J.P. 摩根：全球宏观策略之全球宏观数据观察【英文版】

Economic Research August 13, 2021 Global Data Watch  Global core inflation moderates but should stay elevated  Delta and policy drags point to sub-par China growth this quarter  Delta doesn’t dent DM mobility but is weighing on sentiment  Next week: US retail sales drop; China FAI slows; RBNZ hikes The main event There are two distinct elements to our global inflation forecast. Near-term dynamics remain dominated by transitory factors related to the pandemic shock that lifted global core inflation to 4% last quarter—its highest level in over a quarter century. Concentrated goods price pressures, linked to supply chain bottlenecks and rising transportation and material costs, are behind this acceleration but are expected to ease in the coming months. This unwind should be gradual, in an environment of strong final demand growth and extremely lean inventory positions, and offset partially by a normalization of service prices that were depressed by mobility restrictions last year. In all, we look for price pressure to shift from goods to services as global core inflation moderates to a 3.2%ar in 2H21—still a full percentage point above the pre-pandemic pace. Incoming news is broadly consistent with this view as the global core CPI rose 0.3%m/m last month following three consecutive 0.4% gains. Signs of the anticipated sectoral rotation are also evident in these reports, as is a narrowing of the wide gap that opened up between the US and rest of world in recent months (Figure 1). With the pandemic recovery a key driver of these dynamics, uncertainties related to the rising delta wave generate near-term inflation risk. A pull-back in mobility could slow the anticipated normalization in service-sector activity and prices. At the same time, the delta drag is concentrated in Asia and news of China port closures in response to rising infections is a reminder that pressure on global supply chains will remain in place for some time. Inflation is expected to moderate further next year as the link between the virus and economic mobility is severed, which should eventually eliminate pandemic price pressures. However, core inflation is not projected to return to pre-pandemic levels as a result of more fundamental forces driving our medium-term views (Figure 2). The current expansion is moving through its early stages in a far more favorable manner than either of the previous two, with a notable lack of scarring to private sector balance sheets, supportive credit Contents Delta drag is unev en and modest thus far 13 Record global reserv es after Cov id-19 shock 15 Rising div ergence in EM Asia's path through the pandemic 19 US: Rent inflation from the penthouse to the farmhouse 21 Japan: Lev eling fiscal spending through leftov ers 23 Australian inflation: Where to from here 26 Korea: Offsets to the current account surplus 28 Global Economic Outlook Summary 4 Global Central Bank Watch 6 Now cast of global grow th 7 Selected recent research from J.P. Morgan Economics 9 J.P. Morgan Market Watch 10 Data Watches United States 30 Euro area 36 Japan 39 Canada 43 Mex ico 45 Brazil 47 Argentina 49 Colombia 51 United Kingdom 53 Sw eden and Norw ay 55 Emerging Europe 57 South Africa & SSA 62 MENA 64 Australia and New Zealand 66 China, Hong Kong, and Taiw an 68 Korea 72 ASEAN 74 India 78 Regional Data Calendars 80 Figure 1: Global core CPI % change over 3 mos. saar, both scales 10 8 Sevices Goods 6 4 2 0 -2 2015 2017 2019 2021 Source: J.P. Morgan Figure 2: Global core CPI % change 3.5 4 3.0 3 2.5 Over a year ago 2.0 2 1.5 1 1.0 0.5 0 Q/Q, ar 07 10 13 16 19 22 Source: National sources, J.P. Morgan Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com JPMorgan Chase Bank NA Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com JPMorgan Chase Bank NA Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com JPMorgan Chase Bank NA www.jpmorganmarkets.com JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Economic Research Michael S Hanson (1-212) 622-8603 Global Data Watch michael.s.hanson@jpmchase.com August 13, 2021 conditions, and relatively limited labor market slack. Prospects for sustaining above-trend global growth are thus good and should be bolstered by growth-oriented DM fiscal and monetary policies. On the fiscal side, recent shifts in Europe and Japan alongside the imminent passage of a US infrastructure package support this view. While fiscal tightening in China is contributing to its recent downshift, we expect a stimulative shift to take place during 2H21 to temper the recent loss of momentum. Central banks are responding to rising inflation and tightening labor markets, and we have been raising our sights on global policy rates. But the central message from central banks remains patience and continued accommodation. Although the Fed is moving toward tapering, guidance