee. We have a similar but less impressive picture in Europe. Mislav Matejka, our European Equity Strategist, calculates that of the 124 companies of the DJStoxx600 index that have reported so far, 54% have beaten expectations with an average EPS beat of 4%. As we argued before, in absolute terms, there is little reason to celebrate, especially in Europe, where y/y EPS growth is coming in at -7%. But this weakness, the result of very weak growth in Europe, is well telegraphed. The large divergence between y/y EPS growth for the S&P 500 (+8%y/y) vs. DJStoxx (-7%y/y) is another metric that supports our OW in US equities. In other words, both the absolute performance of the 1Q reporting
Equities
Equities are up on the week despite negative macro/political news. The reporting season is becoming an important catalyst in both the US and Europe, something we and our clients had underestimated a few weeks ago.
JPMorgan Chase Bank, London Jan Loeys
season (y/y growth) and the relative performance vs. expectations (EPS surprise) look a lot better for the US compared to European equities. EM equities continued to underperform their DM counterparts this month. We remain neutral tactically in our model portfolio. EM equities are hostage to the Chinese growth story and there are no catalysts yet to resolve this story. However, for investors wanting to take a stance on EM, we would recommend a long EM vs. DM position. We expect Chinese growth to gradually bottom out in coming months and the MSCI EM$ index is currently trading at the low end of its historical range vs. MSCI World$.
the rest of the world are less obvious but neither have these currency moves been very largethe trade-weighted dollar remains within the ranges its has traced for three months as most of the low-intensity regional dramas offset one another. Is risk mispriced? Yes, but only by about 1 vol on VXY Global, which is half of the undershoot witnessed before last summers deleveraging and a fourth of the pre-Lehman bubble. Also, this year FX carry has underperformed even the higher, predicted level of FX vol, probably because most FX high-yielders are commodity exporters, so too exposed to Chinas slowdown. This gap between vol performance and carry trade returns does not exist in other asset classes such as credit, which suggests that China has been a constraint unique to FX. Europe still poses a risk of higher vol, but even controlling for a bounce in VXY, FX carry still has scope to catch up if Chinese data over the next two weeks continue the transition from bad to stable that began in April. This dynamic favors modest moves higher in commodity FX, though still within recent ranges. The Bank of Japan delivered more asset purchases than expected but failed to increase its inflation target, which should make investors question whether it is as serious about delivering currency weakness as others such as the Swiss National Bank or Central Bank of Brazil. With the Bank of Japan having taken a detour on the road to Damascusassuming it ever intended to make that journeyUSD/JPY should keep to the low 80s. An uptrend still requires a hawkish Fed or a meaningfully higher oil price, neither of which this global economic stagnation can support.
Credit
US high-grade credit has been in stasis over the past two weeks, showing remarkably low volatility around current spread levels. It has traded in a 2bp range since Apr 10 (200-202bp), even as 3-4bp were shaved off Treasury yields and equities rallied 3% over this period. Clearly weaker economic data on the one hand, which pushed down Treasury yields, are being offset on the other by a positive earnings season, which is highlighting the strength of corporate credit metrics. US HY, which is far less sensitive to Treasury yields, has been enjoying some of the earnings upside registered by equities, tightening by almost 20bp and returning 1% during this timeframe. In EM we downgrade the EMBIG to marketweight, as the coming period of political stress in the Euro area is likely to keep risk markets nervous, and sentiment, as highlighted by our IMF/World Bank Spring meetings in Washington, is less sanguine toward the asset class. Next Generation sovereigns (NEXGEM), which make up less than 9% of the EMBIG by market cap, appear to offer the best investment opportunities heading into year-end (see Joyce Chang, Highlights from the IMF/World Bank Spring Meetings, Apr 24).
Commodities
Commodities rose on the week, in tandem with higher equities, with energy, agriculture, and metals all gaining. That included a tick up in gold, to the middle of its recent range. Central bank buying is an important factor underlying our bullish view on gold, and this week the IMF reported that a number of central banks, including Russias and Mexicos, took advantage of lower prices to add to their gold holdings in March (see Michael Jansen, Base and Precious Metals Daily). Also supportive of gold is that speculative positions, as measured by the CFTC, are at the bottom end of their range of the past few years. We stay long gold.
Foreign exchange
Strange for a week in which shocks aboundedFrench elections, Dutch coalition collapse, Spanish downgrade, UK re-entering recessionthe dollar is down versus all currencies but ARS and INR; the broad indices (DXY, JPMQUSD) hit their weakest levels in a month; and FX volatility has fallen to a new four-year low (9.3% on VXY Global). The greenbacks range versus the euro isnt so surprising given that pervasive pessimism has led to nearrecord euro shorts. The causes of dollar weakness versus
Selected recent research1 from J.P. Morgan Economics

Global
Gauging the upside to the global outlook, Mar 9, 2012 Model linkages between global GDP and oil prices, Feb 17, 2012 Upside risk to outlook for sluggish global consumer, Feb 10, 2012 Global inflation to fall close to target midpoint in 2Q12, Feb 10, 2012 Whats behind the bounce in global manufacturing, Feb 3, 2012 Stressed EM banks damping economic growth, Jan 27, 2012 Global FX reserve e accumulation loses steam, Jan 27, 2012 Global IP hit by Thai flood, Nov 11, 2011 Global manufacturing slowing sharply into year-end, Nov 4, 2011 Facing pressure, EM banks are tightening access to credit, Nov 4, 2011 Global inflation set to fall, Sep 16, 2011 Reading the conflicting signals from global manufacturing, Aug 19, 2011
Central Europe, Middle East, and Africa

Hungarys LTRO: fizzle rather than bang, Apr 6, 2012 South Africa: CPI to moderate to 5.1%oya by end-2013, Mar 30, 2012 Turkey: monetary tightening to prevail, Mar 30, 2012 Croatia: creating conditions for medium-term revival, Mar 30, 2012 Ukraine: compromise solution, Mar 16, 2012 Russia: labor market strength not a good omen for core CPI, Feb 17, 2012 South Africa: lower CPI inflation trajectory, still no rate cuts, Feb 10, 2012 Romania: 2012 bump in constructive growth dynamics, Feb 10, 2012
Japan
Can BoJ achieve its inflation goal? Mar 30, 2012 BoJs decision possibly paving the way for debt monetization, Feb 17, 2012 Japanese government projects missing 2020 fiscal target, Jan 27, 2012 Japan: fiscal boost likely smaller than expected in FY2012, Jan 6, 2012 Stabilizing Japans government debt: a Sisyphean task?, Nov 18, 2011 Japan: auto sector key for near-term growth, Oct 7, 2011 Japan: fiscal policy to support the economy ahead, Sep 9, 2011
United States and Canada

Fact and fantasy of the US manufacturing revival, Apr 20, 2012 US: will the Fed suffer a loss? would it matter? Apr 13, 2012 US services GDP growth at extreme lows, Apr 6, 2012 US: whats Okun been smokin? Mar 23, 2012 US: another springtime head fake? Mar 9, 2012 US business shifts to more highly skilled workers, Mar 9, 2012 US: fiscal stimulus measures are beginning to wane, Mar 2, 2012 The upside of weak US productivity growth, Mar 2, 2012 Soft patch for US capital spending may already be over, Feb 10, 2012 US: labor force participation goes on the D.L., Feb 10, 2012 US: but are they good jobs?, Jan 27, 2012 Canada in 2012: headwinds restrain growth, BoC on hold, Jan 27, 2012 US: a fracking research note, Jan 20, 2012 US: the shape of things to come, Jan 13, 2012 US unemployed finally faring a little better in the job hunt, Jan 13, 2012 US: its open kimono time at 20th and C Streets, Jan 6, 2012 Dueling explanations for subpar US growth, Dec 30, 2011 Shifting sources of US capital spending, Dec 9, 2011 US: the incredible shrinking labor share, Dec 2, 2011 US 3Q GDP revision: news for the optimists and the pessimists, Nov 25, 2011
Non-Japan Asia and Pacific

Aussie CPI print to determine RBA policy outcome in May, Apr 20, 2012 Weak Aussie job growth reflects patchy economy, Apr 6, 2012 Taiwan: manufacturing sector moves into expansion mode, Mar 30, 2012 Singapore: inflation to be at top of MAS agenda next month, Mar 30, 2012 China: determinants of CNY exchange rate, Mar 23, 2012 Australias recent growth mediocre, not miraculous, Mar 23, 2012 Compositional wrinkles in the RBAs tame inflation forecasts, Mar 16, 2012 Australias productivity rising, but in shrinking industries, Mar 16, 2012 How will New Zealands external rebalancing play out? Mar 2, 2012 China FX reserves to resume upward trend, Feb 17, 2012 Whats happening to Indias growth drivers? Consumption, Feb 17, 2012 ASEAN and foreign bank claimsminding the gap, Feb 17, 2012 Headwinds facing Indonesias balance of payments, Feb 17, 2012 Korea: implications of rise in manufacturers inventory, Feb 10, 2012 China: fine-tuning the pace of monetary easing, Feb 3, 2012
Western Europe
German housing market: tracking its reawakening. Apr 20, 2012 UK: high inflation and the MPCs dilemma, Apr 20, 2012 Peripheral Euro area budgets: an update on the hard slog, Apr 13, 2012 A progress report on external adjustment in Portugal, Apr 13, 2012 Euro area: lower inflation a headwind for debt dynamics, Apr 6, 2012 UK QE: the declining marginal impact on markets, Mar 30, 2102 Spain: a challenging year ahead with downside risks, Mar 30, 2012 UK: inflation overshoot turns from acute to chronic, Mar 23, 2012 The outlook for burden sharing in the Euro area, Mar 16, 2012 UK: QE approaches its limits, Mar 9, 2012 UK fiscal policy: time for careful change, Mar 9, 2012 Challenges facing the second Greek package, Mar 9, 2012 Euro area: another look at those TARGET2 imbalances, Mar 2, 2012 French inflation in the 1920s: lessons for the ECB today, Feb 17, 2012
Latin America
Mexico: GDP to grow 3.8% in 2012, Apr 20, 2012 What to expect in Mexicos upcoming general election, Apr 6, 2012 Argentine controls: intended and unintended consequences, Apr 6, 2012 Brazil: sweet spot for household consumption, Mar 30, 2012 Chiles new GDP metrics: slower 2011, faster 2012, Mar 23, 2012
Special Reports and Global Issues

Swing shift: better news from US labor demand and supply, Mar 28, 2012 US housing, monetary policy, and the recovery, Mar 14, 2012 The Euro areas painful path to Eurobonds, Feb 1, 2012 Global economic outlook 2012: lets get cyclical, Jan 9, 2012 Japan well on its way to becoming a capital importer, Jan 4, 2012
1. Research notes listed have been published in GDW; Special Reports and Global Issues are stand-alone features, but may also have appeared in some form in GDW.
10
JPMorgan Securities Japan Co., Ltd. Masamichi Adachi
Economic Research Note
Contribution to real GDP growth

%-pt, saar 10 5 0 -5 -10 -15 2007 2008 2009 2010 2011 2012 2013
Note: the pickup in 4Q13 reflects expected front-loaded demand ahead of VAT hike in April 2014
Can Japan maintain domestic demand-driven recovery?

Recent large swings in GDP growth have been driven by net trade, while domestic demand has been firm with pent-up consumption demand and public spending for reconstruction To sustain solid growth, an increase in income and continued support from sentiment are critical In 2011, Japanese real GDP contracted 0.7% with activity dragged down by net trade (-0.8%-pt) and the change in inventory (-0.5%-pt), and a positive contribution from domestic public spending (0.3%-pt) and private final demand (0.2%pt). This annual outcome reflected a sharp fall in 1H with the March 11 disaster and nuclear power plant accidents, and a sharp 7.1% ar rebound in 3Q, followed by a 0.7% fall in 4Q, which mainly reflected a large swing in net trade. Disruptions to supply chains from the earthquake in March and the Thai floods in the autumn were the main reason for the swing. In contrast to the large swing in net trade, domestic demand as a whole was steadier after the disaster. The 20.7%q/q saar jump in business investment in 4Q last year should probably be discounted as it mainly reflected unreliable demand-side survey data, which are used for the second preliminary print. Still, private consumption was relatively firm in 4Q after a solid gain in 3Q, while public spending (sum of government consumption and public investment) was basically flat through 2H after a jump in 2Q. In 1Q this year, incoming data show that private consumption and public spending reaccelerated. With the pickup in net trade, our forecast looks for real GDP to grow 2.8% ar in 1Q (released on May 17), driven mainly by these two demands. The limited data so far for April point to the solid growth in domestic demand carrying over to 2Q, but an expected slowdown in manufacturing activity likely will moderate overall growth to 2.0% ar in 2Q. However, the current solid momentum does not guarantee continued recovery in 2H and beyond, especially given that public spending should slow (or even turn to drag) at sometime in the future. In this regard, an increase in income (corporate profits and labor income) as well as continued solid sentiment is essential for the Japanese economy to maintain firm growth. In this regard, not only monetary policy, but also structural policies by government that tackle the medium- to long-term challenges (such as aging demographics and low potential growth) are critically important.
Domestic demand
J.P. Morgan forecast
Net trade
Real private consumption

Jan2010=100, 3mma for both scales 110 105 100 95 90 2008 Services Total Goods 104 103 102 101 100 99 98 97 96 2013
2009
2010
2011
2012
Private consumption over compensation of employees

Ratio, dotted line shows J.P. Morgan forecast for CY2012 1.18 1.16 1.14 1.12 1.10 1.08 1.06 1.04 1.02 95 97 99 01 03 05 07 09 11 13
Private consumption firming with services

The latest rise in overall consumption has been driven by a strong gain in goods consumption, particularly autos. The reintroduction of government incentives to purchase environmentally friendly cars at the end of last year is the major reason. However, it should be noted that services consumption, which accounts for 56% of total private consumption, has also been firm recently. In 2010, when goods consumption was strong, boosted by fiscal incentives to purchase environmentally friendly autos and household appliances (TVs, refrigerators, and air conditioners), services consumption was weak. This was the reason why we were bearish on consumption at
11
Economic Research Can Japan maintain domestic mand-driven recovery? April 27, 2012
the end of last year. The firming of spending on services, along with the strong gain in goods consumption, was a positive surprise to us. Given that labor income (both employment and wages) has been soft, the recent gain in total consumption has reflected a fall in the saving rate, which is natural following the hit to sentiment delivered by the earthquake and ensuing nuclear power plant accidents. That is, the recent pickup in consumption reflects pent-up demand, which is offsetting the restrained spending of last year. It is possible that disposable income (labor income plus other income, including transfers from the government) is supporting consumption. But we cannot confirm this hypothesis, as these data are reported with a considerable lag. The latest disposable income data available are for 2010. However, it appears that the transfers from the government to the victims of the disaster and accidents have been relatively modest. So, we think the analysis using only labor income is probably valid.
Public works contracts and public investment

Yen bn, sa by J.P. Morgan 1150 1100 1050 1000 950 900 850 05 06 07 08 09 10 11 12 13 22 21 20 GDP-based Contracts (one quarter ahead) public investment Yen tn, saar 25 24 23
Income data
Yen tn saar 260 255 Corporate profits Yen tn sa 16 14 12 10 Labor income (compensation of employees) 8 6 4 240 05 06 07 08 09 10 11 12 13 2
Reconstruction is gaining momentum

In a recent research note Japan: fiscal boost likely smaller than expected in FY2012 (GDW, January 6, 2012), we argued that fiscal spending would be smaller than market expectation (adding 0.5%-0.6%-pt to real GDP growth), based on the governments official forecast (0.2%-pt contribution). We have not changed our FY forecast for public spendingto add just 0.2%-ptbut the latest monthly indicators related to public investment suggest that this spending is now gathering momentum and may be stronger than our forecast. We think the fastest pace of gain will be in this quarter (12%q/q saar after 6% in 1Q) followed by a decline in 2H, but we would not be surprised if the IH gain is even larger (followed by a larger 2H decline).
250 245
Consumer and business sentiment

Standard deviation from mean 2 1 0 -1 -2 -3 98 00 02 04 06 08 10 12
1. Average of Shoko Chukin and Reuters Tankan surveys.
Business 1
Is it sustainable?
It now seems very likely that the Japanese economy will grow solidly in 1H of this year, mainly driven by domestic demand. However, we are not very optimistic about 2H12 and beyond since the main reasons for the solid 1H gain (pent-up demand and public spending) are temporary. To be sure, we expect that the decline in fiscal spending for reconstruction will be gradual on a year-on-year basis (not a fiscal cliff). And the decline in the saving rate may persist with the continued aging of the population (which means stronger consumption relative to income). Moreover, external demand is expected to be firmer from 2H this year, especially in China, which is Japans largest export destination. Still, without an indication that domestic income data, such as labor income and corporate profits, are on the rise, it is difficult to forecast a resilient self-sustained recovery in coming quarters. In 2012, corporate profits and labor income will likely improve to some extent, but both incomes since 2010 have disappointed. We think that the recovery without a solid gain in income is fragile.
Consumer
In addition, support from business and consumer sentiment will be required. In this context, developments abroad are critical. Moreover, it is important that neither the government (politicians) nor the BoJ disappoints the expectations of the general public. While the BoJ will likely ease its monetary policy further to pursue its inflation goal, its very difficult to expect much from government given the current elevated political uncertainty. Nevertheless, if politicians can manage to establish a new political setup (such as a grand coalition of the two major parties) for fiscal and economic structure reforms, prospects will turn much brighter. These reforms are extremely necessary to tackle the medium- to long-term challenges facing Japanaging population, low growth potential, reliable energy supply, among others.
12
JPMorgan Chase Bank, London Malcolm Barr Raphael Brun-Aguerre
Economic Research Note
Italian year-to-date central government cash balance

bn, nsa 10 0 -10 -20 -30 -40 -50 -60 -70 -80 -90 Jan 2012 2012 target 2011
Tracking the budgetary data in Italy and Spain

Monthly data are instructive for tracking budget outturns in Italy, and show no significant narrowing of the deficit so far in 2012 Spains monthly budget deficit data are less instructive as a guide to full-year outturns; available data nonetheless suggest no improvement As the Euro area crisis has rolled on, fiscal positions in Italy and Spain have come under increasing scrutiny. The monthly releases of budgetary data hold out the promise of being able to evaluate the position as the year evolves. In the case of Italy, that promise is close to fulfilled. Cleaning up the data for month-to-month noise and seasonal influences gives a series that carries significant information. The data of late suggest no improvement in underlying budgetary outturns as we have moved into 2012. However, the cash flows generated by a number of recent policy changes have yet to impact the data, and it is reasonable to expect a significant improvement from the recent monthly run rate as we move through the year. For Spain, the monthly data are less useful as a guide to how the underlying budget position is evolving. The monthly data are very volatile, and do not include the variation in the fiscal position coming from the autonomous regions. At face value, however, the data at hand suggest that no improvement has taken place since the beginning of 2012.
2010
Apr
Jul
Oct
Jan
Italian monthly budget central government cash balance

bn 20 10 0 -10 -20 -30 2007 2008 2009 2010 2011 2012 2013 Sa, 3mma Nsa
Italian central and government budget balances

bn 0 -20 -40 -60 -80 -100 -120 06 07 08 09 10 11 12 13 Central government (sa, 6mma) General government (annual outturn)
Awaiting Italian improvement...

Monthly data for the Italian central government budget balance are published by the Ministry of Economy and Finance a handful of days after the end of each month. On first publication only the cumulative budget balance on a cash basis is provided, and the data are not seasonally adjusted. The Bank of Italy subsequently publishes further monthly detail on aggregate receipts and expenditures, six to seven weeks after the end of the reference month. The simplest way to appraise the cumulative budget balance data is to compare the current year with recent history. The data through to March 2012 show cumulative borrowing of 28 billion, close to that seen in 2010 (27 billion) and 2011 (31 billion). Over the last decade borrowing through to March has accounted for a minimum of 34% of the full-year central government total, a maximum of 82%, and an average of 51%. Using those ratios as a guide sug-
gests a near 55 billion deficit for 2012 as a whole on the basis of the March data, with a minimum of 34 billion and a maximum of 82 billion. The annual outturn for central government cash borrowing is typically very close to the overall general government budget balance for the year. The Italian governments budget forecast for 2012 of 1.7% suggests a central government deficit on the order of 26 billion. Another approach to the data is to seasonally adjust the implied monthly budget deficit data directly. The resulting series is still relatively noisy: individual monthly observations have ranged between a 10 billion monthly deficit
13
JPMorgan Chase Bank, London Malcolm Barr Raphael Brun-Aguerre
Economic Research Tracking the budgetary data in Italy and Spain April 27, 2012
and a 3 billion surplus over the last year. But a short moving average of the adjusted data can give a reasonable sense of where the budget is headed. On this measure, the data had worsened to show a near 8 billion per month run rate in late 2011, and have recently improved a little to near 5 billion. However, that run rate is close to the average seen over the last couple of years, and would still point to a near 60 billion full-year deficit if sustained. Since the monthly data are reported on a cash rather than accrual basis, policy changes that give rise to changes in cash flows later this financial year will not have impacted the monthly Italian budget deficit as yet. The most recent package of 21 billion in tightening measures was passed in December. And 11 billion of that package takes the form of a property tax whereby receipts will not be seen until June and, more importantly, December 2012. Hence it is reasonable to expect a marked improvement in the monthly run rate of the data as the year progresses. Back in December, however, the Italian budget deficit was forecast to narrow from 3.8% in 2011 to 2.5% in 2012 even assuming weaker growth and no further corrective measures were taken. This implies that some of the measures announced pre-December should already be evident in the data. So the failure of the monthly data to show any meaningful improvement in recent months is a concern.
Spanish year-to-date central government accruals balance

bn, nsa 10 0 -10 -20 -30 -40 -50 -60 -70 -80 -90 Jan
2011
2010 2012
Apr
Jul
Oct
Jan
Spanish monthly budget central government accruals balance

bn 20 10 0 -10 -20 -30 2007 2008 2009 2010 2011 2012 2013 Sa, 3mma Nsa
Spanish budget balance

bn (seasonally adjusted) 20 10 0 -10 -20 -30 -40 01 03 05 07 09 11 13 General government Central government
... and Spanish improvement

Monthly data for the Spanish central government budget balance are published on both a cash and accrual basis. The publication occurs about four weeks after the end of each month, and a breakdown is provided in terms of income and expenditure. On both a cash and an accruals basis, the central government budget balance did not improve on 2010/11 outturns in the first three months of this year. But the usefulness of the monthly data on the central government in gauging the overall fiscal performance is limited. This is due to the large weight of the autonomous regions and local governments in Spain. A significant gap has opened up between central and general government budget outturns since 2008. In 2011, the Spanish general government deficit reached 8.5% of GDP. Around 35% of this loss was attributed to the central government, while the autonomous regions and local governments accounted for 55% and 9% of the deficit, respectively (the remaining 1% was related to a shortfall in social security finances). The fiscal structure of the Spanish economy also generates volatility in the monthly central government numbers that makes them difficult to interpret, with large
fiscal transfers operating between the central government and the regional/local governments. In December last year, for example, the central government received a net income of 7.8 billion from the regions. But in January, the central government made a net payment of 7.4 billion. Quarterly data on the general government budget balance are published as part of the national accounts. Although these are available only with a significant lag, they should be viewed as the most reliable source for tracking intrayear performance, rather than the monthly central government releases. The data for 1Q12 are due on July 20.
14
JPMorgan Chase Bank NA Robert E Mellman
United States
Real GDP growth slows to 2.2% in 1Q12; details suggest modest downside risks to the 2.5% forecast for 2Q12 First quarter characterized by strong housing and consumer; weak government and business spending Views on growth will be conditioned by upcoming data; forecast looks for payroll growth of 145,000 Real GDP growth slowed to 2.2% saar last quarter from 3.0% in 4Q11 according to the governments advance estimate released Friday morning. The result was weaker than forecast, with the miss on growth concentrated in real government spending of -3.0% saar (vs. forecast of 1.0%) and in business fixed investment of -2.1% (vs. forecast of 1.9%). The more timely issue concerns growth this quarter. The forecast looks for 2.5% real GDP growth, but fragmentary April data in hand so far on initial jobless claims, the early business surveys, and auto sales suggest downside risk to the forecast. Some details of the GDP release also point to downside risks. Downside risks: Real nonfarm inventories increased $79.2 billion saar last quarter, an unusually rapid pace that can be expected to slow this quarter. Recent moderation in most manufacturing indicators suggests this correction is already occurring. Real residential investment rose 19.1% saar in 1Q12, helped by a temporary boost from the mild winter. Housing activity will probably slow this quarter. Consumers reduced their saving rate from 4.5% in 4Q11 to 3.9% in 1Q12 to support spending growth of 2.9% last quarter. Consumers might be expected to turn more cautious to rebuild savings. But limited downside risks: But the risks are not all onesided, and some details point to stronger growth this quarter than last. For example, gasoline prices are now falling and the CPI looks set to slow to 1.4% saar from 2.5% last quarter. Real government spending was unusually weak last quarter and took 0.6%-pt saar off of real GDP growth; government spending is forecast to make a small positive contribution to growth this quarter. While there is ongoing speculation about a possible replay of last years spring weakness (only 1.3% real GDP growth in 2Q11), it is important to remember that growth that weak was the product of fairly extreme circumstances. Most important, the CPI increased 4.4% saar in 2Q11 and squeezed real incomes hard, while the CPI looks set to rise only 1.4% this quarter. The Tohoku earthquake hit Japan in March and depressed confidence and, more concretely, disrupted supply chains and depressed auto production and probably other manufacturing in 2Q11. No similar external shock has oc-
Contributions to real GDP growth

%-pt contrib to annualized grow th 5 4 3 2 1 0 -1 -2 2010
%ch saar 7.00 5.25 3.50 4.5 1.75 0.00 2010 4.0 3.5 2011 2012
Private domestic final sales Net exports and inventories
Government 2011 2012

%, sa 6.0 5.5 5.0
Real nonfarm business inventories and saving rate

Inventories
Saving rate
Consumer price index, 2011 and 2012

%ch 3m/3m, saar; forecast through June based of futures price of gasoline 6 5 4 3 2 1 0 Jan Apr Jul Oct Dec 2012 2011
curred this quarter, at least yet. And there was much less momentum going into the second quarter last year. Real GDP increased only 0.4% in 1Q11, and real final sales did not grow at all. In short, there are downside risks to the 2.5% growth forecast for this quarter, but at this point those risks look relatively modest. The more important source data used to estimate 2Q12 growth will not start arriving until the April retail sales release (May 15). But sentiment will be heavily influenced by upcoming April reports, especially the April labor market report. The forecast looks for nonfarm payroll employment to increase 145,000, below the 210,000 average of the prior three
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JPMorgan Chase Bank NA Robert E Mellman
Economic Research United States April 27, 2012
months. The lower forecast is partly motivated by the recent upturn in initial jobless claims, partly by an end to the boost from a mild winter, and partly by the technical regularity of below-trend job gains when there are four weeks (rather than five) between the March and April survey weeks as there is this year. The unemployment rate is expected to hold at 8.2%.
New home sales and inventories of unsold new homes

Mn units, 3mma, saar 0.36 0.34 0.32 0.30 0.28 Jan 11 New home sales Months' supply Months' supply , 3mma, sa 7.5 7.0 6.5 6.0 5.5 5.0 Apr 11 Jul 11 Oct 11 Jan 12
Reversal of fortune
Real GDP growth moderated to 2.2% growth last quarter, about equal to the 2.1% growth pace over the past year. But details of the report suggest more of a shift in growth across sectors than a broad-based slowing. For example, while real GDP growth slowed, both real final sales and domestic final sales (both 1.6%) grew more rapidly than in the previous quarter. The pattern of relatively strong business spending and relatively weak consumer spending through the expansion was reversed last quarter. Real consumer spending accelerated to 2.9% growth while real business fixed investment declined 2.1% saar. Housing had been declining through much of the expansion but posted its second consecutive double-digit gain, up 19.1% saar. The build in nonfarm inventories last quarter was unusually large, but the expected inventory correction is likely to be relatively mild. The ratio of inventories to final sales of goods and structures (measured in either real or nominal terms) is not much different from its 2011 average; the level of inventories does not look too out of line with recent sales. And the unusually high nonfarm inventory accumulation last quarter mainly reflects a shift in auto inventories from declines through all of last year to moderate growth in 1Q11. Nonfarm nonauto inventory growth of $67.6 billion in 1Q12 was within $10 billion of its average growth pace in 2011 (4Q/4Q).
March 2011 to 5.3 in March 2012. Barring another downturn in sales, the months supply should also reach unusually low levels before the end of the year. Pending home sales have also been increasing, up 4.1% samr in March, and posting double-digit gains in each of the past two quarters. Recent increases in pending home sales point to gains in existing home sales over the next month or two. Preliminary evidence suggests that stronger sales are beginning to support house prices. The Case-Shiller 20-city house price index rose 0.2% samr in February, the first monthly increase since last April; the CoreLogic house price index rose 0.3%, the second consecutive monthly gain; and the FHFA house price index rose 0.3%, its third increase in the past four months.
Hourly labor cost still tame

The Employment Cost Index (ECI) provides a measure of hourly labor cost that includes both wages and benefits and adjusts for changes in the industry and occupational structure of the workforce as well as for changes in overtime pay. The ECI for 4Q11 indicates that soft labor markets are continuing to hold hourly labor costs close to 2.0%. The ECI for all workers in 4Q11 increased 0.4% saqr and 1.9%oya. The ECI for private-sector workers increased 0.5% on the quarter and 2.1%oya. These rates of increase have been little changed through the expansion to date. For both all workers and for private-sector workers, wage gains have accelerated a bit lately while the employer cost of benefits has slowed. Assuming even modest gains in labor productivity over time, these increases would be consistent with a trend in unit labor cost below 2% and prices below the Feds 2% inflation target. Of course, inflation is influenced by other factors as well including the price of oil and other commodities, import prices, and rents.
Homebuilding and home sales turn up

The GDP release shows strong growth of homebuilding in 1Q12. And the latest report on new home sales shows strong growth of new home sales as well, although it is difficult to gauge how much both construction and sales were helped by the mild winter. New home sales for March were stronger than expected, if down 7.1% samr from a hugely upwardrevised February pace. While new homes sales are still at depressed levels, they have increased 45.4% saar in 4Q11 and another 15.6% last quarter. The combination of stronger sales and extremely low levels of new construction are reducing inventories of unsold singlefamily homes, down another 20.0% saar over the past six months. (Inventories of unsold new completed homes are down 38.0% saar over this period.) The level of inventories is down to a new low for this series dating back to 1963. And the months supply of inventory has declined from 7.0 in
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JPMorgan Chase Bank NA Michael Feroli Daniel Silver
Jimmy Coonan
Data releases and forecasts

Mon Apr 30 8:30am
Personal income
%m/m sa, unless noted Dec Personal income Wages & salaries Consumption Real consumption PCE price index Core Mkt-based Core Core (%oya) Mkt-based Core (%oya) Saving rate 0.4 0.4 0.2 0.1 0.1 0.15 0.2 1.9 2.0 4.7 Jan 0.2 0.4 0.4 0.2 0.2 0.22 0.2 1.9 2.0 4.3 Feb 0.2 0.3 0.8 0.5 0.3 0.13 0.1 1.9 1.9 3.7 Mar 0.3 0.3 0.3 0.1 0.2 0.21 2.0 3.6
We estimate that nominal personal income increased 0.3% in March. We believe wages and salaries increased 0.3% during the month, led by a 0.4% increase in the private sector based on data already reported in the March employment report. Away from wages and salaries, we think income was a touch softer (+0.2%). Disposable income should be up 0.2% in March, and it looks like the saving rate will move down a tick to 3.6%. On prices, data reported in the March CPI and PPI point to the PCE deflator increasing 0.25% in March and the core PCE price index (which excludes food and energy) increasing 0.21%. The change in the core index (which is the Feds preferred measure of underlying inflation) should be running fairly close to the Feds 2.0% target when viewed over the three, six, or 12 months through March. Although unit auto sales fell 4.8% in March, other categories of retail sales looked better for the month, and it appears that spending on utilities increased somewhat following a run of declines through an abnormally mild winter. All in all, it looks like consumption was somewhat on the soft side in March; we estimate that nominal consumption increased 0.3% while real consumption increased an anemic 0.1%. For our March forecasts to be consistent with the quarterly data reported in the 1Q GDP report, there would need to be upward revisions to consumption from earlier months (primarily related to goods) as well as the income categories (including wages and salaries). Our forecast for the PCE price indexes is consistent with the quarterly numbers absent any revisions.
We forecast that the ISM manufacturing index came in at 53.5 in April, basically unchanged from the 53.4 reported for March. The regional manufacturing surveys that have been reported so far for the month have been mixed, but on average little changed. On an ISM-weighted basis, the average of the Empire State, Philadelphia Fed, Richmond Fed, and Kansas City Fed surveys was unchanged at 53.6 between March and April. This is very close to where the ISM survey was last month; it looks like the regional surveys have become fairly well aligned with the national ISM index, on average. Even though the average ISM weighted composite for the regional surveys was unchanged in April, the forwardlooking details underlying this measure weakened. The surveys in hand show that the new orders index slipped from 9.5 to 3.5 between March and April while the inventories index rose from 3.7 to 7.9, on average. The surveys were upbeat about employment, with the related measures averaging 14.8 in April, which was the highest level reported in almost a year. We will see if these changes in composition reported in the regional surveys are also evident in the national ISM survey.
Tue May 1 10:00am
Construction spending
%m/m sa Dec Nominal Private Residential Nonresidential Public 1.1 1.8 0.4 3.0 -0.2 Jan -0.8 -1.3 -0.1 -2.3 0.1 Feb -1.1 -0.8 0.0 -1.6 -1.7 Mar 0.7 0.9 1.3 0.5 0.5
Tue May 1 10:00am
ISM manufacturing survey

Sa Jan Overall index Production New orders Inventories Employment Supplier deliveries Export orders Imports Prices 54.1 55.7 57.6 49.5 54.3 53.6 55.0 52.5 55.5 Feb 52.4 55.3 54.9 49.5 53.1 49.0 59.5 54.0 61.5 Mar 53.4 58.3 54.5 50.0 56.1 48.0 54.0 53.5 61.0 Apr 53.5
We estimate that construction spending increased 0.7% in March, undoing only a portion of the weakness reported in construction spending in each of the prior two months (spending fell 0.8% in January and 1.1% in February). Recent data on single-family housing starts signal an increase in spending on new single-family homes in March, and we believe spending on multifamily units continued to trend higher during the month. Combined, new residential spending should be up 2.1% in March, and with softer growth in the improvements category (which is not used in estimating GDP because it is viewed as unreliable), residential construction spending should have increased 1.3%. The other categories of construction were very weak in February, with nonresidential construction spending down 1.6% in February and public spending down 1.7%. We look for a partial bounce back in March, with both of these categories up 0.5% during the month. If there are no revisions to past data, our forecast for March construction spending implies a very small downward revision to 1Q GDP growth relative to the assumptions made by the BEA in the advance report, though it will probably be absorbed in rounding to one decimal place.
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Jimmy Coonan
Economic Research Economic Country Note (Data leases Only) April 27, 2012
Tue May 1
Motor vehicle sales

Mn, saar Jan Light trucks and autos Imports Domestics Autos Light trucks 14.1 3.2 11.0 5.3 5.7 Feb 15.0 3.4 11.6 5.8 5.8 Mar 14.3 3.2 11.1 5.4 5.7 Apr 14.3 Thu May 3 8:30am
Our forecast for nondurable inventories would imply a downward revision to 1Q GDP growth of about 0.1%-pt relative to the assumptions made by the BEA in its advance estimate of the data (assuming no other revisions). Jobless claims
000s, sa New claims (wr.) Wkly 4-wk avg Feb 18 Feb 25 Mar 3 Mar 10 Mar 17 Mar 24 Mar 31 Apr 7 Apr 14 Apr 21 Apr 28 362 373 374 363 364 363 362 388 389 388 380 369 367 368 368 369 366 363 369 376 382 386 Continuing claims Wkly 4-wk avg 3427 3436 3394 3383 3354 3349 3271 3312 3315 3450 3429 3417 3410 3392 3370 3339 3322 3312 Insured Jobless,% 2.7 2.7 2.7 2.7 2.6 2.6 2.6 2.6 2.6
We forecast light vehicle sales of 14.3 million saar for April, matching the pace of sales reported for March. Although these recent sales figures are a step down from the sales reported for February (15.0 million), they still are well above the 4Q11 average and pretty solid for the recovery to date.
Wed May 2 8:15am
ADP employment
Change from month ago, sa Jan ADP BLS private payroll 182 277 Feb 230 233 Mar 209 121 Apr
1. Payroll survey week
The ADP employment report has continued to be an unreliable indicator of the change in private payrolls reported by the BLS in recent months. Although the figures reported by ADP and BLS are occasionally close to each other, the magnitude of the difference between the first prints of these measures over the past 12 months has averaged about 65,000, and in March, the ADP report overestimated the BLS data by almost 90,000 (209,000 vs. 121,000). It is difficult to find consistent patterns to the deviations between the ADP and BLS reports, and it is always uncertain if past patterns will be repeated in the data, but the April ADP data have tended to be much stronger than the BLS data during recent years. The overestimations between the first prints of the ADP data and the BLS data reported in April in 2010 and 2011 were the largest of each respective year, with misses of 199,000 in 2010 and 89,000 in 2011.
Wed May 2 10:00am
Factory goods report

%m/m sa, unless noted Dec New orders Shipments Inventories Inventory/sales ratio 1.4 0.8 0.2 1.33 Jan -1.1 0.6 0.6 1.33 Feb 1.3 0.1 0.4 1.33 Mar -1.6 0.7 0.4 1.33 Thu May 3 8:30am
We forecast that initial jobless claims declined 8,000 to 380,000 during the week ending April 28. Claims have been reported just below 390,000 for the past three weeks after coming in between 360,000 and 365,000 the prior four weeks, signaling some deterioration in the labor market recently. We want to be a little cautious about the weekly claims figures this time of year because issues seasonally adjusting for Easter and school spring breaks can affect the data, so we look for claims to make a move down to a level near the four-week moving average reported for the week ending April 21 since this measure gives a better signal of the trend than the individual weekly reports. The weekly claims report will also provide data on claimants of Extended Benefits and Emergency Unemployment Compensation through the week ending April 14. This will be the first look at how participation in these programs changed when nine states lost eligibility for Extended Benefits and five states reduced the duration of EUC benefits that week. Productivity and costs
Nonfarm business sector, %q/q saar, unless noted 2Q11 Productivity %oya Output %oya Hourly compensation %oya Unit labor costs %oya Hours %oya -0.3 0.6 1.8 2.5 -0.5 1.6 -0.1 1.0 2.2 1.9 3Q11 1.8 0.5 2.8 2.3 5.7 2.6 3.9 2.0 1.0 1.8 4Q11 0.9 0.3 3.7 2.3 3.7 3.5 2.8 3.1 2.7 1.9 Prel 1Q12 -1.0 0.3 2.7 2.8 1.1 2.5 2.2 2.2 3.7 2.4
We estimate that factory orders fell 1.6% in March and shipments increased 0.7%, while inventories rose 0.5%. Orders were very weak (-4.2%) in the advance durable goods report, and although a lot of this decline was due to a plunge in civilian aircraft orders, there was weakness in other components as well. The advance report also showed that shipments of durable goods increased 1.0% while related inventories rose 0.4%. The data related to nondurable goods are often influenced by changes in prices. The PPIs related to nondurable goods look mixed in March, but we think we will see growth in the main components for the month. We forecast an increase in nondurable orders and shipments of 0.5% and an increase in nondurable inventories of 0.3%.
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We estimate that nonfarm productivity declined 1.0% in the first quarter. The GDP report for the quarter showed
Jimmy Coonan
nonfarm output up 2.7%, but hours increased more (+3.7%), which should lead to a decline in productivity. We believe that hourly compensation rose 1.1% in 1Q. Combined with the anticipated drop in productivity, unit labor costs should be up 2.2% during the quarter but other, less volatile, measures of compensation costs have been softer lately.
Thu May 3 10:00am
ISM nonmanufacturing survey

Sa Jan Nonmfg. index (NMI) Business activity New orders Employment Prices 56.8 59.5 59.4 57.4 63.5 Feb 57.2 62.6 61.2 55.7 68.4 Mar 56.0 58.9 58.8 56.7 63.9 Apr 54.5
We believe the ISM nonmanufacturing index declined 1.5pts to 54.5 in April, showing some additional slowing in growth after the 1.3pt decline reported for March. The Richmond Fed service sector survey reported pretty sizable declines in some of its key indexes in April; its revenue index tumbled 26pts to 0 while its employment measure dropped 15pts to 0. This survey is not always the most reliable indicator of the ISM survey, but other broader economic indicators (including jobless claims and consumer sentiment) signal some slowing in economic momentum in April.
Fri May 4 8:30am
Labor market report