continues to suggest policy rates will remain unchanged well after the unemployment rates falls below 5%, a point at which policy normalization had been well underway in the past. And while we forecast EM central banks will raise policy rates by 75bp cumulatively from last year’s low, we anticipate policy rates will stand 100bp below pre-pandemic levels in mid-2022. In all, the up-and-down inflation volatility generated by the pandemic will dominate the near-term inflation debate, but it is the shift toward a favorable interaction between the business cycle and policy stances that will be the main inflation event of this decade. As pandemic volatility settles, we look for global core inflation to move more than 50bp above the last expansion’s norms before the middle of the decade. Asia underperformance: Shots and supply Our forecast for boomy global growth in 2H21 incorporates relative underperformance in Asia. There are two factors driving this expected outcome. First, Asia’s low vaccination rates and low tolerance for community spread suggest it is the region most at risk economically from the delta variant. Second, China is in the midst of removing policy supports, which looks likely to restrain domestic demand growth and weigh on regional performance through the rest of this year. With these drags building in recent weeks we have been lowering 2H21 regional growth forecasts (Figure 3). This week downgrade was concentrated in China where recent regulatory actions, the lagged effect of earlier withdrawal of policy support, and the delta spread are combining with credit tightening to deliver sub-par growth this quarter. July TSF growth surprised lower at 10.7%oya in July, with government bond financing contracting significantly as a large amount of bonds matured. While we expect a turn towards more supportive fiscal and monetary policy over the next several months, tighter industrial and regulatory policies should limit their impact. These policies led to declines in mortgage lending and shadow banking in the July credit report. Figure 3: GDP growth forecast revision indexes Index: Jan 1, 2021 = 100 105 LatAm 104 103 EMEA 102 DM 101 EM Asia 100 99 Jan 1, 21 Mar 2, 21 Source: J.P. Morgan May 1, 21 Jun 30, 21 Mobility restrictions have tightened across China and are likely to weigh on Japan this quarter. Medical professionals have called for reduced mobility as Japan’s hospital utilization rates jumped, and the risk of an August consumer spending pullback is rising. Downside risks are limited as the Japanese government has been reluctant to tighten restrictions, banking on rising vaccinations to relieve pressure on the health care system. Rising vaccination rates in Korea, Singapore, Malaysia, and Hong Kong also hold the potential for less conservative approaches to managing the pandemic that could lift activity in the services sector later this year. Next week’s data releases will help provide guidance on regional growth momentum and we look for additional signs of deceleration. In this regard, export orders for Taiwan are expected to decline 0.7%m/m in July alongside moderation in the pace of China IP and FAI growth in July. In Japan we expect next week’s 2Q21 real GDP growth to post a meager 0.5%ar, amid building downside risks for the current quarter. High DM vacancies to translate into jobs The US and a number of other DM economies face an unusual labor market situation: vacancies are on the rise and have moved above pre-pandemic levels, but labor market utilization remains low (Figure 4). Factors related to the pandemic have made it harder to match workers with jobs, but pandemic policies may also contribute to this wedge. The UK, Australia, and several European countries adopted short-time work schemes that kept workers employed but reduced hours and constrained the flow of labor to new openings. In the US, enhanced pandemic-related unemployment benefits may be keeping workers on the sidelines even as labor demand has rebounded. 2 JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Economic Research Michael S Hanson (1-212) 622-8603 Global Data Watch michael.s.hanson@jpmchase.com August 13, 2021 Figure 4: Job vacancies Index: Jan 2020 = 100 140 Australia 120 US 100 80 60 UK 40 2017 2018 2019 2020 2021 Source: Government agencies and J.P. Morgan. Details available upon request. With job programs now unwinding, theories about labor market mismatch are set to be tested. Australia’s JobKeeper wage subsidy ended in March and the results have been impressive as the end of the scheme has not generated a large rise in unemployment as feared. Instead, although employment in sectors utilizing the scheme was running well above levels consistent with sales, the unemployment rate surprisingly fell 0.8%-pts as job growth looks to have been boosted in industries with high vacancy rates. In the