Sa Jan Payroll employment (ch, m/m, 000s) Private payrolls Goods-producing Construction Manufacturing Service-providing Private service-providing Wholesale trade Retail trade Professional services Temporary help Education/health Leisure and hospitality Government Average weekly hours Index, hrs worked (%m/m) Hourly earnings (%m/m) (%oya) Unemployment rate (%) 275 277 78 18 52 197 199 15 25 79 36 31 39 -2 34.5 0.2 0.1 1.8 8.3 Feb 240 233 29 -6 31 211 204 7 -29 86 55 66 45 7 34.6 0.5 0.3 2.0 8.3 Mar 120 121 31 -7 37 89 90 4 -34 31 -7 37 39 -1 34.5 -0.2 0.2 2.1 8.2 Apr 145 150 20 -5 20 125 130
-5 34.5 0.2 0.2 2.0 8.2
We forecast that nonfarm payrolls increased by 145,000 in April with 150,000 jobs added in the private sector. Payrolls averaged gains of about 210,000 jobs per month over the three months through March, and it looks like the disappointing result reported for March (+120,000 on overall payrolls) was an aberration. With that in mind, payrolls should be stronger in April than in March. However, we do not think April payroll growth will be as strong as implied by this recent trend of improvement for three main reasons.
The first is that initial jobless claims have signaled some deterioration in the labor market lately. The level of claims increased 25,000 between the survey weeks for the March and April employment reports, and the four-week moving average rose by 7,000 between these survey weeks and another 6,000 in the week following the April survey. Second, we think that the recent pace of job growth was likely boosted by the abnormally mild winter weather this year, so we should see some payback from the weather in upcoming reports. And third, there appears to be an issue with seasonally adjusting the data used in the April reports that could bias the data lower. Although the BLS attempts to adjust for the number of weeks between the monthly employment survey periods, reports for Aprils when the survey period came four weeks after the March survey (which was the case this year) have generally come in softer than the preceding trend in the data compared to Aprils where the gap between survey periods was five weeks. By industry grouping, we think goods-producing industries added 20,000 jobs in April, private service-producing industries added 125,000 jobs, and the public sector shed 5,000 just during the month. Construction payrolls have been coming off in recent months after solid gains in December (+26,000) and January (+18,000), which could be a result of fluctuations caused by the weather, and we expect some more contraction in construction payrolls in April (-5,000). Manufacturing payrolls have been increasing at a solid clip lately (adding almost 40,000 jobs per month since December, on average), and even though the related measures in the regional manufacturing surveys were strong in April, we expect some cooling in the April employment report with an increase of 20,000 jobs during the month. Retail payrolls have been very weak lately, declining by 29,000 in February and 34,000 in March, and we look for some bounce back in April (+15,000). We expect the increase in other private service-providing industries to be softer than the recent trend. Declines in government payrolls have moderated in recent months, but we think they continued to occur at a gradual pace in April. For other details of the establishment survey, we believe the workweek held at 34.5 hours in April, matching what has been reported for three of the past four months. With the workweek unchanged and payrolls increasing by 145,000, the aggregate hours index should be up 0.1%. We estimate that average hourly earnings increased 0.2% in April, which would bring earnings up 2.0%oya. This would be consistent with the recent trend of gradual and contained wage inflation. For the household survey, we forecast that the unemployment rate was unchanged at 8.2% in April. The March report showed a tick down in the unemployment rate, but this was due to the unfavorable combination of a 31,000 decline in household employment and a drop in the labor force of 164,000. We expect there to be some rebound in household employment in April since the survey data can be volatile and most other related indicators do not signal an outright contraction in employment, but we do not think it will be enough to move the unemployment rate down further. The reduction of Extended Benefits and Emergency Unemployment Compensation programs in 14 states in early April may have an upcoming effect on the unemployment
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Jimmy Coonan
Economic Research Economic Country Note (Data Releases Only) April 27, 2012
rate by influencing labor market participation. However, we think this is a story for a later employment report because labor force participation is based on activity over a four-week period, so even if people stopped looking for work once their benefits ran out, they likely still looked for work at some point during the period in question. Upcoming program-specific data will provide a better idea as to how many individuals were affected by the recent reduction in benefits.
momentum heading into 2Q, which looks consistent with some other recent housing data. Consumer confidence (Apr 24)
Sa Conference Bd index Present situation Jobs plentiful Jobs hard to get Plentiful less hard-to-get Expectations Feb 71.6 46.4 7.0 38.6 -31.6 88.4 Mar 70.2 51.0 9.4 41.0 -31.6 83.0 69.5 49.9 9.0 40.7 -31.7 82.5 Apr 69.0 69.2 51.4 8.4 37.5 -29.1 81.1
Review of past weeks data

S&P/Case-Shiller home price index (Apr 24)
%oya, unless noted 20-city composite %m/m sa 10-city composite Purchase only -4.1 -0.5 -4.1 Dec -3.8 0.0 -3.9 Jan -3.9 -0.1 -4.1 Feb -3.3 -3.5 0.2 -3.6
FHFA home price indexes (Apr 24)

Dec -1.6 0.1 -1.5 -0.7 0.0 Jan -1.2 -0.5 Feb -0.1 0.4 0.1 0.3
%oya %m/m sa
Recent house price data have signaled that house prices have started to stabilize lately, and some indexes have even shown some modest firming in prices. The closely watched CaseShiller 20-city composite index rose 0.2% samr in February, which is the first monthly increase reported in the index since last April. Taking a step back from the monthly changes to get a better feel for the trend, the Case-Shiller index declined only 1.7% saar over the three months through February, which is an improvement relative to the 8.0% pace of decline reported over the three months through November, though the index was still down 3.5%oya in February. The FHFA house price index has looked a little better lately, increasing 0.3% samr in February, though the change reported for January was revised down from 0.0% to -0.5%. The FHFA index was up 0.4%oya in February, which is the first positive year-ago change since 2007. Similar to these house price measures, the CoreLogic indexes (which had been reported earlier) have also shown some firming in prices recently. New home sales (Apr 24)
Jan Total (000s,saar) %m/m %oya nsa Months supply Median price (%oya) 318 -5.4 4.8 5.7 -10.2 329 -3.5 9.5 5.4 -9.2 Feb 313 -1.6 13.6 5.8 6.2 353 7.3 27.3 5.0 7.6 Mar 320 2.2 4.9 328 -7.1 14.3 5.3 6.3
The Conference Board consumer confidence survey edged down 0.3pt to 69.2 in April from a March level that was revised down slightly. This is the second straight monthly decline for the index, but it has not lost much ground since jumping about 30pts between October and February despite consumers facing higher gasoline prices. Details of the Conference Board survey showed the measure of the present situation increasing from 49.9 to 51.4 in April, though the expectations index (which is a more reliable indicator regarding upcoming consumption) declined from 82.5 to 81.1 and is down 7.3pts since February. There was good news reported related to the labor market, with the labor market differential (calculated as the % reporting jobs plentiful less the % reporting jobs hard-to-get) narrowing from -31.7 to -29.1 in Aprilwhile still weak by historical standards, this is the most favorable reading of the expansion to date and is good news ahead of next weeks employment report. Durable goods (Apr 25)
%m/m sa New orders Ex transportation Nondef cap. gds ex Shipments Nondef cap. gds ex Inventories Jan -3.5 -2.8 -3.4 0.1 -2.8 0.6 Feb 2.4 1.8 1.7 -0.4 1.4 0.4 1.9 1.9 2.8 -0.3 0.3 Mar -1.9 0.2 0.6 0.2 1.8 -4.2 -1.1 -0.8 1.0 2.6 0.4
New single-family home sales declined 7.1% in March to 328,000 saar. But this decline was from a pace of sales for February that was revised significantly higher (from 313,000 to 353,000 saar) and there were also smaller upward revisions to the data reported for December and January. The Census Bureau attributed the February revision (which was the largest in terms of magnitude in almost two years) to a large volume of late reporters last month. Levels of new home sales remain depressed by historical standards, but new home sales increased 16% saar in 1Q after jumping 45% saar in 4Q11. That said, the drop-off in sales reported for March signals some slowing in
The details of the March durable goods report were mixed. Shipments were stronger than expected, increasing 1.0% during the month. But orderswhich are forward lookingwere very weak (-4.2%), signaling some slowing in momentum at the end of 1Q, which looks consistent with the message sent by other related economic indicators. A plunge in civilian aircraft orders in March (-47.6%) dragged down the overall orders reading for the month. But even away from aircraft, the orders data were soft. Excluding the transportation components, durable goods orders fell 1.1% in March while orders for core capital goods declined 0.8% (February core capital goods orders were revised up from 1.7% to 2.8%). The three-month annualized change for core capital goods orders fell 6.0% saar through March, which is the weakest figure reported in the recovery to date (the three-month change in these data smoothes through some of the fluctuations that occur because some of the relevant data are not seasonally adjusted). The different categories of shipments were mixed, and things look decent overall, but not especially great. Machinery shipments (+6.5%) led the gains reported for March, and core capital goods shipments increased 2.6% during the month and 1.7% saar during the first quarter as a whole.
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Jimmy Coonan
Pending home sales (Apr 26)

Sa, unless noted Total (mn, ar) %ch m/m %oya (nsa) Jan 97.0 2.0 10.3 Feb 96.5 -0.5 13.9 97.4 0.4 14.9 Mar 97.9 1.5 9.0 101.4 4.1 10.8
The pending home sales index was stronger than expected in March, increasing 4.1% to 101.4 on top of a 0.4% increase the prior month (revised from showing a 0.5% decline). Other housing data (including mortgage purchase applications, the homebuilders survey, and new home sales) have signaled some slippage in momentum in the housing market recently, so it is a welcome change for the pending home sales index to strengthen so much in March. Pending home sales (which are counted when contracts are signed) usually lead existing home sales (which are counted when transactions are completed) by one or two months, so the 4.5% increase in pending home sales reported between January and March (not annualized) points to upcoming gains for existing home sales during the next few months.
Gross domestic product (Apr 27) %ch, q/q saar, unless noted 3Q11 Real GDP Final sales Domestic final sales Consumption Equip. and software Nonres. structures Residential investment Government Net exports Inventories Core PCE price index (%oya) GDP chain price index (%oya) 1.8 3.2 2.7 1.7 16.2 14.4 1.2 -0.1 0.4 -1.4 2.1 1.6 2.6 2.4 4Q11 3.0 1.1 1.3 2.1 7.5 -1.0 11.7 -4.1 -0.3 1.8 1.3 1.8 0.9 2.1
ment and software slowed to a crawl, growing at only a 1.7% pace. Business spending on structures fell at a 12.0% rate, with the biggest decline occurring in mining and oil & gas wells, where the decline in natural gas prices is restraining further investment spending. Residential investment spending increased at a 19.7% pace. Real inventories were accumulated at a $70 billion annual rate last quarter. A more sustainable rate is probably in the ballpark of $50 billion, so we expect to see some slowing in the pace of inventory building in coming quarters. Real government outlays fell at a 3.0% rate in 1Q, with most of the disappointment in defense spending, which slumped at an 8.1% rate last quarter after falling at a 12.1% rate the prior quarter, and there are good reasons to expect a trend decline in defense spending. Exports grew at a 5.4% rate and imports increased at a 4.3% pace and net exports were neutral with respect to US growth. Employment cost index (Apr 27)
3Q11 Total (%q/q, sa) Wages and salaries Benefits Total(%oya, nsa) Wages and salaries Benefits 0.3 0.4 0.3 2.0 1.6 3.2 4Q11 0.5 0.3 0.7 2.0 1.4 3.2 1Q12 0.5 0.5 0.6 2.0 1.7 2.8 0.4 0.5 1.9 2.7
Adv 1Q12 2.9 2.2 2.4 2.4 5.7 -10.9 14.7 1.0 -0.1 0.7 2.1 1.9 1.8 1.9 2.2 1.6 1.6 2.9 1.7 -12.0 19.0 -3.0 0.0 0.6 1.5
The Employment Cost Index for 1Q continued to show soft wage inflation pressure. The overall index increased 0.4% saqr in 1Q, with wages and salaries as well as benefits each up 0.5% (it is somewhat peculiar to see the overall index increase less than its components, but issues like this can arise because of the way the components are seasonally adjusted and aggregated). For the full year through the first quarter, the ECI increased only 1.9%, just a touch softer than the recent trend and consistent with our view that wage inflation pressure is contained. Wages and salaries were up 1.7%oya in 1Q while benefits increased 2.7%oya. Consumer sentiment (Apr 27)
Mar Univ. of Mich. Index Current conditions Expectations Inflation expectations Short term Long term Home buying conditions 76.2 86.0 69.8 3.9 3.0 156 Pre Apr 75.7 80.6 72.5 3.4 3.0 150 Fin Apr 75.5 76.4 82.9 72.3 3.2 2.9 153
Real GDP expanded at a 2.2% annual rate last quarter, a deceleration from the 3.0% pace seen the prior quarter. Growth in the current expansion has averaged 2.4%, and last quarters GDP outcome was merely a continuation of this modest growth trend. The number printed a little softer than expectations, with the downside surprise apparently concentrated in business investment in equipment and in federal defense outlays. The composition of growth was weak, but not surprisingly so given the monthly data: inventory building contributed 0.6% to GDP growth, and the firm pace of stockbuilding last quarter is a headwind for growth in the current quarter, as firms are likely to slow the rate of inventory accumulation. All in all, this was a pretty tepid report, but it doesnt really change our view regarding current quarter growth. We continue to look for 2.5% growth in 2Q and still feel that there is probably more downside than upside risk to that call. One of the brighter spots in the report was consumer spending, which increased at a 2.9% ratestronger than what had been implied by the monthly data, with the apparent surprise located in higher real spending on gasoline. Consumption growth was led higher by increased spending on durable goods, particularly motor vehicles, where real outlays increased at a 28.7% rate. Service spending remained anemic, expanding at only a 1.2% rate. Business investment spending contracted at a 2.1% pace last quarter, the first decline since late 2009. Spending on equip-
The final April University of Michigan consumer sentiment index came in at 76.4, revised up from the 75.7 reported in the preliminary data for the month and 0.2pt higher than the March index. The revised April data now show the sentiment index increasing for eight straight months through April, though the gains have moderated in recent months once gasoline prices started to rise. But gasoline prices have come off modestly lately, and this likely provided a lift to sentiment and could have also brought down inflation expectations. The inflation expectation measures reported in the survey came off in April, though they remain in ranges that should be pretty comfortable for the Fed. The median one-year-ahead inflation expectation was 3.2% in April and the median five-year-ahead inflation expectation was 2.9%.
21
JPMorgan Chase Bank NA Daniel Silver
Focus: details on fixed investment

Real investment in nonresidential structures fell 12% saar in 1Q, by far the weakest result in a year. Much of this decline was due to a 25% tumble in investment in mining and oil and gas wells, which could have been restrained by the decline in natural gas prices. Structures investment was stronger apart from this category, but still weak, declining only 6% in 1Q. There were declines reported in investment in commercial and health care (-4%), power and communication (-6%), and other structures (-14%) in 1Q, while investment in manufacturing increased a modest 1%. Real spending on equipment and software increased only 1.7% saar in 1Q, which was the softest quarter to date in the recovery. The relevant subcomponents were mixed, but there was a substantial drop in spending on computers and peripheral equipment (-16%), which was the largest quarterly decline reported in an economic expansion since before the 1990-1991 recession. Spending on transportation equipment continued to increase at a solid pace, increasing 17% saar in 1Q and 20% over the prior year. Other details (not shown) showed that spending on software continued to push higher in 1Q (+9%) while investment in industrial equipment was weak (-12%). Inventories increased $70 billion saar in 1Q, which contributed 0.6%-pt to the 2.2% overall growth reported for the quarter. Much of the pickup in inventory accumulation relative to the prior trend was due to the auto sector. Inventories at motor vehicles and parts dealers increased $12 billion saar in 1Q after declining in each of the prior five quarters (by an average of $15 billion saar per quarter). Other categories of inventories increased by about $58 billion saar in 1Q, in line with the average quarterly increase reported over the prior year ($50 billion). Residential structures investment increased almost 20% saar in 1Q, by far the strongest quarter for growth since the homebuyer tax credit stimulated the housing market in 2010. Growth was spread across the major components related to residential structures in 1Q, with single-family investment up 23%, multifamily investment up 44%, and investment in other structures (including improvements) up 16%. The unusually mild winter may have boosted activity somewhat during the quarter, but it looks like the firming trends in these sectors began before the warm weather would have had an effect.
Investment in nonresidential structures

%q/q, saar 100 50 0 -50 -100 05 06 07 08 09 10 11 12 13 Other components Mining exploration, shafts, and wells
Equipment and software spending: select components

%q/q,, saar, both scales 100 75 50 25 0 -25 -50 2007 2008 2009 2010 2011
All others
250 Transportation equipment Computers and peripheral equipment 200 150 100 50 0 -50 2012 -100 2013
Real change in inventories

2005 $ bn, saar 80 60 40 20 0 -20 -40 Motor vehicle and parts dealers 2010
2011
2012
Investment in residential structures

%oy a 40 20 0 -20 -40 -60 05 06 07 08 09 10 11 12 13 Single family Multifamily Other
22
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi
Euro area
Constructive news on fiscal policy and credit conditions contrasts with big declines in April business surveys Data challenge ECBs GDP forecast; likely to prompt open-mindedness about policy easing next week Spanish economy likely shrank 1.6%q/q saar in 1Q12 This weeks news on the two main drags weighing on the Euro area economy was quite constructive. First, the fiscal tightening will still be large this year. But, there are signs of increased tolerance of some budget shortfalls if these are caused by unexpectedly weak growth and as long as countries are pushing ahead with structural reforms. Second, it has been unclear to what extent the ECBs three-year LTROs could short-circuit whatever credit crunch dynamic was developing late last year. According to this weeks ECB bank lending survey, the LTROs have not been a complete fix, but they appear to have significantly slowed the pace of credit tightening in the region and perhaps by more than implied by our growth forecast. Unfortunately, these constructive developments were overshadowed by the big drop in this weeks flash PMI for April, which calls for caution about the near-term path of the economy. It is reasonable to expect the PMI to now stabilize and then gradually improve in the summer, but it is hard to be sure. Against this backdrop, we expect the ECB to sound open-minded about further policy support at next weeks meeting.
Euro area economic sentiment and composite PMI

Standard deviations from 2000 to 2007 average 4 2 0 -2 -4 -6 98 00 02 04 06 08 10 12 Economic sentiment Composite PMI
Euro area economic sentiment

Idx, sa, "periphery" is Italy, Spain, Portugal, and Greece 120 110 100 90 80 70 2006 2007 2008 2009 2010 Periphery 2011 2012 2013 Other core Germany
Euro area capacity utilization in manufacturing

Standard deviations from 2000 to 2007 average 2 0 -2 -4 -6 -8 -10 -12 99 01 03 Germany
Pushing back on front-loaded austerity

A number of developments suggest a greater push toward accepting more gradual fiscal consolidation. This reflects the social and political difficulty of delivering fiscal consolidation in an environment of contracting economic activity. Italy and Spain have revised their fiscal targets for 2012, even if only slightly in the Italian case. The Dutch coalition government collapsed this week as it could not agree on how to deliver a relatively modest fiscal tightening at home, even though it had been one of the main proponents of austerity abroad. And Hollandes likely victory in the second round of the French election will add to a push for pro-growth strategies. A key question is how Germany, the ECB, and financial markets respond to this. Germany is concerned about how much of the burden it may have to bear in order to ensure EMUs survival. The ECB is concerned about being drawn into a period of ongoing deficit and debt monetization. ECB President Draghi called for a growth compact this week, but one focusing on structural reforms, rather than additional monetary stimulus or more back-loaded austerity. Germany is comfortable with this. It will not yet suffice for some others in the region, but a debate has clearly begun.
Core, other Periphery , incl. Italy 05 07 09 11 13
Changes in Euro area bank lending standards

Net % of banks reporting tighter lending standards 80 60 40 20 0 -20 03 05 07 09 11 13 Household mortgages Corporates
Better credit news, but a big PMI drop

A wrap-up of this weeks mixed news: Constructive news on credit conditions. Following the sharp tightening of bank lending standards in 4Q11, the ECBs three-year LTROs have had a significant effect, but
23
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi
Economic Research Euro area April 27, 2012
have not been a complete fix. The net tightening of credit standards fell from +35% to +9% for corporates and from +29% to +17% for household mortgages. The improvement was most pronounced in the periphery. And banks expect to tighten less again over the next three months and to see more stable loan demand (after sharp declines recently). That the tightening has not been stopped entirely is not too surprising, given that the LTROs mainly improve bank funding and liquidity, rather than bank capital and banks views about the creditworthiness of borrowers (which relate to the macroeconomy). The improvement was still larger than seemed likely at the start of this year. Composite PMI falls 1.6pts to 47.4 in April. After rising to 50.4 in January, the PMI is now only 1pt above last Octobers trough and is signaling a 1% annualized pace of GDP contraction. Almost all details were weak. Composite new orders fell 2.2pts to 45.4 and employment fell 0.9pt to 48.3, and, by sector, the output indices fell 1.3pts to 47.9 in services and by 2.3pts to 46.4 in manufacturing. The German composite PMI fell to 50.9, with services improving to 52.6 but manufacturing output sliding to 47.8 and clearly struggling to bottom out. The IFO, which is slightly more upbeat about German growth, is also showing domestic demand as the main support in Germany. In France, the PMI slumped 3.7pts to 46.4 due to services. Anecdotally, pre-election uncertainty played a role, but likely only a partial one. And, finally, in the periphery the composite output index fell 2.1pts to just 44.1. This is not far below the range it has been in recently, but is worrisome nonetheless. Economic sentiment echoes the PMI. The EC survey followed the PMI, with economic sentiment falling 1.7pts to 92.8. At the country level, the drop in the periphery was mostly due to a big decline in Italy, which reversed the recent improvement. Germany moderated again, but from a very elevated level, while the rest of the core was almost stable. Interestingly, capacity utilization has declined very little since January, despite the growth weakness. Spanish GDP likely contracted 1.6%q/q saar in 1Q12. The Bank of Spain published its tracking estimate for Spanish GDP this week, estimating a contraction of around 1.6%q/q saar in 1Q12. This should be confirmed in next weeks official flash report by the Spanish statistics office. The outcome is worse than the 0.5%q/q saar decline that we had penciled in based on the business surveys. But, it is not entirely surprising given the drags from fiscal policy and the credit environment; we were already expecting growth to step down to a 2.0%-2.5%q/q saar pace of contraction in 2Q/3Q. The outcome is also not challenging the Spanish governments expectation that GDP will shrink 1.7% this year (unless the austerity has a very back-loaded effect).
Euro area demand for bank loans

Net % of banks reporting higher loan demand 50 25 0 -25 -50 -75 03 2000=100 130 125 120 115 110 105 100 95 00 02 04 06 08 10 12 05 07 09 11 13 Corporate loans Household mortgages
Level of Spanish GDP
ECB to show preparedness to ease

After having not even discussed interest rate changes at the last three meetings, the ECB will likely sound much more open-minded about this next week due to the challenge posed by the weak April PMI. Comments from ECB Vice President Constancio suggest that the ECB is concerned by the PMI although not ready to downgrade its baseline view of the economy as early as next week. Hence, a reassessment looks more likely alongside the next ECB staff forecasts, which will become available at the June meeting. In the meantime, the ECB would watch the next flash PMI in mid-May. We are very open-minded about what the ECB does next; based on the activity and inflation data, it could have eased further already in recent months, but it never fully explained why it chose not to. In terms of rhethoric, a number of changes are possible at next weeks meeting. First, the ECB could explicitly discuss the possibility of a rate cut. Second, the signs of stabilization at low levels are likely to now explicitly refer to 1Q12, while data will be described as mixed for the start of 2Q12. The reference to downside growth risks could be strengthened, for example by referring to high uncertainty, which would also qualify its expectation of a gradual recovery later this year. Third, the reference to near-term inflation risks being on the upside could be toned down, reflecting the weaker activity news and recent commodity price developments. Mediumterm inflation risks will still be seen as broadly balanced.
24
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre

Week of April 30 - May 4
Demand and labor markets

Retail sales
Dec Fri May 4 11:00am Euro area Total sales, volumes %m/m sa %oya, working-day adj. Jan Feb Mar
Output and surveys

Real GDP
2Q11 Mon Apr 30 9:00am Spain (flash estimate) %q/q sa %q/q saar %oya 0.2 0.7 0.8 3Q11 0.0 0.2 0.8 4Q11 -0.3 -1.2 0.3 1Q12 -0.4 -1.6
-1.2 -1.7
1.1 -1.1
0.0 -2.1
-0.2
Mon Apr 4 8:00am
Germany Sales ex autos and petroleum, volumes %m/m sa 0.6 %oya sa 1.2
-1.0 -1.0
-0.9 -2.0
Business surveys point to a smaller contraction, but the Bank of Spains reliable tracking estimate shows a 1.6%q/q saar GDP decline in 1Q12. The net trade boost likely fell due to weaker foreign demand, while the domestic demand drag likely lessened relative to 4Q11. Purchasing managers index final (manufacturing)
Jan Wed May 2 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 48.8 51.0 48.5 46.8 45.1 Feb 49.0 50.2 50.0 47.8 45.0 Mar 47.7 48.4 46.7 47.9 44.5 Apr 46.0 46.3 47.7
Overall, Euro area consumer spending has continued to decline. Car registrations rose in 4Q11 and were very weak in 1Q12, while retail sales were very weak in 4Q11 but could post only a small gain in 1Q12. In fact, the Jan/Feb level is currently 0.7% ar above 4Q11, despite a significant drag from the unreliable German data, which are still likely to be revised higher. We have penciled in a small decline in March. That would still leave retail sales up slightly in 1Q12 and total consumer spending in 1Q12 down by around 1%q/q saar. Given the weakness in labor market and incomes, a rapid improvement is unlikely. Unemployment
Dec Wed May 2 11:00am Euro area Harmonized measure (Eurostat) Unemployment rate (%, sa) Jan Feb Mar
Purchasing managers index final (services)

Jan Fri May 4 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 50.4 53.7 52.3 44.8 46.1 Feb 48.8 52.8 50.0 44.1 41.9 Mar 49.2 52.1 50.1 44.3 46.3 Apr 47.9 52.6 46.4
10.6
10.7
10.8
10.9
The Euro area unemployment rate has been increasing gradually since April 2011 and we expect this increase to continue in the coming months. Our Okuns law relationship suggests that the unemployment rate could reach 11.5% by year-end. Nonetheless, the pace of this increase should be moderating in the second part of the year, as the Euro area economy is expected to recover.
Euro area unemployment rate
% 10.5 10.0 9.5 9.0
Purchasing managers index final (composite)

Jan Fri May 4 10:00am 9:55am 9:50am 9:45am 9:15am Euro area Overall region Germany France Italy Spain 50.4 53.9 51.2 45.7 46.0 Feb 49.3 53.2 50.2 44.7 42.9 Mar 49.1 51.6 48.7 45.6 46.0 Apr 47.4 50.9 46.8
The PMI indicator declined substantially in March according to the flash release. This decline was broadbased, with the manufacturing and services sectors down 1.7pts and 1.3pts, respectively. Across countries, the loss was especially large in France, where the service sector retracted 3.7pts. To a lesser extent, Germany also experienced a significant decline, but driven this time by the services sector. The flash estimates for Germany and France moreover imply a substantial decline in the periphery. We expect the final release to confirm the flash estimates.
8.5 8.0 7.5 7.0 99 01 03 05 07 09 11
25
JPMorgan Chase Bank N.A, London Branch Raphael Brun-Aguerre Greg Fuzesi
Jan Wed May 2 9:55am Germany Registered (ch m/m, 000s, sa) 000s, nsa Unempl. rate (%, sa) -27 3084.2 6.8
Feb -3 3109.9 6.8
Mar -18 3028.0 6.7
Apr -8 6.7
Financial activity and public finance

Money and credit data
Dec Mon Apr 30 10:00am Euro area M3 (%m/m sa) M3 (%oya) M3 (%oya 3mma) Loans (%oya)1. Loans (m/m, bn)1. -0.4 1.6 2.0 1.2 -68.7 Jan 0.2 2.5 2.0 1.5 41.1 Feb 0.5 2.8 2.3 1.1 -8.3 Mar
2.8
Employment
Dec Wed May 2 9:55am Germany Change m/m, 000s, sa 56 Jan 86 Feb 40 Mar 30
1. Loans to nonbank private sector, adjusted for securitization
The German labor market data were still firm last month. The business surveys have started to send a more mixed message however. The employment index in the composite PMI slipped to 49.2 in April, after having averaged 55 last year. But, the IFO employment barometer has declined very little, pointing to further rapid hiring. It is not clear which of these is sending the correct message. We suspect the April labor market report will still be quite positive, but we note increased uncertainty about the outlook.
Inflation
Consumer prices
Jan Mon Apr 30 11:00am Mon Apr 30 11:00am Euro area (flash) HICP (%oya nsa) Italy (prelim) %m/m nsa %oya nsa HICP (%oya nsa) 2.7 Feb 2.7 Mar 2.7 Apr 2.5
Euro area M3 growth has reaccelerated somewhat since December to 2.8%oya. The gain was not driven by the more volatile categories, but by a more meaningful increase in household and nonfinancial corporate deposits, possibly due to more aggressive rate offers by banks that are trying to attract deposit funding. On the credit side, loans to nonfinancial corporates have stabilized after falling sharply in December, while loans to households have continued to trend higher. The ECBs latest bank lending survey suggests that these outcomes are mainly due to weak loan demand, rather than any severe supply restrictions. Finally, banks continued to purchase large amounts of government bonds in February (driven by Spanish and Italian banks). In March, we expect the credit data to remain quite weak again, but without any abrupt declines.
Bank loans to households and nonfinancial corporates

0.3 3.2 3.4 0.5 3.3 3.4 0.5 3.3 3.8 0.3 3.2 3.6
Index of notional stocks, Jan09=100, adjusted for securitizations 108 106 104 102 100 98 96 2009 2010 Nonfinancial corporate 2011 2012 2013 Household
Euro area inflation has remained stable since December. In April, we expect the flash estimate to show a two-tenths decline to 2.5%oya. This decline should be driven by a lower level of energy price inflation which results from strong base effects. German inflation already declined a tenth according to the preliminary release. We also expect French and Italian inflation to inch down, while the Spanish preliminary release already highlighted a two tenths increase in April. Producer prices
Dec Thu May 3 11:00am Wed May 2 11:00am Euro area %m/m nsa %oya nsa Italy %m/m nsa %oya nsa -0.2 4.3 0.0 3.7 Jan 0.8 3.8 0.8 3.4 Feb 0.6 3.6 0.3 3.1 Mar
26
JPMorgan Chase Bank N.A, London Branch Greg Fuzesi Raphael Brun-Aguerre

Output and surveys
Manufacturing orders
Dec Euro area Values New orders (%m/m sa) New orders (%oya sa) Jan Feb
National business surveys

Feb French (INSEE survey - manufacturing) Index Composite index 93 Index of past production -7 Exp. output - personal -1 Exp. output - general -26.0 Italy (ISAE survey) 2000=100, sa Producer confidence 91.7 Belgium (BNB survey) % balance of responses, sa Overall -7.7 Manufacturing -8.4 Commerce -15.8 Construction -9.0 91.0 Mar Apr
3.5 -0.1
-2.8 -4.3
-2.9
-1.3 -6.5
96 -10 6 -15.0
98 -8 8
95 -2 -4 -13.0
European Commission survey

Feb Euro area % balance of responses, sa Industrial confidence -6 94.5 Economic Confidence Recent production trend -4 Production expectations 3 Export order books -14 Stocks of fin. products 6 Selling-price exp. 7 Construction confidence -25 Retail confidence -14 Service confidence -0.9 Consumer confidence -20.3 4Q11 Level of capacity utilization 79.6 Mar Apr
92.1
91.1
89.5
-7 -7 94.4 -6 -6 1 2 -14 -14 6 6 7 7 -27 -27 -12 -12 -0.3 -19.1 1Q12 80.0 79.8
93.9
-19.8 2Q12
-9 92.8 -9 -2 -17 6 6 -27 -11 -2.4 -19.9 79.6
-9.6 -10.7 -20.6 -12.1
-10.7 -12.4 -14.4 -9.8
Purchasing managers index flash (manufacturing)

Feb Euro area Overall region Germany France 49.0 50.2 50.0 Mar 47.7 48.4 46.7 Apr 47.7 46.0 46.3 47.3
Purchasing managers index flash (services)

Feb Euro area Overall region Germany France 48.8 52.8 50.0 Mar 49.2 52.1 50.1 Apr 49.2 47.9 52.6 46.4
The Euro area economic sentiment indicator declined 1.6pts in April, entirely offsetting the modest improvement observed since the beginning of the year. At face value, the level of the EC survey is broadly consistent with the actual level of the composite PMI. Both surveys suggest that the economy is starting the second quarter at a weaker pace, which is consistent with our GDP forecast. In the details, the April decline was largely broad-based, with the manufacturing sector and the services sector losing the most, while the construction and consumer confidence indicator recorded a limited drop. Across countries, the decline in the EC survey was largest in Italy, where the index dropped 5.7pts to 83.1, and the other main Euro area countries suffered substantial losses. The EC survey declined 1.8pts to 89.1 in Spain, 1.0pt to 103.3 in Germany, and 0.4pt to 95.2 in France. Some good news came out of Portugal and Greece, where the indexes rose 1.4pts to 78.5 and 1.6pts to 77.3, respectively. But the level of the survey remains extremely low in these countries. The quarterly survey for the Euro area, which provides additional questions to the monthly release, highlighted the resilience of capacity utilization, which declined two tenths to 79.6. Moreover, the survey reported increased financial constraints weighting on the manufacturing and services sector. This is consistent with the latest ECB bank lending survey. The LTROs had significant effects in reducing the pace of credit tightening in the region, but some credit tightening is still going on.
Purchasing managers index flash (composite)

Feb Euro area Overall region Germany France 49.3 53.2 50.2 Mar 49.1 51.6 48.7 Apr 49.0 52.0 49.0 47.4 50.9 46.8
Euro area economic sentiment and composite PMI

Standard dev iations from 2000 to 2007 average Composite PMI 4 2 0 -2 -4 -6 98 00 02 04 06 08 10 12 Economic sentiment
27
JPMorgan Chase Bank N.A, London Branch Raphael Brun-Aguerre Greg Fuzesi
The Euro area PMI was much weaker than expected in April. The composite output index dropped 1.6pts to 47.4, which is now only 1pt above last Octobers trough and which is signalling a 1%-ish pace of GDP contraction (in annualized terms). Almost all details were weak. At the Euro area level, composite new orders fell 2.2pts to 45.4 and employment fell 0.9pts to 48.3. By sector, the output indices fell in services (-1.3pts to 47.9) and manufacturing (-2.3pts to 46.4). In manufacturing, new orders fell 1.7pts to a depressed 43.7, with export orders declining 2.1pts to 46.3. The latter is a weighted average of the country-level indices and is therefore also affected by intraEuro area demand (e.g., Italy ordering German cars, etc.). The inventory indices declined a touch, but not enough to prevent the orders/inventory index from falling a bit further. Finally, the composite pricing indices fell slightly and are a bit below their long-run averages. At the country level, the German composite PMI has declined for three months now, but at 50.9 is still pointing to some growth. German services improved (0.5pt to 52.6), but manufacturing output dropped (-2.9pts to 47.8) and is clearly struggling to find a bottom. In terms of German GDP, the PMI tracks it slightly better than the expectations index in the IFO, but the difference is not big enough to completely ignore the more upbeat message of the IFO (incl. in manufacturing). Hence, for now, domestic demand is pulling Germany along, with some ambiguity about the pace of this growth. In France, services slumped (3.7pts to 46.4), while manufacturing output rose 2.1pts to a still weak 47.7. The Markit press release noted that the election may have had an effect, but that is unlikely to entirely explain the recent slide. These results imply that the composite output index fell sharply in the periphery in April (2.1pts to 44.1); this is not far below the range in which it has been recently, but is disappointing nonetheless.
Inflation
Consumer prices
Feb Germany (prelim) %m/m nsa %oya HICP (%oya) Baden Wuerttemberg (%oya) Bavaria (%oya) Brandenburg (%oya) Hesse (%oya) North-Rhine West (%oya) Saxony (%oya) Spain (flash) HICP (%oya nsa) Belgium CPI %m/m nsa %oya nsa 0.7 2.3 2.5 2.5 2.6 2.5 2.2 1.9 2.4 1.9 0.6 3.7 Mar 0.3 2.1 2.3 2.4 2.3 2.1 2.0 1.8 2.2 1.8 0.2 3.4 Apr 0.0 1.9 2.1 1.9 2.0 1.9 1.8 1.6 1.9 0.1 2.0 2.3 2.2 2.1 1.9 1.7 2.0 2.0 0.1 3.2
German CPI inflation declined a tenth from the March reading. Although no details were released at the country level, some information was provided by some German states. Aggregating this information, we find that energy price inflation declined 1.1%-pt to 5.6%oya. Core inflation and food price inflation, on the other hand, both remained stable at 1.3%oya and 3.0%oya, respectively. The details of the release will be published with the final inflation release on May 11. German inflation has declined substantially since its peak of 2.6%oya in September 2011, as the contribution of energy price inflation softened over that time. We now expect German inflation to remain broadly stable over the next few months.
Producer prices
Jan Feb 0.6 4.2 0.7 4.3 Mar 0.5 3.7 France %m/m nsa %oya nsa 0.7 4.3
Demand and labor markets

Domestic consumption
France Consumption of goods, real terms %m/m sa -0.4 %oya sa -2.2 -0.5 -2.3 3.0 0.5 2.9 0.2 -2.9 -2.0
4.1
Import prices
Jan Germany %m/m nsa %oya nsa 1.3 3.7 Feb 1.0 3.5 Mar 0.7 3.1
Following the sharp increase in February, French consumption of goods saw a reversal in March. This swing was related to the energy component, which had surged 11.6%m/m in February and which then fell 11.3%m/m in March. This was related to the weather. Other details were not too bad in March though, with increases in spending on cars and some other durables. In terms of 1Q12, consumption of goods rose 0.9%q/q saar, which follows similar gains in 3Q11 and 4Q11. Hence, the French consumer is continuing to contribute to modest growth in the French economy.
28
Japan
As widely expected, the BoJ eased monetary policy further by increasing its Asset Purchase Program IP rose in March but outlook is weak Business sentiment set back for manufacturers, but nonmanufacturers are upbeat As widely expected, on Friday the Bank of Japan announced an increase in its Asset Purchase Program (APP)thereby enhancing its monetary easing. Compared to our expectation (and the consensus view to some extent), the specific measures of the easing were more aggressive. First, JGB purchases were increased 10 trillion, instead of our 5 trillion forecast. Second, the maturity of JGBs that the Bank purchases was extended from one to two years to one to three years (our expectation was no change). Finally, the BoJ will increase its purchases of equities (ETFs and J-REITs), although the amount was limited (210 billion in aggregate). Worth noting is that the size of the APP was only increased by 5 trillion on net (not 10 trillion) as the fixed rate funds-supplying operations , which are included in this program and have been undersubscribed of late, were reduced to 30 trillion from 35 trillion. Meanwhile, the BoJs forecasts of GDP growth and inflation were revised up for both FY2012 and FY2013 in its semiannual Outlook report (table). Why was the BoJ more aggressive than we had expected? In our view, the Bank may have wanted to signal that this could be the end of easing by being more aggressive now. Indeed, Governor Shirakawa did not offer any hints of further easing from here, which we had expected to be delivered. However, contrary to the BoJs intent, market reaction has been rather negative, at least so far. The yen strengthened against USD and the Nikkei equity index fell on the day. Our FX strategy team looks for a strengthening in the yen in coming months, and if that is the case, political pressure for further monetary action likely will reintensify. We still expect that the BoJ will ease policy again in July when it reassess its semiannual Outlook, unless the economic outlook and the market situation have improved significantly by then. On the data front, the overall tones of the March IP report and the April manufacturing PMI were rather weak, tempering the upside risk to our 1H real GDP growth forecast at 2.4% ar. With recent soft business sentiment among manufacturers, this weeks reports suggest that IP will slow or even stagnate this quarter after a 4.6% ar gain in 1Q due mostly to an inventory correction and soft external demand.
Median GDP and inflation forecasts1 of BoJ board members

%y/y Latest forecast Apr 12 report Real Core GDP CPI -0.2 0.0 2.3 0.3 1.7 0.7 Previous fcst: Jan 12 Real Core GDP CPI -0.4 -0.1 2.0 0.1 1.6 0.5 J.P. Morgan forecast Real Core GDP CPI -0.2 0.0 1.8 0.0 1.4 -0.2
FY2011 FY2012 FY2013
1. Fiscal year starts April 1.
IP and manufacturers' projection

2005=100 sa 100 95 90 85 80 75 2010 2011 Manufacturers' projection IP
2012
2013
Inventory and inventory to shipments ratio

2005=100 sa 160 140 120 100 Inventory 80 2007 2008 2009 2010 2011 2012 2013 Inventory to shipments ratio
Mixed monthly indicators

The overall message from this weeks slew of monthly data for March and April was that 1Q growth was solid, mainly in domestic demand, but the outlook for 2Q is softer with weakness likely in manufacturing activity. IP report: While March industrial production rose 1.0%m/m sa, as we had expected (but much less than consensus forecast at 2.3%), total shipments were flat (-0.1%) and inventories jumped 4.3%. In addition, while manufacturers look for a 1.0% gain in April (revised up from a 0.3% fall in the previous report), they also anticipate a large 4.1% decline in May. We do not consider the May projection a critical sign of a break in the upward trend in manufacturing activity. May has many holidays (so called Golden Week), so seasonal adjustment could be distorted and a
29
Economic Research Japan April 27, 2012
large rebound could follow in June. Still, it is natural to expect an inventory correction in this quarter after the jump in inventories (inventory to shipments ratio) in March. Factory shipments: The flat total shipments in March was mainly due to a large 6.9% fall in transport equipment (autos), which sometimes occurs when export shipments await ships at ports. Core capital goods shipments rose 0.4%m/m sa in March, but the large fall in January (-3.5%) and slight decline in February (-0.8%) left the 1Q average down 9.5% ar from the 4Q average. While we had already expected a 2.0% ar decline in the GDP-based capex in 1Q, the risk is now tilted to the downside. Construction goods shipments rose 1.2% in March, but the large 7.2% fall in January left the 1Q average down 18.8% ar. The large fall in construction goods shipment in 1Q appears odd as reconstruction activity should be gaining momentum now. This may indicate that private construction activity is very weak, offsetting the rise of demand from the public sector. Manufacturing PMI: The overall index fell 0.4pt to 50.7 in April, but remained slightly above February (50.5) and is basically flat from the 1Q average (50.8). Output and new orders declined in the month but remained above 50, while inventories (finished goods and stock of purchases) rose in the month. Forward-looking ratio of inventory to new orders points to a slowing in output. Employment and new export orders were weak. Retail sales: The March commercial sales report showed that nominal retail sales fell 1.2%m/m sa, a limited payback for the robust rise in the previous months (+ 2.0% in February and + 3.1% in January). In all of 1Q, sales jumped 17.3%q/q saar, the fastest pace since the current sa series started in 2002. While this indicator is not necessarily a good indicator for tracking GDP-based consumption (even for goods consumption), such a strong reading supports our view that consumption was solid in 1Q. Labor market indicators: The job offers to applicants ratio rose for the tenth month in a row in March to its highest since October 2008. However, while the unemployment rate remained unchanged at 4.5%, the number employed at firms fell a quite large 0.5%m/m sa. This restrained labor income and dims the outlook for private consumption.
Labor market indicators

% of labor force 5.5 5.0 4.5 4.0 3.5 2007 Job offers to applicants ratio Unemployment rate Ratio 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 2013
2008
2009
2010
2011
2012
Shoko Chukin small firm business sentiment

DI, latest points show outlook for May 55 50 45 40 35 2010 Nonmanufacturing Manufacturing
2011
2012
Indeed, the actual reading for April was slightly better than the survey predictions in the March report (47.6 vs. 46.4), and the second highest in the post-earthquake period. The result continues to point to solid momentum in the Japanese economy, in line with last weeks Reuters Tankan large firm survey. However, the sector breakdown raises some concern about the manufacturing sector. The manufacturing DI now stands at 45.8, which was lower than the average in 2H of last year (46.7), with the outlook DI looking for a further decline to a year-low of 43.4. This is in line with the negative message from the IP and PMI reports. In contrast, nonmanufacturers sentiment was upbeat, as was the case in other survey reports. The nonmanufacturing DI rose 0.4pt even after the 3.0pt jump in March, and the outlook DI looks for only a marginal payback (-0.6pt) in May. Restaurants/hotels and other services showed continued strength, supporting our view that consumer spending is on a solid rising trend. Note, though, the construction sector, where activity is thought to be boosted by reconstruction, has not yet picked up. This may suggest that the strength in construction activity is concentrated in a small area that was damaged by the disaster and so is not captured by an economy-wide diffusion index.
Some divergence of sentiment between manufacturers and nonmanufacturers

The Shoko Chukin small firm sentiment index declined 1.1pts to 47.6 in April. This was not particularly weak, as the 3.4-pt jump in March, which had taken the index to a new-postearthquake high, likely reflected seasonalitythe index has risen in March in each of the past 10 years, averaging 2.6pts.
30
JPMorgan Securities Japan Co., Ltd. Miwako Nakamura

Tue May 1 2:00pm
Auto registrations
Jan Total %oya 40.7 Mn units saar 3.88 J.P. Morgan adjusted (incl. light vehicles) Mn units saar 4.77 Feb 31.9 3.72 4.60 Mar 78.2 3.61 4.39 Apr 108.0 3.49
In the details, advertising service prices rebounded solidly (+0.5%oya, compared to -2.2% in February and -0.5% in January), consistent with respondents comments in the April Reuters Tankan that advertising activity has picked up recently. Also, there was a further boost from reconstruction demand: temporary material rental accelerated further (+19.1% after +13.6% and +12.3%) and construction machinery rental prices remained high (+10.0% after +9.3% and +8.6%). It appears that corporate service prices are being supported by the economic recovery, which is being driven in large part by reconstruction after the 2011 earthquake.
Since the increase in auto demand immediately after the government reintroduced its subsidy program for the purchase of environmentally friendly cars was much larger than for the first subsidy program, new auto registrations will probably show a third consecutive m/m decline to a still-high level in April.
Wed May 2 8:15am
Corporate service prices

%oy a 20 15 10 TV advertising Temporary material rental
Services/composite PMIs
Diffusion index Jan Services (business activity) Composite (output) 51.0 51.1 Feb 51.2 51.2 Mar 53.7 53.2 Apr
5 0 -5 -10 2010 Construction machinery rental 2011 2012
The services PMI business activity index is expected to remain elevated in April, as indicated by upbeat momentum shown by other nonmanufacturing sentiment DIs, as well as continued solid forward-looking indicators (the new business index and the business expectations index, which asks prospects 12 months ahead) in the March report for this survey.
Wed May 2 10:30am
Shoko Chukin small firm survey (Apr 24)

Diffusion index Feb Sentiment index Manufacturing Nonmanufacturing Sales (%oya) Profit margins Financing conditions Inventory Capacity Employment Input prices Output prices 45.3 44.7 45.7 2.4 -5.0 -4.8 -12.0 -7.6 -1.7 6.7 -5.3 Mar 48.7 48.7 48.7 3.1 -4.0 -1.9 -10.3 -6.0 0.1 12.0 -2.0 6.7 Apr 46.5 47.6 45.8 49.1 5.1 -6.2 -1.7 -11.1 -5.4 -0.8 12.8 -2.5
Employers' survey
%oya Dec Total earnings per employee Contract wages Scheduled payments Overtime payments Special payments Total hours worked Regular employment Full-time workers Part-time workers 0.0 -0.2 -0.4 1.6 0.3 0.4 0.6 0.1 1.8 Jan -1.2 -0.2 -0.3 2.9 -19.6 0.0 0.5 -0.1 2.2 Feb 0.1 0.3 0.0 3.9 -17.0 3.0 0.6 0.3 1.1 Mar 0.3
Labor income appears to be improving, but very modestly, restrained by depressed corporate profits.

Corporate service prices (Apr 24)
%oya Jan Overall Ex international transport -0.4 -0.5 Feb -0.6 -0.6 -0.7 Mar -0.6 -0.3 -0.4
The 1.1pt decline in the headline index in April was generally expected as the 3.4-pt jump in March, which had taken the index to a new-post-earthquake high, likely reflected seasonality (the index has risen in March in each of the past 10 years, averaging 2.6pts). Indeed, the actual reading for April was slightly better than the survey predictions in the March report (47.6 vs. 46.4), and the second highest in the post-earthquake period. The result continues to point to solid momentum in the Japanese economy. That said, the sectoral breakdown raises some concern about the manufacturing sector. The manufacturing DI is now lower than the average in 2H of last year (46.7), with the outlook DI looking for a further decline to a year-low of 43.4. In contrast, the nonmanufacturing DI rose 0.4pt even after the 3.0pt jump in March, and the outlook DI looks for only a marginal payback (-0.6pt) in May. Upbeat sentiment among restaurants/hotels and retail trading firms supports our view that consumer spending is on a solid rising trend, though it is somewhat
31
The oya change in ex. international transport index, a core of the CSPI, fell 0.3%-pt in March, nearly reversing the 0.5%-pt increase over the previous two months.
Economic Research Japan April 27, 2012
puzzling that sentiment in the construction sector, where activity is likely being boosted by reconstruction after the earthquake, has yet to pick up. Index of all sector activity (Apr 26)
%m/m sa Dec All sector Tertiary sector Industrial production Construction Public sector 1.6 1.6 2.3 -2.4 -0.6 1.7 Jan -1.0 -0.6 0.9 4.5 0.9 Feb 0.8 0.0 -1.6 5.6 -1.5 -0.1
Core CPI inflation edged up in March to +0.2%oya from +0.1% in February. The major driver was energy, which explained 0.46%-pt of the 0.2%oya rise in the March core CPI, 0.05%-pt more than in the previous month. That said, the core core CPI (all items ex. food and energy) also moved up in the month, further slowing the pace of oya decline to -0.5% (from -0.6% in February, -0.9% in January, and -1.1% in 4Q 2011). While this move may seem encouraging, it is due mostly to a technical factor. The CPI for flat panel TVs rose a surprising 48.5%m/m nsa in February pushing up the oya change in the core CPI by 0.33%-pt, as a result of a change in the survey sample. The contribution from flat panel TVs to the change in the core CPI increased to 0.02%-pt in March, from 0.00%-pt in February and -0.31%-pt in January. Excluding flat panel TVs, the oya change in the core CPI in March was the same as in January. The preliminary April reading for the Tokyo core CPI was -0.5%oya, a 0.2%-pt faster decline than in the previous months. However, the worsening was completely explained by a marked decline in nonperishable food, which has an unfavorable base effect due to the temporary surge in food prices in April 2011 in the immediate aftermath of the Tohoku earthquake. The oya decline in the core core measure remained at the same rate as in the previous month, when it slowed modestly from the pace prevailing over the previous three months. Labor force survey (Apr 27)
%m/m sa Jan Feb 4.5 0.4 0.5 -2.3 0.75 Mar 4.4 4.5 -0.3 -0.3 -0.3
-1.4 -0.2
4.0 -0.8
METI all sector activity indices

Index, Feb11=100 105 100 95 90 85 80 2010 2011 Construction Tertiary sector Manufacturing and mining
2012
Purchasing managers survey (manufacturing) (Apr 27)

Diffusion index Feb Overall index 50.5 Mar 51.1 Apr 51.0 50.7 Unemployment rate (% sa) Labor force (%m/m sa) Total employment (%m/m sa) Unemployed (%m/m sa) Job offers ratio (sa)
See main essay. Industrial production-preliminary (Apr 27)

%m/m sa Jan Production Shipments Inventories Inventory/shipments ratio 0.9 -1.1 2.1 0.7 Feb -1.6 0.3 -0.5 -2.7 Mar 1.0 -0.1 4.3 4.6
4.6 -0.4 -0.6 3.0 0.73
0.76
See main essay. Consumer prices (Apr 27)

%oya Feb Tokyo Overall Core (ex fresh food) Ex food and energy Nationwide Overall Core (ex fresh food) Ex food and energy -0.2 -0.3 -1.1 0.3 0.1 -0.6 Mar -0.1 -0.3 -1.0 0.3 0.1 -0.6 0.5 0.2 -0.5 Apr -0.3 -0.5 -1.0
The job offers to applicants ratio rose for the tenth month in a row in March, and has reached a level 0.14pt higher than the ratio seen in March 2011 (the earthquake month) and the highest since October 2008. However, the unemployment rate was unchanged from February, when it reversed 0.1%-pt of the cumulative 0.4%-pt rise in the previous four months. The detailed look at the unemployment rate was somewhat worrisome: the number employed at firms fell a quite large 0.5%m/m sa. So the unchanged unemployment rate reflected a modest retreat in the labor force, which has recently been on a recovering trend after declining sharply as the disasters restrained job search. That said, the unemployment rate currently stands 0.3%-pt below the pre-earthquake level measured by the Jan-Feb 2011 average. New job offers remained on a solid uptrend, offering brighter near-term prospects; they rebounded by 1.6%m/m sa after -0.3% in the previous month, leaving the 3m/3m sequential change at a solid +2.5%). In addition, labor market survey indicators, such as the Household DI in the Economy Watchers survey, remained generally upbeat. We continue to think that the labor market is improving at a gradual pace.
32
Labor market quantitative indicators

% of workforce, sa 5.5 5.0 4.5 4.0 3.5 2007 Job offers ratio 2008 2009 2010 2011 2012 Unemplyment rate Ratio, sa 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 2013
The next release offering a look at consumer spending will be the Cabinet Offices real private consumption index, our favorite monthly consumption indicator, which is scheduled for around May 9. Housing starts (Apr 27)
Jan Housing units %oya %m/m sa Mn units saar -1.1 5.0 0.82 Feb 7.5 11.6 0.92 Mar 7.8 -5.0 0.87 5.0 -7.6 0.85
Household survey of expenditures (Apr 27)

%m/m sa, incl. agricultural worker households Jan All households Real spending %oya Core %oya Worker households Real disposable income Propensity to spend (%) -0.1 -2.3 0.9 -1.4 1.2 73.7 Feb 1.8 2.3 1.5 1.9 4.7 72.3 Mar -0.6 3.5 -0.1 3.4 -0.5 3.3 -2.7 72.9
Housing starts (measured in units) fell 7.6%m/m sa in March, but this had been preceded by a cumulative 17.2% gain in the previous two months. Monthly volatility aside, the 3-monthmoving average of unit starts has risen for four months in a row, and is now above the range seen in 1H11, which was not affected by the policy-induced surge in July (0.862 vs. 0.815-0.846 million saar). The very severe destruction by the Tohoku earthquake is expected to boost housing construction eventually, and the recent restart of the governments housing ecopoint system on Oct 21 (to extend until Oct 2013) should also provide a boost to housing activity. Note, however, that as the GDP residential investment is measured in put in place terms, the risk to our forecast for 1Q (-2.0%q/q saar) is tilted to the downside.
Commercial sales (Apr 27)

%oya Jan Commercial sales Wholesale sales Total retail sales %m/m sa -2.0 -3.5 1.8 3.1 Feb -0.1 -1.3 3.4 2.0 Mar 3.0 0.5 10.3 -1.2
Housing starts
Mn units, saar 0.97 0.92 0.87 0.82 0.77 0.72 2010 2011 2012 3mma 2013 Tohoku earthquake
8.0 -3.0
Consumer spending data remained solid at the end of the last quarter. The March commercial sales report showed that nominal retail sales fell 1.2%m/m sa, only limited payback for the robust rise in the previous months (+2.0% in February, +3.1% in January, and +0.7% in December last year). In all of 1Q, sales jumped 17.3%q/q saar, the fastest pace since the current sa series started in 2002. While this indicator is not necessarily a good one for tracking GDP-based consumption (even for goods consumption), such a strong reading supports our view that consumption was solid last quarter. Real spending data in the Household survey showed a similar move: a 0.5%m/m sa drop in March preceded by rises in each of the previous three months left all of 1Q up a solid 6.8%q/q saar. Looking at 1Q retail sales in detail, sales at all five shop types posted quarterly gains, with sales at auto retailers, boosted by the reintroduction of government incentives to purchase environmentally friendly cars, being the strongest. Ahead, we expect overall growth in consumption to moderate to 1% ar over the rest of this year, down from 3% in 1Q, as the boost from the incentives fades. Moreover, the recent solid consumer spending has reflected a decline in saving rate, rather than a rise in household income. Pent-up demand after the March 2011 earthquake is likely the major reason for the recent decline in the saving ratebut this is likely temporary.
33
Japan focus: current account balance

In January this year, Japans current account balance posted by far the largest deficit in its history since 1985, in not seasonally adjusted terms. After seasonal adjustment, the January balance remained in surplus, but this was the smallest since the current series started in 1996. In February, the not adjusted balance returned to a surplus, and the seasonally adjusted balance recovered solidly to 854 billion, compared to 135 billion in January, a 563 billion average in 4Q11, and a 852 billion average in 3Q11. In the details, the income account has been generally stable in surplus over the past several years, with a declining trend in bond interest receipts offset by increasing income from equity portfolio investments and direct investment abroad. Meanwhile, the services account has been consistently in deficit, but has had little impact on the current account because it is so small. The merchandise trade account, which posted a deficit in nine of the 11 months since the earthquake, remains the key determinant of the overall balance. One reason for the recent weakness in Japans net trade is sluggish exports, on the back of persistent yen strength, which is prompting a shift of production overseas by Japanese manufacturers, and relatively soft overseas economies, especially in Europe. In addition, imports have been on a rising trend, reflecting high commodity prices supported by robust demand from emerging economies, rising import penetration, for example in the telecommunication equipment sector, plus the earthquake-induced increase in import demand for substitutes for nuclear power. The solid improvement in the trade balance in February mostly reflected the unwinding of temporary factors that had weighed on the trade balance in January, such as distortions around the Lunar New Year holidays. Going forward, factors depressing the trade balance, and accordingly, the current account balance, remain in place. In the already available customs trade report for March, nominal imports grew 6.3%m/m sa, much more than the 1.2% rise in nominal exports, partly because of the rapid rise in energy import prices during the month, implying a meaningful widening in the trade deficit and a very small overall surplus in the March BoP report.
Current account balance

bn 3600 3000 2400 1800 1200 600 0 -600 96 bn 1600 1200 800 400 0 -400 -800 2007 2008 2009 Services account 2010 2011 2012 2013 Merchandise trade Income account 98 00 02 04 06 08 10 12 After seasonal adjustment
Breakdown of seasonally adjusted current account balance
Nominal exports and imports in BoP report

bn , sa 7000 6000 5000 4000 3000 2007 Imports Exports
2008
2009
2010
2011
2012
2013
Trade deficit in BoP report (YTD)

bn , inverted scale -4000 -3000 -2000 -1000 0 Jan 12 J.P. Morgan estimate for March using customs trade data J.P. Morgan trajectory est in Jan 2012
Apr 12
Jul 12
Oct 12
Jan 13
34
JPMorgan Chase Bank NA Sandy Batten Silvana Dimino
Canada
Wholesale sales rebounded in February while retail sales were restrained by autos Source data points to 0.2%m/m rise in February GDP Expenditure side of GDP points to upside risk to our 1Q forecast Market now expects imminent BoC rate hike with a 5050 chance of a 25bp hike in July Wholesale sales rebounded in February while retail sales were dragged down by a retreat in auto sales. Wholesales sales jumped 1.6%m/m in February after a 1.1%m/m decline in January while retail sales slipped 0.2%m/m, offsetting a 0.2%m/m increase in January. When auto sales are excluded, retail sales rose 0.5%m/m in February versus a 0.8%m/m decline in January. These releases, combined with the February manufacturing shipments released the week before, provide the key source data we use to construct our forecast for February monthly GDP (released Apr 30). They point to a 0.2%m/m increase in GDP in February after a 0.1%m/m rise in January. These two increases on top of 0.5%m/m rise in December are putting activity growth in the first quarter on a very strong path. If our February expectation is realized, GDP in 1Q would be on track to exceed our current 2.1%q/q ar forecast. After the BoC turned more hawkish than the markets had expected in its April 17 rate announcement, the OIS market has increasingly priced in an earlier interest rate hike. It now has priced in around a 35% chance of a 25bp rate hike at the next announcement (June 5) and about a 70% chance of at least a 25bp hike by year-end. Last week we brought forward our rate expectations and now look for a 25bp hike in the fourth quarter of this year. But, there is no reason for the Bank to be hasty in resuming its rate hikesinflation, though sticky, remains around the Banks target and importantly, is not accelerating; the US recovery remains sluggish; and sovereign debt issues continue to smolder in Europe. We think the market has gotten ahead of itself and look for some correction in the near term. The February increase in wholesale sales was widespread with only one major sector reporting a decline. In volume terms, sales were even stronger than the value of sales, with real sales up 2.2%m/m following a 1.1% decline in January. The largest increase in dollar terms was in the motor vehicles and parts subsector. Sales were up 2.7%m/m, due mostly to higher sales in the motor vehicle industry (+3.4%). Sales in the machinery, equipment, and supplies subsector rose 1.7%m/m in February. Of the four industries in the subsector,
Monthly real GDP

2002 C$ bn, with Feb forecast 1300 1280 1260 1240 1220 1200 1180 2008 2009 2010 2011 2012 4Q 1Q 2Q 3Q 4Q
BoC overnight rate and OIS rates

% 1.2 1.0 0.8 0.6 0.4 0.2 Apr 09 Aug 09 Jan 10 Jun 10 Nov 10 Apr 11 Sep 11 Feb 12 3-mo OIS rate BoC overnight rate 6-mo OIS rate
three posted gains. These sales have been on an upward trend since the beginning of 2010, paralleling the rise in investment in plant and equipment over the past two years. Wholesale inventories rose 1.1% in February, the 13th increase in 14 months. A decline in new car sales more than accounted for the decline in retail sales in February. Sales at motor vehicle and parts dealers fell 2.4%m/m, partially offsetting the rise in January. Lower receipts at new car dealers (-2.8%) accounted for most of the decline. The other motor vehicle dealers segment (-3.5%) posted a decrease for the fourth consecutive month. In volume terms, retail sales decreased 0.6% on top of a 0.1%m/m drop in January. (But the weakness thus far in 1Q followed a very strong performance in 4Q.) Following three consecutive monthly declines, sales at gasoline stations rose 1.7% in February, reflecting higher prices at the pump.
Updating GDP by expenditure

Monthly GDP figures are constructed by aggregating output information gathered from producers. Quarterly GDP figures are constructed by adding up expenditures across the economy. So, in looking at how quarterly GDP is tracking, it is important to view the expenditure components. Moreover, to us, it is easier to understand the factors behind economic activity by looking at the expenditure side.
35
JPMorgan Chase Bank NA Sandy Batten Silvana Dimino
Economic Research Canada April 27, 2012
Consumer spending continues to be extremely resilient. Despite the monthly softness in real retail sales in January and February, extremely strong sales in December provided a very good start to 1Q. Real retail sales (comparing the Jan/Feb average with the 4Q average) point to a roughly 2-1/2% ar increase in household consumption in 1Q, only slightly slower than the 2.9% pace reported for 4Q. In addition to resilient spending on goods and services, household spending on housing also remains solid. Residential investment in the national accounts includes renovations and ownership transfer costs as well as the value of new construction. The housing start figures point to a modest rebound in the value of new construction in 1Q. Renovation activity has been trending down ever since early last year when a tax break expired. And existing homes generally moved sideways in 1Q, indicating a sharp slowdown in transfer costs in 1Q after a 21%q/q ar surge in 4Q. Combined, these three components of residential investment point to a 1Q increase of around 3%-4%q/q ar, roughly in line with the 3.1%q/q ar rise in 4Q. The real trade deficit narrowed slightly in Jan/Feb from the 4Q average. Consequently, real net exports appear on track to make another positive contribution to overall GDP growth in 1Qsimilar to the 0.7%-pt ar added in 4Q. In contrast, business capex appears headed for another mediocre quarter. Canadian businesses import about 70% of the machinery and equipment purchases. Imports of M&E were down slightly in Jan/Feb compared to their 4Q average, pointing to a lackluster 1Q performance for business capex after a modest 2.7%%q/q ar increase in 4Q. Government spending at all levels continues to consolidate as the stimulus packages put in place during the precious recession are unwound and so is unlikely to make any contribution to overall growth in 1Q. And finally, inventory, as usual, is the wild card. Monthly data for Jan/Feb show a little more inventory building than occurred in 4Q which means that inventories could make a modest contribution to overall GDP growth in 1Q after having subtracted nearly 1%-pt in 4Q. All in all, when combining these expenditure pieces from the first two thirds of 1Q, the risks seem to lie on the upside for our current forecast that GDP grew 2.1%q.q ar in 1Q.
ume terms in February. The strong showing in wholesale sales will boost growth in service-providing industries, the larger part of output-based monthly real GDP. February retail sales, which were down in volume terms, will be offsetting some of that strength, however. A decrease in real retail sales in February will end a string of monthly gains in that sector that began last August. A flat outcome in the volume of manufacturing should hold down growth in goods-producing industries.
Mon Apr 30 8:30am
Industrial PPI
%m/m nsa, unless noted Dec Total %oya Ex energy %oya -0.9 2.6 -0.4 1.3 Jan 0.4 2.4 0.1 1.1 Feb 0.2 1.7 -0.1 0.5 Mar 0.0 0.7 -0.1 0.3
Industrial product prices are expected to be unchanged in March. The Bank of Canada commodity price index was down sharply over the month of March, helped by weakness in metal prices, and energy prices that were broadly stable. However, declines in natural gas prices intensified. The Raw Materials price index has been in a narrow range for the first two months of 2012, up 0.2% in January and down 0.5% in February, further evidence that input prices have moderated. The Canadian dollar depreciated in March, but only marginally relative to February.
Fri May 4 10:00am Composite index (sa) Purchasing index (sa) Purchasing index (nsa)
Ivey PMI
Jan 58.6 64.1 55.7 Feb 57.8 66.5 66.0 Mar 53.6 63.5 65.0 Apr 53.6 61.5 60.0
1. Calculated and seasonally adjusted by J.P. Morgan

Wholesale sales (Apr 23)
Sa Dec Total, %m/m %oya 1.0 6.7 0.5 6.4 Jan -1.0 4.0 -1.1 3.1 Feb 0.5 5.5 1.6 7.0

Mon Apr 30 8:30am
Retail sales (Apr 24)

%m/m sa, unless noted Dec Total %oya Ex autos %oya Ex autos & gasoline %oya Real retail sales %oya 0.0 3.7 0.3 3.0 0.6 2.8 0.2 1.7 3.9 0.4 3.3 0.5 3.3 0.4 2.6 Jan 0.5 4.7 -0.5 2.7 -0.5 2.2 0.3 2.7 0.2 4.9 -0.8 -0.7 -0.1 3.2 Feb 0.1 4.3 0.8 2.7 0.6 2.2 -0.3 2.0 -0.2 4.1 0.5 2.6 0.2 1.9 -0.6
Monthly GDP
Sa Nov Total, %m/m %oya -0.1 2.1 Dec 0.5 1.9 Jan 0.1 1.7 Feb 0.2 2.1
We expect that GDP increased 0.2%m/m in February. The wholesale sales component of the key source data manufacturing, wholesale, and retailwas up 2.2% in vol36
JPMorgan Chase Bank N.A, London Branch Allan Monks Malcolm Barr
United Kingdom
GDP contracts in 1Q, leaving the UK economy in a technical recession Evidence of modest growth in underlying terms, and broader activity indicators point to upward revisions Higher risks of more QE from the BoE, but we think a May move is still unlikely A second consecutive drop in GDP in 1Q leaves the UK economy meeting the technical definition of recession. The details of the report were a genuine disappointment, and not just about construction volatility. But the headline figures exaggerate the underlying trend, which is still showing modest growth. Moreover, our analysis of the business surveys and labor market data are consistent with growth of 1%-2%q/q saar, which suggests the data may ultimately get revised up over time. We therefore believe it is fairer to characterize the UK as under-delivering on growth, rather than experiencing a genuine recession. A surge in business optimism in this weeks CBI industry survey for April indicates some momentum into 2Q as well, although the extra bank holiday is still likely to be a large drag on GDP then too. High inflation will likely stop the MPC from expanding QE in May. But a failure of the economy to accelerate from here would raise the chances of more policy support being delivered in 2H12.
GDP output side %q/q, sa GDP Agriculture Industrial production Mining, inc. oil and gas Manufacturing Utilities Water Construction Services Distribution, hotels, restaurants Transport, communication etc. Business and financial Government and other 2Q11 -0.1 -0.7 -1.5 -8.0 0.0 -2.0 -2.3 2.3 0.1 0.2 0.4 0.1 0.1 3Q11 0.6 -0.5 0.1 -0.4 -0.1 1.6 0.2 0.5 0.8 0.4 1.1 1.2 0.4 4Q11 -0.3 -1.6 -1.3 -2.6 -0.7 -5.3 1.4 -0.2 0.0 -0.4 -0.5 -0.1 0.4 1Q12 -0.2 -1.9 -0.3 -3.6 -0.1 1.2 0.4 -3.0 0.1 0.0 0.4 0.0 0.2
Overall versus a measure of underlying GDP

2007=100, ex. construction, energy, and agriculture (13%) 106 104 102 100 98 Overall GDP (quarterly ) Underlying GDP (87% of the total, monthly ) bn, real, quarterly 375 370 365 360 355 350 345 340 2007 2008 2009 2010 2011 2012 335 2013
GDP report for 1Q disappoints

The preliminary estimate of 1Q GDP reported a 0.2%q/q contraction. We had flagged risks of a drop owing to extreme weakness in the construction sector, as indicated by the data for the first two months of the year. But construction in 1Q fell by only half as much as we feared, while services output delivered a large and broad-based downside surprise. Output in that sector rose just 0.1%q/q, versus the 0.7% gain we had penciled in. IP also fell by more than expected, -0.4%q/q, due to a combination of weakness in energy and manufacturing. The 1Q release means that overall GDP has been broadly flat over the past four quarters. We have tended to put the energy and construction sectors to one side lately, due to the extreme volatility or highly concentrated weakness in what amounts to just 13% of GDP. Repeating this exercise now indicates a modest 0.1%q/q expansion in underlying GDP in 1Q, following average growth of 0.2% in the prior three quarters. This is not as weak as the headline number for 1Q suggests, but it is some way short of where we had thought growth was just a few weeks back. A large part of this disappointment comes from the fact that services growth in January has been revised down from 0.2% to zero, while the
96
Monthly gauge of underlying GDP

%3m/3m, sa, ex. agriculture, energy, and construction but not weather or holidays 1.0
0.5
0.0
-0.5 2010
2011
2012
2013
February data showed a surprising 0.4%m/m drop. Aside from government output, this was broad-based across sectors (table, next page).
45
Economic Research United Kingdom April 27, 2012
The ONS data already imply that part of this drop will be unwound in March, and it is noteworthy that the services PMI is still running in line with its average. But as we discussed in last weeks GDW, there is increasing evidence that the reliability of the services PMI as a growth indicator is not what it once was in the UK. For this reason, we are hesitant to fully downplay this GDP release. But other activity indicators more broadly do indicate positive growth in 1Q (see section on the surveys below).
Monthly services
% Services Details: Distribution, hotels, restaurants Transport, communication Business services and finance Government and other Nov 11 Dec 11 0.6 0.2 -1.0 2.0 1.0 0.2 1.3 -0.1 0.0 0.1 Jan 12 0.0 -0.3 -0.3 0.2 0.0 Feb 12 -0.4 -0.9 -0.1 -0.7 0.1
2012 growth and the MPC

Unfortunately, the extra bank holiday in June makes another GDP contraction in 2Q look likely. The implied monthly profile of GDP indicates little momentum into 2Q, and so we remain comfortable with our forecast for a 0.2%-0.3%q/q drop. This decline could be smaller if construction rebounds significantly from its current levels (it would appear the ONS has assumed this happened in March). But at this stage we will leave the forecast where it is until seeing more hard data. In 2H12, we look for a modest acceleration in underlying growth, but to a still subdued pace of around 0.3%-0.4%q/q. The 1Q GDP release will challenge the MPCs initial inclination (like ours) that construction would be the main source of disappointment. Comments by MPC member Martin Weale this week (toward the hawkish end of the committee) indicate more nervousness about the economic outlook among the MPC. There is therefore an outside chance that we see more QE in May. But the committee also puts weight on the other firmer indicators of activity, while inflation concerns are likely to stop it from extending QE at the next Inflation Report meeting in May. We expect no further gilt purchases this year. But if underlying growth remains this weak or deteriorates further in 2H12, more QE later in the year cannot be ruled out.
Manufacturing versus service sector output
2008=100, sa, quarterly data 105 Manufacturing 100 95 90 85 2007 Services 103 102 101 100 99 98 97 2008 2009 2010 2011 2012 96 2013
CBI industry survey: business optimism

% balance, sa 40 20 0 -20 -40 -60 -80 87 92 97 02 07 12
What do other indicators say about growth?

The weakness in the GDP reporteven excluding the energy and construction sectorsis puzzling given the strength in several of the business surveys. Few may have noticed that on the same day that 1Q GDP was released, the CBIs industry survey for the same period showed a surge in its reading on business optimism, while new orders and employment also rose significantly (chart). This makes the technical recession implied in the official data even more bizarre. The more upbeat message in the CBI is also evident in the BCC and PMI surveys. Another useful cross check on growth is the labor market. Recent indicators suggest employment is expanding modestly, while gains in claimant count unemployment have remained
very lowin sharp contrast to past recessions. Following the analysis we did on the tracking reliability of the PMIs last week, we have repeated a similar exercise below, but this time on the broader set of activity indicators mentioned above. The aim is identify what these indictors are telling us about growth at present.
46
The table to the right shows model predictions of 1Q privatesector GDP growth, based on a number of different variables. Most activity indicators have significant correlation with GDP when estimated over the entire sample period available. But this period includes the recent financial crisis. As correlations across most activity variables increased sharply during this episode, it can give a false impression of how good these same indicators are at tracking growth in more normal periods. We have therefore also run the regressions up to 2006. The results reinforce the conclusion we reached last week, suggesting that the business surveys (the BCC and the PMIs) have very poor predictive power over latest estimates of GDP, which underwent significant revisions in the last Bluebook. A sector breakdown reveals that this weak linkage comes from the service sector. The services PMI (and the services readings of the BCC) have an R2 that is close to zero. Taken literally this means we can no longer put as much weight on these readings as indicators of services growth. We should not disregard these surveys altogether, as they may contain important information in their own right. But this is a blow, as the PMI has historically been an important input into our real time tracking of GDP (and a guide to the likelihood of future revisions). The news is better within the manufacturing sector. Models based on the PMI and BCC outside of the financial crisis have done a reasonable (but not great) job of tracking the sectors output. The R2s are still low, but given the choppiness of the official data this is not a great surprise. The CBI has the advantage of a long history extending back to the 1970s. And the results do not change materially here when we shorten the sample to 2006. The CBI points to very strong growth of 4%q/q saar in 1Q. With the exception of the BCC model estimated over the pre-crisis period, the other models also point to at least modest manufacturing growth in 1Q. As we noted last week, one alternative cross-check on the GDP data is dynamics in the labor market. The quarterly change in claimant count unemployment has the best correlation with growth (in this case we use overall GDP rather than the private sector)independent of the sample period used. The soft gains in the claimant count lately point to GDP growth of around 2%q/q saar (i.e., 0.5%q/q), which is considerably firmer than the estimate of underlying growth that we calculated from the GDP data themselves in the write-up above. There are of course large errors around all the models shown in the table. But the broad message from the set of 1Q activity data in the UK is that GDP is not falling, and may be revised higher over time. However, these revisions may be more concentrated in the manufacturing sector, and it might be some time before these revisions occur.
Using the business surveys to track output

%q/q, saar, unless stated Full sample R2 1Q f'cast Manufacturing Actual Other estimates: CBI BCC PMI Private services (ex. retail) Actual Other estimates: BCC PMI 0.39 0.32 0.46 0.38 0.38 -0.5 4.3 1.3 1.4 0.3 2.1 3.6 0.00 0.05 Pre-crisis sample R2 1Q f'cast 0.33 0.21 0.28 -0.5 4.1 -1.0 1.6 0.3 4.4 4.8 0.1 3.7 4.0 2.2
Private GDP (based on manufacturing and non-retail services) Actual 0.1 Other estimates: BCC 0.44 2.0 0.00 0.45 3.2 0.05 PMI Claimant count 0.43 1.6 0.35
Manufacturing output
%3m/3m, saar, based on bivariate model on CBI from 1975 to 2006 15 10 5 0 -5 -10 -15 -20 -25 2006 2007 2008 2009 Actual 2010 2011 2012 2013 CBI model
GDP and model based on claimant count unemployment

%q/q, saar 6 4 2 0 -2 -4 -6 -8 -10 2006 2007 2008 2009 2010 2011 2012 2013 Actual Claims model
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Economic Research United Kingdom April 27, 2012

During the week 7:00am

Nationwide consumer confidence index
Sa Index Jan 47 46 Feb 44 Mar 53
Halifax house price index

Sa %m/m %oya %3m/3m saar Jan 0.6 -1.6 -3.4 Feb -0.4 -1.5 -4.1 Mar 2.2 0.8 0.3 Apr
Public sector finances

bn, nsa PSNCR PSNB PSNB (ex.fin.int) Curr. Bgt. (ex.fin.int.) Net debt to GDP (%) Jan -32.0 10.2 7.9 11.0 139.9 -32.3 8.9 6.7 10.0 142.6 Feb -7.8 12.9 15.2 -11.1 137.9 Mar -8.2 9.9 12.2 -8.7 140.6 16.5 15.9 18.2 -11.1 140.8
Mon Apr 30 8:00am
Nationwide house price index

Sa %m/m %oya %3m/3m saar Jan -0.3 0.7 1.0 Feb 0.4 1.0 -0.3 Mar -1.0 -0.9 -2.0 Apr
16.5
Tue May 1 9:30am
PMI survey, manufacturing

% balance, sa Overall index Jan 51.9 Feb 51.5 Mar 52.1 Apr 51.2
Real GDP (preliminary estimate)

Sa Total GDP (%q/q sa) %oya sa %q/q saar Breakdown (%q/q): Industrial production Services Construction Index of services Sa %m/m %oya %3m/3m saar Dec 0.2 2.4 -0.3 Jan 0.2 1.8 1.2 0.0 1.6 0.9 Feb 0.2 1.6 2.1 -0.4 0.8 0.8 3Q11 0.6 0.3 2.5 0.1 0.8 0.5 4Q11 -0.3 0.4 -1.2 -1.3 0.0 -0.2 1Q12 0.1 0.3 0.4 -0.1 0.7 -6.0 -0.2 0.0 -0.8 -0.3 0.1 -3.0
0.5
Wed May 2 9:30am
PMI survey, construction

% balance, sa Overall index Jan 51.4 Feb 54.3 Mar 56.7 Apr
2.3
Wed May 2 9:30am
Net lending to individuals (BoE release)

bn, average Consumer credit (ch, m/m) Secured lending (ch, m/m) Mortgage approvals (000s sa) Dec -0.1 1.0 53.6 Jan 0.7 1.6 57.9 Feb 0.1 1.2 49.0 Mar
Wed May 2 9:30am
Money supply
Sa M4 ex IOFCs (%m/m) M4 ex IOFCs (%3m/3m, ar) M4 (%m/m) M4 (%oya) M4 lending (%m/m)1 M4 lending (%oya)1
1. Excludes the effect of securitization.
CBI industrial trends

Dec -0.7 -0.8 -1.4 -2.5 -0.1 -1.7 Jan 1.8 3.9 1.5 -1.8 -0.4 -2.0 Feb -0.4 2.5 -1.9 -3.4 -1.0 -3.2 Mar % balance 4Q11 Domestic deliveries expected Domestic deliveries reported Domestic orders expected Domestic orders reported -13 10 -13 5 1Q12 1 -7 -3 -17 2Q12 20 5 17 3
CBI industrial trends

% balance Total order book Output expectations Output prices Feb -3 15 10 Mar -8 24 24 Apr -8 24 7
Thu May 3 9:30am
PMI survey, services

% balance, sa Business activity Jan 56.0 Feb 53.8 Mar 55.3 Apr 54.0
Fri May 4 9:00am
New car registrations

%3m/12m nsa Total Private (ex business and fleet) Jan -0.5 -1.8 Feb -0.3 -0.6 Mar 0.3 1.8 Apr
CBI survey of distributive trades

% balance Volume of retailer sales Feb -2 Mar 0 Apr -6
GFK consumer confidence

Sa % balance Feb -29 Mar -31 Apr -31
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J.P. Morgan Australia Limited Stephen Walters Ben K Jarman
Tom Kennedy
Australia and New Zealand

Aussie inflation delivered significant downside surprise, removing obstacle for near-term rate cuts RBA to trim cash rate 25bp Tuesday and again in early June; larger move unlikely RBNZ left OCR steady, but elevated NZD remains source of anxiety This weeks all-important Aussie CPI prints delivered large downside surprises on all key measures, removing an obstacle for near-term rate cuts by the Reserve Bank. Indeed, in a change of forecast, we now expect a quarter-point rate cut from the RBA Tuesday, and another 25bp reduction in the cash rate at the next Board meeting in early June. These moves would take the official rate down to 3.75%. We believe a larger reduction in the cash rate next week is unlikely; a 50bp rate cut, for example, would hint at panic from policymakers, and effectively be an admission of error (i.e., implying they should have eased policy back in April), something RBA officials will want to avoid. Also, an outsized move next week could indicate the onset of emergency conditions, which is far from the case. The RBA also releases its quarterly statement next week. The statement will include downgraded GDP growth forecasts, reflecting the unexpectedly low 4Q result back in March, but also officials reassessment of the economys near-term performance. The official inflation forecasts also will be lower over the near-term horizon, owing to the softer growth in the economy and last weeks 1Q surprises.
Australia: PPI and import prices

%q/q 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 00 %oy a 7 6 5 4 3 2 1 00 02 04 06 08 10 12 Trimmed mean Headline 02 04 06 08 10 12 0 -5 -10 PPI Import prices %q/q 15 10 5
Australia: headline and trimmed mean CPI
essary to bring down nontradeables inflation, which remains elevated, will be challenging in the environment of a slowing economy. Finally, there are policy-induced utility price rises in the pipeline, including from the contentious carbon tax being introduced from July 1.
Further RBA rate cuts conditional

Beyond June, deeper official rate cuts in Australia will depend on the evolution of the domestic growth and inflation outlook, clearly, but also on what happens offshore. Our constructive expectations on growth in China in particular, Australias largest export market, make further rate cuts over the second half of the year unlikely. That said, significant setbacks on the sovereign debt situation in Europe, which we believe played an important role in convincing RBA officials to cut the cash rate twice late in 2011, could see the RBA follow a similar path. At this stage, though, we forecast a terminal cash rate at 3.75% by midyear. Moreover, while this weeks low-ball inflation prints grease the wheels for an RBA rate cut next week, we are far from optimistic about the medium-term inflation outlook. Much of the high-AUD-related disinflation in imported products has run its course, and the sharp falls in food prices last quarter are unlikely to be repeated. Also, the productivity gains nec-
Next week: focus on RBA and NZ data

In New Zealand this week, the central bank left the official rate on hold as was unanimously forecast by all surveyed economists. Inflation remains in the RBNZs target range, however, elevated NZD remains problematic, with Governor Bollard acknowledging that the Bank may have to reassess the outlook for monetary policy if the currency remains stubbornly high despite the decline in commodity prices. Next week in New Zealand is busy on the data front, with the trade balance, business confidence, labor force survey, and private wage data to be released. The 1Q employment data will be the highlight; we expect a decent gain in jobs over the quarter (25,000), and a fall in the jobless rate to 6.1%. Outside central bank activity, the data calendar in Australia next week is quiet, with only the RBAs credit aggregates and 1Q house prices scheduled for release. Credit likely expanded 0.3%m/m, weaker than in February, and national house prices likely dropped slightly over the quarter.
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Tom Kennedy
Economic Research Australia and New Zealand April 27, 2012
Aussie inflation soft as food prices slide

This weeks CPI data were much softer than we had expected with headline inflation accelerating just 0.1%q/q (J.P. Morgan: 0.8%; consensus: 0.6%), following a flat read in the December quarter. This caused the over-year-ago change to plunge to 1.6%oya (from 3.1%), below the bottom of the RBAs 2%3% target range, and the lowest annual rate since 3Q09. The trimmed mean core measure also printed unexpectedly low at 0.3%q/q (J.P. Morgan: 0.7%: consensus: 0.6%), for a 2.2%oya rate. The weighted median core measure was up 0.4%q/q (2.1%oya). Admittedly, much of the fall in the annual rates of inflation comes from favorable base effects from the spike in food prices last year. That said, economy-wide, prices effectively have been flat over the last two quarters, indicating that the weakness in key parts of the domestic economy is being reflected in benign inflation outcomes. This is precisely the confirmation RBA officials hoped for when they left the cash rate steady in April and flagged the importance of this weeks inflation numbers.
Australia: headline CPI and the official cash rate

%oy a 5.0 4.5 4.0 3.5 3.0 2.5 2.0 00 %oy a 10 8 6 4 2 0 -2 00 02 04 06 08 10 12 Tradeables Nontradeables 02 04 06 08 10 12 5 4 3 Headline OCR % 8 7 6
Australia: tradeables and nontradeables inflation
Fresh fruit prices plunged 30%!

In terms of the components, the main drivers of the inflation outcome last quarter were broadly as we expected, but the magnitudes of the downside moves were much larger than we had anticipated. Fruit prices dived 30%, for example, although vegetable prices were off only 0.3%. There were large price falls for electronics, clothing, and furniture, largely owing to exchange rate effects. These were offset by large price rises for pharmaceuticals (up 14%we expected only a 12% rise), tertiary education fees (up 6%), and petrol prices rose 2.5% (we expected a 4% rise). One notable source of anxiety is that nontradeables inflation (that is, prices for goods and services with no exchange rate effect) remained sticky last quarter, rising a chunky 1.0%q/q over the quarter and 3.6% over the year (down modestly from 3.9%). Tradeables prices, though, dropped 1.4%q/q and were down 1.5%oya. The stubbornly high readings on inflation generated domestically probably will be a lingering concern to policymakers, given the fact that the official assumption is that sustained productivity improvements are needed to bring this measure down. A slowing domestic economy, the still prominent mining boom (where inputs are frontloaded as large-scale investment is put in place and output delayed, often for many years), and sometimes suffocating regulation in labor and product markets make achieving sustained productivity gains that much more difficult.
Weak CPI opens door for RBA cuts

In the wake of the low inflation prints, a prominent risk is that the RBA eases next week and delivers a dovish commentary, reflecting materially lower growth and inflation forecasts. Whether officials cut again in June depends to a large extent on the next read on employment (May 10), to see whether the upside surprise on jobs in March is reversed and the jobless rate resumes its climb, which seems likely. Offshore developments also will now play a more significant role. We have written before on the plausible arguments in favor of a near-term rate cut (i.e., growth below trend, high AUD, etc.), but also raised points to the contrary (the flat jobless rate, AUD off its peaks, etc.). Indeed, we argued that the case for a near-term rate cut was not compelling. But it is now. Our main sticking point was that we anticipated elevated inflation prints this week, which, obviously, did not materialize.
Tactical advantages in May rate cut

Indeed, as we have said before, a rate cut next week has the tactical advantage of getting it out of the way before the Budget is delivered on May 8. Moreover, the decision can be explained in great detail in the quarterly statement later next week. For now, though, the attention of RBA officials very much will be on the likelihood that inflation will remain close to the bottom of the target range, escalating offshore troubles,
54
Tom Kennedy
and the prospect of a federal Budget that promises to be one of the toughest for some time.
New Zealand: OCR (%) and inflation (%oya)

% 10 8 6 4 2 0 00 USD 0.9 0.8 0.7 0.6 0.5 0.4 0.3 00 02 04 06 08 10 12 OCR NZD 8 6 4 2 02 04 06 08 10 12 % 10 OCR CPI
Elevated AUD obstacle for producers

As a precursor to this weeks CPI release, producer prices at the final stage of production declined 0.3%q/q (J.P. Morgan: 0.5%q/q; consensus: 0.4%q/q), the first price contraction since 2009. In contrast to the prior quarters release, import prices were the largest drag on the headline data, with the increase in USD-denominated crude oil prices more than offset by the appreciation of AUD over the same period. The fact that import prices were weak at all stages of production suggests the impact of elevated currency was particularly prevalent over the quarter, as producers continue to adapt to ongoing structural adjustment. The price dynamics at the intermediate and preliminary stages were similar with domestic prices buoyed by petroleum refining, structural metal product manufacturing, and road and freight transport. The strength in domestic prices was partially offset by weakness on the import side, which saw prices contract 1.4%q/q over the quarter. Specifically, prices for coal and metal ore were large drags over the quarter, declining 4.5%q/q and 3.3%q/q, respectively. Overall, prices at the final stage of the production process declined 0.3%q/q, the fifth consecutive quarterly deceleration. Unlike the other stages of production, prices at the domestic level contracted (-0.1%q/q), which was largely due to the 17.7%q/q decline in the prices received for other agriculture products. This category has experienced a 40% contraction over the previous two quarters, a move that can largely be attributed to favorable growing conditions and a normalization of fruit and vegetable prices following distortions from the natural disasters earlier in 2011.
New Zealand: official cash rate and NZD/USD
changing, the Bank would need to reassess the outlook for monetary policy settings. We dont think this wording, which echoes previous comments from the Governor, necessarily means a rate cut is on the agenda, but it flags the risk that the start of policy normalization could be later than we currently forecast. We think the commentary is more about the timing of the start of policy normalization than the direction of the OCR. A materially stronger NZD clearly is undesirable, as it would further impede the structural adjustments that have to occur in New Zealand if the economy is to use the export sector to repair the national balance sheet. The J.P. Morgan forecast is that NZD will keep climbing this year, reaching USD0.84 by September compared to USD0.815 currently. In the wake of this weeks statement, we remain of the view that the RBNZ will begin to raise the official interest rate in September 2012 as building and construction activity from the Christchurch earthquakes gather momentum, against the backdrop of a more constructive global situation. That said, if the dislocation between elevated NZD and commodity prices continues, the risk is that the first rate hike occurs later than our September forecast, perhaps even as late as the first quarter of 2013.
RBNZ unmoved; high NZD a worry

The RBNZ left the official cash rate (OCR) unchanged at 2.5% this week, as was unanimously forecast by all surveyed economists. The accompanying commentary was brief, with the Bank noting that inflation is restrained and that for now, it is appropriate for the OCR to remain at 2.5%. On the domestic front, the announcement was cautiously optimistic, with Governor Bollard noting that the economy is showing signs of recovery. He expects the economy to strengthen in the second half of 2012 as building activity increases due to repairs and reconstruction activity in the Canterbury region. This assessment essentially matches our own. It appears, however, that the elevated level of NZD remains front of mind, with Bollard once again acknowledging that should the exchange rate remain strong without anything else
55
Tom Kennedy
Economic Research Australia and New Zealand April 27, 2012
Australia Data releases and forecasts

Mon Apr 30 11:30am
New Zealand Data releases and forecasts

Mon Apr 30 8:45am
Private sector credit

Sa Dec %m/m 0.3 Jan 0.2 Feb 0.4 Mar 0.3
International merchandise trade

Dec NZ$ mn 306 Jan -159 Feb 161 Mar 490
Tue May 1 11:30am
House price index

Sa 2Q11 %q/q -1.0 3Q11 -1.9 4Q11 -1.0 1Q12 -0.5
Mon Apr 30 11:00am
NBNZ business confidence

Jan Index 16.9 Feb 28.0 Mar 33.8 Apr 30.0
Tue May 1 2:30pm
RBA cash rate announcement

25bp cut expected, see main text.
Tue May 1 8:45am
Private wages ex. overtime

2Q11 %q/q 0.5 3Q11 0.5 4Q11 0.7 1Q12 0.6
Review of prior week's data

PPI
3Q11 %q/q 0.6 3.5 4Q11 0.3 3.6 1Q12 0.5 -0.3
Thu May 3 8:45am
Labor force survey

2Q11 Unemployment rate (%) Employment (%q/q) Participation rate (%) 6.6 0.1 68.3 3Q11 6.6 0.2 68.4 4Q11 6.3 0.1 68.2 1Q12 6.1 1.1 68.4
Headline CPI
3Q11 %q/q %oya 0.6 3.5 3.5 4.5 4Q11 0.0 3.1 3.6 4.6 1Q12 0.8 2.4 0.1 1.6
Review of prior week's data

RBNZ cash rate announcement
No change as expected, see main text.
Trimmed mean
3Q11 %q/q %oya 0.4 2.4 3.5 4.5 4Q11 0.6 2.6 0.6 0.7 4.6 1Q12 0.7 2.4 0.3 2.2
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JPMorgan Chase Bank NA, New York
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JPMorgan Chase Bank NA, New York
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JPMorgan Chase Bank N.A., New York Daniel Silver
US economic calendar
Monday 30 Apr
Personal income (8:30am) Mar 0.3% Real consumption 0.1% Core PCE deflator 0.21% (2.0%oya) Chicago PMI (9:45am) Apr Housing vacancies (10:00am) 1Q Retail sales annual revisions (10:00am) Dallas Fed survey (10:30am) Apr Senior loan office survey (2:00pm) 2Q
Dallas Fed President Fisher speaks on jobs in Beverly Hills (5:30pm)
Tuesday 1 May
ISM manufacturing (10:00am) Apr 53.5 Construction spending (10:00am) Mar 0.7% Light vehicle sales Apr 14.3mn
San Francisco Fed President Williams speaks on economy in Beverly Hills (11:00am) Atlanta Fed President Lockhart and Chicago Fed President Evans speak on monetary policy in Beverly Hills (12:30pm) Philadelphia Fed President Plosser speaks on economy in San Diego (3:00pm)
Wednesday 2 May
ADP employment (8:15am) Apr Factory orders (10:00am) Mar -1.6%
Announce 3-year note $32 bn Announce 10-year note $24 bn Announce 30-year bond $16 bn Fed Governor Tarullo speaks in New York City (8:00am) Richmond Fed President Lacker speaks on economy in Virginia (12:30pm) Chicago Fed President Evans speaks on economic stability in Chicago (6:30pm)
Thursday 3 May
Initial claims (8:30am) w/e prior Sat 380,000 Productivity and costs (8:30am) 1Q preliminary -1.0% (0.3%oya) Unit labor costs 2.2% (2.2%oya) ISM nonmanufacturing (10:00am) Apr 54.5 Chain store sales Apr
San Francisco Fed President Williams speaks on economy in Santa Barbara (11:00am) Atlanta Fed President Lockhart speaks on economy in Santa Barbara (1:00pm) Philadelphia Fed President Plosser speaks on economy in Santa Barbara (1:30pm)
Friday 4 May
Employment (8:30am) Apr 145,000 Unemployment rate 8.2% Average weekly hours 34.5
San Francisco Fed President Williams speaks in California (11:25am) Chicago Fed President Evans speaks on economic stability in Chicago (11:30am)
7 May
Consumer credit (3:00pm) Mar
8 May
NFIB survey (7:30am) Apr JOLTS (10:00am) Mar
Auction 3-year note $32 bn
9 May
Wholesale trade (10:00am) Mar
Auction 10-year note $24 bn Minneapolis Fed President Kocherlakota speaks on monetary policy in Minneapolis (10:00am)
10 May
Initial claims (8:30am) w/e prior Sat International trade (8:30am) Mar Import prices (8:30am) Apr Federal budget (2:00pm) Apr
Auction 30-year bond $16 bn Announce 10-year TIPS (r) $13 bn Chairman Bernanke speaks on bank capital in Chicago (9:30am) Minneapolis Fed President Kocherlakota speaks on monetary policy in Minneapolis (1:00pm)
11 May
PPI (8:30am) Apr Consumer sentiment (9:55am) May preliminary
14 May
15 May
Retail sales (8:30am) Apr CPI (8:30am) Apr Empire State survey (8:30am) May NAHB survey (10:00am) May Business inventories (10:00am) Mar
16 May
Housing starts (8:30am) Apr Industrial production (9:15am) Apr FOMC minutes (economic projections)
St. Louis Fed President Bullard speaks on economy in Kentucky (12:30pm)
17 May
Initial claims (8:30am) w/e prior Sat Philadelphia Fed survey (10:00am) May Leading indicators (10:00am) Apr
Auction 10-year TIPS (r) $13 bn Announce 2-year note $35 bn Announce 5-year note $35 bn Announce 7-year note $29 bn St. Louis Fed President Bullard speaks in Kentucky (12:35pm)
18 May
21 May
Atlanta Fed President Lockhart speaks on monetary policy in Tokyo (5:15am)
22 May
Existing home sales (10:00am) Apr Richmond Fed survey (10:00am) May
Auction 2-year note $35 bn Atlanta Fed President Lockhart speaks on monetary policy in Hong Kong (6:15am)
23 May
New home sales (10:00am) Apr FHFA HPI (10:00am) Mar, 1Q
Auction 5-year note $35 bn Minneapolis Fed President Kocherlakota speaks in South Dakota (2:00pm)
24 May
Initial claims (8:30am) w/e prior Sat Durable goods (8:30am) Apr
Auction 7-year note $29 bn
25 May
Consumer sentiment (9:55am) May final
72
JPMorgan Chase Bank, London Greg Fuzesi
Euro area economic calendar

Monday 30 Apr
Euro area: M3 (10:00am) Mar Sector accounts (10:00am) Q4 HICP flash (11:00am) Apr 2.5 %oya, nsa Germany: Retail sales (8:00am) Mar Italy: CPI prelim (11:00am) Apr 3.2 %oya, nsa Spain: GDP flash (9:00am) 1Q -1.6%q/q, saar
Tuesday 1 May 2 May
Wednesday 3 May
Thursday 4 May
Friday
Euro area: PMI Mfg final (10:00am) Apr 46.0 Index, sa Unemployment rate (11:00am) Mar 10.9%, sa Germany: PMI Mfg final (9:55am) Apr 46.3 Index, sa Employment (9:55am) Mar 30 ch m/m, 000s, sa Unemployment (9:55am) Apr -8 ch m/m, 000s, sa France: PMI Mfg final (9:50am) Apr 47.7 Index, sa Italy: PMI Mfg (9:45am) Apr PPI (11:00am) Mar Spain: PMI Mfg (9:15am) Apr
Euro area: PPI (11:00am) Mar ECB rate announcement (1:45pm) No change expected ECB press conf. (2:30pm)
Euro area: PMI services final (10:00am) Apr 47.9 Index, sa PMI composite final (10:00am) Apr 47.4 Index, sa Retail sales (11:00am) Mar -0.2%m/m, sa Germany: PMI services final (9:55am) Apr 52.6 Index, sa PMI composite final (9:55am) Apr 50.9 Index, sa France: PMI services final (9:50am) Apr 46.4 Index, sa PMI composite final (9:50am) Apr 46.8 Index, sa Italy: PMI services & composite (9:45am) Apr Spain: PMI services & composite (9:15am) Apr
7 May
Germany: Industrial new orders (12:00pm) Mar
8 May
Germany: Industrial production (12:00pm) Mar
9 May
Germany: Foreign trade (8:00am) Feb France: Trade balance (8:45am) Mar
10 May
Euro area: ECB monthly bulletin (10:00am) France: Industrial production (8:45am) Feb Monthly budget situation (8:45am) Feb Italy: Industrial production (10:00am) Mar Netherlands: CPI (9:30am) Apr Industrial production (9:30am) Mar
11 May
Germany: CPI final (8:00am) Apr Spain: CPI final (9:00am) Apr
14 May
Euro area: Industrial production (11:00am) Mar Italy: CPI final (10:00am) Apr
15 May
Euro area: GDP flash (11:00am) 1Q Germany: GDP flash (8:00am) 1Q ZEW bus. survey (11:00am) May France: CPI (7:30am) Apr GDP prelim (7:30am) 1Q Netherlands: GDP prelim (9:30am) 1Q
16 May
Euro area: HICP final (11:00am) Apr Foreign trade (11:00am) Mar Italy: GDP flash (10:00am) 1Q Foreign trade (10:00am) Mar
17 May
Spain: GDP final (9:00am) 1Q
18 May
Germany: PPI (8:00am) Apr Italy: Industrial orders (10:00am) Mar
21 May
22 May
Euro area: EC cons. conf. prelim (4:00pm) May Netherlands: CBS cons. conf. (9:30am) May Belgium: BNB cons. conf. (3:00pm) May
23 May
Euro area: BoP (10:00am) Mar Industrial new orders (11:00am) Mar Italy: ISAE cons. conf. (10:00am) May
24 May
Euro area: PMI flash (10:00am) May Mfg, services, composite Germany: GDP final (8:00am) 1Q PMI flash (9:30am) May Mfg, services, composite IFO bus. survey (10:00am) May Import prices (8:00am) Apr France: PMI flash (9:00am) Apr Mfg, services, composite INSEE bus. conf. (8:45am) May Belgium: BNB bus. conf. (3:00pm) May
25 May
Germany: GfK cons. conf. (8:00am) Jun France: INSEE cons. conf. (8:45am) May Italy: Contractual wages (10:00am Apr
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
73
JP Morgan Securities Japan Co., Ltd Miwako Nakamura
Japan economic calendar

Monday 30 Apr
Holiday: Japan
Tuesday 1 May
Auto registrations (2:00 am) Apr 108%oya
Wednesday 2 May
PMI services/composite (8:15 am) Apr Nominal wages (10:30 am) Mar 0.3%oya
Thursday 3 May
Holiday: Japan
Friday 4 May
Holiday: Japan
7 May
Minutes of Apr 9-10 BoJ Monetary Policy Meeting (8:50 am)
8 May
9 May
10 May
Current account (8:50 am) Mar Bank lending (8:50 am) Apr Economy Watchers survey (2:00 pm) Apr BoJ board member Shirais address in Akita prefecture (10:40 am)
11 May
M2 (8:50 am) Apr
Auction 10-year bond During the week: CAO private consumption index Mar
Auction 6-month bill
14 May
Corporate goods prices (8:50 am) Apr
15 May
Consumer sentiment (2:00 pm) Apr
16 May
Private machinery orders (8:50 am) Mar Tertiary sector activity index (8:50am) Mar
17 May
GDP 1st est. (8:50 am) 2Q IP final (1:30 pm) Mar Construction spending (2:00 pm) Mar Auction 3-month bill Auction 5-year note
18 May
Auction 40-year bond During the week: Department store sales Apr
Auction 1-year note
21 May
All sector activity index (1:30pm) Mar
22 May
BoJ Monetary Policy Meeting
23 May
Trade balance (8:50 am) Apr BoJ Monetary Policy Meeting and statement BoJ Governor Shirakawas press conference (3:30 pm)
24 May
Reuters Tankan (8:30 am) May BoJ monthly economic report (2:00 pm)
25 May
Nationwide core CPI (8:30 am) Apr
Auction 3-month bill Auction 20-year bond
74
JPMorgan Chase Bank N.A., New York Silvana Dimino
Canada economic calendar

Monday 30 Apr
Monthly GDP (8:30am) Feb 0.2% IPPI (8:30am) Mar 0.0% Ex energy -0.1% BoC Deputy Governor Tim Lane speaks at the Chartered Institute of Logistics and Transport North America, Ottawa, Ontario (8:30am)
Tuesday 1 May
RBC manufacturing PMI (9:30am) Apr BoC Governor Mark Carney speaks at the Canadian Club of Toronto, Toronto, Ontario (1:05pm)
Wednesday 2 May
CFIB Business Barometer Index (6:00am) Apr
Thursday 3 May 4 May
Friday
Ivey PMI (10:00am) Apr 61.5 (60.0 nsa) J.P. Morgan composite index (sa) 53.6
7 May
Building permits (8:30am) Mar BoC Deputy Governor John Murray speaks at the Mortgage Brokers Association of British Columbia, Vancouver, British Columbia (5:30pm)
8 May
Housing starts (8:15am) Apr
9 May
10 May
International trade (8:30am) Mar New housing price index (8:30am) Mar
11 May
Employment (8:30am) Apr
14 May
New vehicle sales (8:30am) Mar
15 May
Existing home sales (9:00am) Apr
16 May
Manufacturing sales (8:30am) Mar
17 May
Wholesale sales (8:30am) Mar
18 May
CPI (8:30am) Apr
21 May
Victoria Day Markets closed
22 May
23 May
Retail sales (8:30am) Mar Leading indicators (8:30am) Apr
24 May
TNS Canada Consumer Confidence Index (9:00am) May
25 May
All existing home sales dates are tentative. Times shown are local.
75
JPMorgan Chase Bank, New York Carmen Collyns
Latin America economic calendar

Monday 30 Apr
Chile: Unemployment rate Mar Retail sales Mar Colombia: Unemployment rate Mar Banrep meeting: no change Mexico: Commercial bank credit Feb PS budget balance Mar
Tuesday 1 May
Peru: CPI Apr 0.28% m/m nsa WPI Apr
Wednesday 2 May
Brazil: FGV: IPC-S May 22 PMI Manufacturing Apr Trade balance Apr BRL 0.7bn Mexico: Central bank reserves (Prior week) Family remittances Mar US$ 2.2bn Banxico survey of economic expectations Manufacturing PMI (IMEF) Apr 52.9 Services PMI (IMEF) Apr 53.7
Thursday 3 May
Brazil: IP Mar 0.0% m/m sa Chile: Central bank meeting minutes
Friday 4 May
Mexico: Consumer confidence Apr 93.9
Holiday: Mexico:
During the week: Brazil: Commodity price index Apr
Colombia: CPI Apr
7 May
Brazil: FGV: IPC-S May 7 IGP-10 Apr Chile: Trade balance Apr Mexico: Banamex survey of economic expectations
8 May
Chile: CPI Apr Mexico: GFI Feb Central bank reserves (Prior week)
9 May
Brazil: Fipe CPI May 7 IPCA Apr Mexico: CPI Apr
10 May
Brazil: IGP-M 1st release May Peru: BCRP meeting
11 May
Argentina: CPI Apr Colombia: Banrep meeting minutes Peru: Trade balance Mar Mexico: Central banks meeting minutes
During the week: Brazil: Vehicle production (ANFAVEA) Mexico: Auto report Apr
14 May
Mexico: Industrial production Mar
15 May
Peru: Economic activity index Mar Unemployment rate Apr Mexico: Central bank reserves (Prior week)
16 May
Brazil: FGV: IPC-S May 15 Colombia: Trade balance Mar Mexico: Quarterly inflation report 1Q
17 May
Brazil: Fipe CPI May 15 IGP-10 May Retail sales Mar Colombia: Retail sales Mar Mexico: Real GDP 1Q12 IGAE GDP proxy Mar
18 May
Colombia: IP Mar
During the week: Brazil: Economic activity index Mar Caged formal job creation Apr Tax collections Apr
21 May
Brazil: IGP-M 2st release May Mexico: Banamex survey of economic expectations
22 May
Argentina: Unemployment 1Q Trade balance Apr Brazil: IPCA-15 May Mexico: Retail sales Mar Central bank reserves (Prior week)
23 May
Brazil: FGV: IPC-S May 22
24 May
Argentina: IP Apr Brazil: Unemployment rate Apr Current account balance Apr FDI Apr Mexico: CPI May 1H Nominal GDP 1Q
25 May
Brazil: Fipe CPI May 23 BCB credit report Apr Colombia: Banrep meeting Mexico: Unemployment rate Mar Trade balance Apr Current account 1Q
During the week: Argentina: Budget balance Apr
76
JPMorgan Chase Bank, London Malcolm Barr Allan Monks
UK economic calendar
Monday 30 Apr
Nationwide HPI (8:00am) Apr
Tuesday 1 May
PMI mfg (9:30am) Apr 51.2 Index, sa
Wednesday 2 May
PMI construction (9:30am) Apr Net lending to individuals (9:30am) Mar M4 & M4 lending final (9:30am) Mar
Thursday 3 May
PMI services (9:30am) Apr 54.0 index, sa
Friday 4 May
New cars regs. (9:00am) Apr
During the week: Halifax HPI (8:00am) Apr
7 May
8 May
RICS HPI (12:01am) Apr
9 May
BRC retail sales (12:01am) Apr Markit jobs report (12:01am) Apr
10 May
MPC rate announcement & Asset purchase target (12:00pm) No change expected Industrial production (9:30am) Mar Trade balance (9:30am) Mar Quoted mortgage interest rates (9:30am) Apr
11 May
PPI (9:30am) Apr Construction output (9:30am) 1Q and Mar
14 May
15 May
16 May
Labor market report (9:30am) May BoE quarterly inflation report (10:30am)
17 May
18 May
During the week: Nationwide cons. conf. (12:01am) Apr
21 May
Rightmove HPI (12:01am) May
22 May
DCLG HPI (9:30am) Mar Public sector finance (9:30am) Apr CPI (9:30am) Apr
23 May
CBI industrial trends (11:00am) May MPC minutes (9:30am) Retail sales (9:30am) Apr
24 May
GDP prelim (2nd release) (9:30am) 1Q Business investment prelim (9:30am) 1Q Index of services (9:30am) Mar BBA lending (9:30am) Apr
25 May
77
JPMorgan Chase Bank, London Anthony Wong
Emerging Europe/Middle East/Africa economic calendar

Monday 30 Apr
Poland: NBP inflation expectations (2:00pm) Apr 4.2%oya South Africa: Budget (2:00pm) Mar Money and credit (8:00am) Mar Trade balance (2:00pm) Mar Turkey: Foreign trade (10:00am) Mar -US$7.7bn
Tuesday 1 May 2 May
Wednesday 3 May
Thursday 4 May
Friday
Czech Rep: PMI (9:30am) Apr Hungary: PMI (9:00am) Apr PPI (9:00am) Mar Poland: PMI (9:00am) Apr 49.0 Romania: Monetary policy announcement -25bp South Africa: Kagiso PMI (11:00am) Apr Turkey PMI (10:00am) Apr Russia: PMI (8:00am) Apr Holiday: Poland, Czech, Hungary, Romania, Turkey, Russia
Czech Rep: Monetary policy announcement (1:00pm) No change Romania: PPI (9:00am) Mar South Africa: Vehicle sales (11:00pm) Apr Quarterly employment statistics (11:30am) 1Q Turkey: CPI (10:00am) Apr 1.3%m/m PPI (10:00am) Apr 1.1%m/m
Romania: Retail sales (9:00am) Mar Russia: CPI Apr
Holiday: Hungary During the week:
Holiday: Poland
7 May
Czech Rep: Retail sales (9:00am) Mar
8 May
Hungary: Industrial output (9:00am) Mar Turkey: Industrial production (10:00am) Mar 3.5%y/y South Africa: Gross reserves (8:00am) Apr Holiday: Czech, Russia
9 May
Poland: Monetary policy announcement Hungary: NBH minutes Trade balance (9:00am) Mar Romania: Trade balance (10:00am) Mar Holiday: Russia
10 May
Czech Rep: CPI (10:00am) Apr Industrial production (9:00am) Mar South Africa: Manufacturing production (1:00pm) Mar
11 May
Hungary: CPI (9:00am) Apr Romania: CPI (10:00am) Apr Industrial production (10:00am) Mar Turkey: Current account (10:00am) Mar -US$6.2bn
Holiday: Russia During the week:
14 May
15 May
Czech Rep: GDP (9:00am) 1Q Hungary: GDP (9:00am) 1Q Romania: GDP (9:00am) 1Q Poland: CPI (2:00pm) Apr Israel: CPI (5:30pm) Apr Russia: GDP 1Q
16 May
Poland: Current account (2:00pm) Mar Czech Rep: Current account (10:00am) Mar Romania: Current account Mar Turkey: Consumer confidence (10:00am) Apr Israel: GDP 1Q South Africa: Retail sales (1:00pm) Mar
17 May
Russia: Industrial output Apr
18 May
Poland: Avg. gross wages (2:00pm) Apr Employment (2:00pm) Apr Hungary: Avg. gross wages (9:00pm) Mar
During the week:
21 May
Poland: Industrial production (2:00pm) Apr PPI (2:00pm) Apr
22 May
Poland: Core Inflation (2:00pm) Apr Retail sales (10:00am) Apr Unemployment (10:00am) Apr Russia: Retail sales Apr Unemployment Apr South Africa: PPI (11:30am) Apr
23 May
South Africa: CPI (10:00 am) Apr
24 May
Poland: NBP minutes (2:00pm) Turkey: Capacity utilization (2:30pm) May South Africa: Monetary policy announcement
25 May
During the week:
78
JPMorgan Chase Bank, Singapore Benjamin Shatil
Non-Japan Asia economic calendar

Monday 30 Apr
Australia: Pvt. sector credit (11:30am) Mar 0.3%m/m, sa New Zealand: Trade balance (8:45am) Mar NZ$490mn Hong Kong: Total loans (5:00pm)Mar 14.4%oya Korea: IP (8:00am) Mar 2.5%oya Leading index (8:00am) Mar 141.0, Index, sa Service sector activity (8:00am) Mar 2.5%oya FKI business survey (12:00pm) Mar 100.0, Index, sa Taiwan: GDP (4:00pm) 1Q prelim 1.1%oya Thailand: Trade balance (2:30pm ) Mar -US$2.4bn PCI (2:30pm) Mar 4.2%oya PII (2:30pm) Mar 5.9%oya Holiday: China, Vietnam During the week:
Tuesday 1 May
Australia: RBA rate announcement (2:30pm) 25bp cut New Zealand: Pvt. wages (8:45am) 1Q 0.6%q/q China: PMI mfg. NBS (9:00am) Apr 53.0, Index, sa India: Trade balance (11:00am) Mar Indonesia: CPI (12:00pm) Apr 3.8%oya Trade balance (12:00pm) Mar Korea: CPI (8:00am) Apr 2.8%oya Trade balance (8:00am) Apr US$3.1bn Thailand: CPI (11:00am) Apr 3.4%oya Holiday: China, Hong Kong, India, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam
Wednesday 2 May
New Zealand: ANZ commodity price (11:00am) Apr China: PMI mfg. Markit (10:30am) Apr 49.0, Index India: PMI mfg. (10:30am) Apr Korea: PMI mfg. (9:00am) Apr 52.0, Index Taiwan: PMI mfg.(10:00am) Apr 54.0, Index Thailand: BoT monetary policy meeting (2:30pm) No change
Thursday 3 May
New Zealand Unemployment rate (8:45am) 1Q 6.1% Hong Kong: Retail sales (4:30pm) Mar 8.8%oya Singapore: PMI (9:30pm) Apr 50.5, Index
Friday 4 May
Philippines: CPI (9:00am) Apr 3.1%oya
Korea: Foreign exchange reserves Apr (2-4 May)
7 May
Australia: Building approvals (11:30am) Mar NAB business confidence (11:30am) Apr Retail sales (11:30am) Mar Taiwan: CPI (4:00pm) Apr Trade balance (4:00pm) Apr
8 May
Australia: Trade balance (11:30am) Mar Korea: PPI (6:00am) Apr
9 May
Malaysia: Trade balance (12:00pm) Mar Korea: Money supply (12:00pm) Mar
10 May
Australia: Unemployment rate (11:30am) Mar New Zealand: Business NZ PMI (8:30am) Apr China: Trade balance Apr Indonesia: BI monetary policy meeting Korea: BOK monetary policy meeting Malaysia: IP (12:00pm) Mar Philippines: Exports (9:00am) Mar
11 May
China: CPI (9:30am) Apr PPI (9:30am) Apr FAI (1:30pm) Apr IP (1:30pm) Apr Retail sales (1:30pm) Apr Hong Kong: GDP (4:30pm) 1Q India: IP (11:00am) Mar Malaysia: BNM monetary policy meeting (6:00pm)
Holiday: Thailand During the week: China: Money supply Apr (11-15 May) Indonesia: GDP 1Q (10-17 May)
14 May
Australia: Housing finance (11:30am) Mar New Zealand: Retail sales (8:45am) 1Q India: WPI (12:00pm) Apr
15 May
Korea: Export price index (6:00am) Apr Import price index (6:00am) Apr Philippines: OFW remittances Mar Singapore: Retail sales (1:00pm) Mar
16 May
Korea: Unemployment rate (8:00am) Apr
17 May
Hong Kong: Unemployment rate (4:30pm) Apr Singapore: NODX (8:30am) Apr
18 May
Holiday: Indonesia During the week: Singapore: GDP final 1Q (15-18 May)
Holiday: Indonesia
21 May
Taiwan: Export orders (4:00pm) Apr Thailand: GDP (9:30am) 1Q
22 May
Hong Kong: CPI (4:30pm) Apr Taiwan: Unemployment rate (4:00pm) Apr
23 May
Malaysia: CPI (5:00pm) Apr GDP 1Q Singapore: CPI (1:00pm) Apr Taiwan: IP (4:00pm) Apr
24 May
New Zealand: Trade balance (8:45am) Apr China: Flash PMI (10:30am) May Hong Kong: Trade balance (4:30pm) Apr Taiwan: GDP (5:00pm) 1Q final Vietnam: CPI May
25 May
Korea: Consumer survey (6:00am) May Philippines: Imports (9:00am) Mar Singapore: IP (1:00pm) Apr
During the week:
Philippines: Budget balance Apr
Vietnam: Trade balance May (24-31 May)
79
JPMorgan Chase Bank NA, New York Michael Mulhall
Global Data Diary

Week / Weekend 28 Apr - 4 May Monday 30 April
Colombia BanRep mtg: no chg Euro area M3 (Mar) HICP flash (Apr) Korea IP (Mar) Spain GDP (1Q) Taiwan GDP (1Q) United States Personal income (Mar) Fed SLOOS (2Q)
Tuesday 1 May
Australia RBA mtg: -25bp Japan Auto registrations (Apr) Korea CPI (Apr) Trade report (Apr) United States ISM mfg (Apr) Auto sales (Apr)
Wednesday 2 May
Euro area Unemployment (Mar)
Thursday 3 May
Brazil IP (Mar)
Friday 4 May
Euro area Retail sales (Mar) Russia CPI (Apr) United Kingdom Auto registrations (Apr) United States Employment (Apr) Global PMI srv & all-ind (Apr)
Germany Czech Republic Labor mkt report (Mar/Apr) CNB mtg: no chg Romania BNR mtg: no chg Thailand BoT mtg: no chg United States ADP employment (Apr) Factory orders (Mar) Global PMI mfg (Apr) Euro area ECB mtg: no chg Turkey CPI (Apr) United States Prod & costs (1Q) ISM nonmfg (Apr)
5 - 11 May
Brazil Auto sales (Apr) Japan CAO private consumption index (Mar)
7 May
Germany Ind new orders (Mar) Germany IP (Mar)
8 May
9 May
Brazil IPCA (Apr) Mexico CPI (Apr) Poland NBP mtg: no chg
10 May
China: Trade report (Apr) France: IP (Mar) Indonesia: BI mtg: no chg Italy: IP (Mar) Japan Econ Watchers surv (Apr) Korea BoK mtg: no chg Peru BCRP mtg: no chg United Kingdom BoE MPC mtg: no chg IP (Mar) United States Trade report (Mar)
11 May
Canada Employment (Apr) China CPI (Apr) FAI (Apr) IP (Apr) Retail sales (Apr) India IP (Mar) Malaysia BNM mtg: no chg United States UMich con snt plm (May)
Japan Turkey BoJ MPM mins (Apr 9-10) IP (Mar) Taiwan CPI (Apr) Trade report (Apr) United States NFIB survey (Apr)
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Economic Research

April 27, 2012

Global Data Watch

Economic Research Global Data Watch April 27, 2012

Contributions to real GDP growth

As IP fades, watch for consumer resilience

The UKs odd recession

Economic Research Global Data Watch April 27, 2012

UK real GDP and employment

RBA gets the green light to ease

Banxico leaves door open, BCB to walk in

India downgrade hurts corporates most

Economic Research Global Data Watch April 27, 2012

Global economic outlook summary

Economic Research Global Data Watch April 27, 2012

G-3 economic outlook detail

Economic Research Global Data Watch April 27, 2012

Central Bank Watch

Forecast next change

On hold 4Q 12 (+25bp) On hold On hold On hold

0.125 1.00 8.50 4.50 5.25 5.25 4.25 1.77

30 May 12 30 May 12 (-50bp) 17 May 12 17 May 12 (+25bp)

12 May 11 (+25bp) 10 May 12

3 May 12 10 May 12 3 May 12 28 May 12 9 May 12 2 May 12 Apr 12 24 May 12

20 Dec 11 (+50bp) 29 May 12

21 Feb 12 (-100bp) 29 May 12

1 May 12 14 Jun 12 23 May 12 10 May 12 18 Jun 12 3 May 12 14 Jun 12 2 May 12

17 Dec 08 (-100bp) 21 Jun 12 10 Jun 11 (+25bp) 10 May 12

JPMorgan Chase Bank, London Jan Loeys

Economic Research Global Data Watch April 27, 2012

The J.P. Morgan View: Markets

The paradox of austerity

JPMorgan Chase Bank, London Nikolaos Panigirtzoglou

YTD returns through Apr 27 %, equities in lighter color. 15 10 5 0

2012 global GDP growth forecasts: J.P. Morgan versus consensus %

JPMorgan Chase Bank, London Jan Loeys

Economic Research Global Data Watch April 27, 2012

Economic Research Global Data Watch April 27, 2012

Selected recent research1 from J.P. Morgan Economics

Central Europe, Middle East, and Africa

United States and Canada

Non-Japan Asia and Pacific

Special Reports and Global Issues

JPMorgan Securities Japan Co., Ltd. Masamichi Adachi

Economic Research Global Data Watch April 27, 2012

Economic Research Note

Contribution to real GDP growth

Can Japan maintain domestic demand-driven recovery?

J.P. Morgan forecast

Real private consumption

Private consumption over compensation of employees

Private consumption firming with services

JPMorgan Securities Japan Co., Ltd. Masamichi Adachi

Public works contracts and public investment

Reconstruction is gaining momentum

Consumer and business sentiment

JPMorgan Chase Bank, London Malcolm Barr Raphael Brun-Aguerre

Economic Research Global Data Watch April 27, 2012

Economic Research Note

Italian year-to-date central government cash balance

Tracking the budgetary data in Italy and Spain

Italian monthly budget central government cash balance