US, 24 states have already ended enhanced unemployment benefits and federal supports expire at the end of September. While our analysis does not find evidence of a differential effect on labor market outcomes across states thus far, the July employment report points to robust gains in both labor supply and employment that sharply lowered the unemployment rate. If this development persists, it will deliver the substantial progress needed for the Fed to start tapering. While we expect an announcement in December, the risk of an earlier start has increased. The UK’s wage subsidy scheme is starting to be phased out and close to 1m workers were on furlough at the end of July. Next week’s UK labor report should offer some clues about the adjustment process. We look for the unemployment rate to move above 5% in the coming months, which underpins our forecast that the BoE will delay its first hike until late next year. Markets have shifted to pricing a spring 2022 hike, and we acknowledge the risk of an earlier tightening if labor market matching proceeds more quickly than we expect. RBNZ to hike, Norges Bank to signal liftoff Employment in Australia and New Zealand recently recovered to their pre-pandemic levels, but their central banks are processing this information very differently. The RBA has elected to start tapering QE purchases gradually from September, and is still guiding for rates to remain on hold until 2024. By contrast, the RBNZ has halted its NZ$100bn QE program with nearly a year still on the clock, and removed guidance that it would be patient in raising rates. We expect the RBNZ to hike 25bp at next week’s meeting—and at each of the following two. The more aggressive policy stance of the RBNZ is motivated in part by housing market strength, which is also a factor in our call for the Norges Bank to start a hiking cycle in September. We look for a signal of its intent at next week’s meeting despite core inflation coming in well below the target in July. The Norges Bank sees the soft inflation as temporary, and currently is more focused on growth and financial imbalances. We expect another hike in December followed by three more in 2022. Inflation pressures LatAm central banks Inflation has been rising in LatAm, and central banks have responded by tightening. While Mexico’s economic recovery appears to have lost some momentum and the delta variant is spreading rapidly, inflation remains uncomfortably high and we see upside risk to our forecast for 5.8% inflation at yearend. This week Banxico hiked 25bp as expected, but the 3-2 split decision confirms not only an uncertain economic environment, but also that subsequent policy decisions will not be straightforward. We continue to expect additional 25bp hikes in September and November, but those moves could be swayed by additional inflation surprises as well as the impact of Fed tapering talk on local assets. The latter could lead dovish dissenters still concerned about growth to re-assert themselves. Inflation continues to look troubling in Brazil as well, and headline inflation jumped to 9.0%oya in July. Core inflation rose to 5.5%oya, and its 3m/3m run rate is now at the highest level of the last five years. Broad-based pressure across categories has led us to revise up our path for upcoming prints, and should keep the BCB hawkish. Until now, inflation generally has been much lower in Andean economies, but it surprised significantly higher in July in Chile, Colombia, and Peru. Amid political and policy uncertainty, Peru’s BCRP began hiking this week, but more will be necessary to address risks around inflation expectations. Chile has already started hiking, while last month Colombia signaled a move at its next meeting. Editor: Gabriel de Kock (1-212) 622-6718 gabriel.s.dekock@jpmorgan.com 3 JPMorgan Chase Bank NA Economic Research Carlton Strong (1-212) 834-5612 carlton.m.strong@jpmorgan.com Global economic outlook summary Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com August 13, 2021 Global economic outlook summary Real GDP % over a year ago 2020 2021 2022 1Q21 Real GDP % over previous period, saar 2Q21 3Q21 4Q21 1Q22 2Q22 Consumer prices % over a year ago 4Q20 2Q21 4Q21 2Q22 United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay -3.4  -5.3 -6.6  -9.9 -4.1  -5.8 -6.8  -7.8 -8.3  -11.1 -5.9  6.1  6.2 6.5  7.4 5.5  9.5 7.5  2.0 6.9  9.5 2.5  3.9  4.0 2.6  2.1 2.0  2.7 3.6  3.5 3.3  2.0 3.3  6.3  5.6 5.6  11.0 4.9  13.4 11.9  2.7 3.1  -1.0 -2.2  6.5  2.7 0.9  -5.9 0.4  2.6 -6.5  2.5 6.3  -4.0 -1.0  8.3  7.5 3.3  2.0 3.3  12.7 4.0  4.5 3.2  -6.0 3.0  3.0  5.5 2.9  3.0 2.5  2.5 5.5  4.0 4.0  -4.0 5.0  3.5  3.5 2.8  3.5 2.2  1.5 3.0  4.0 2.6  7.0 3.5  3.0  3.0 2.4  2.0 2.0  0.0 3.0  3.5 3.2  4.0 3.0  1.2  0.8 3.6  36.2 4.3  2.9 1.6  -1.1 3.5  1.9 9.6  4.8  3.4 6.2  48.3 7.7  3.8 ↓ 3.0  -1.0 6.0  3.3 6.9  5.5 ↓ 3.3 6.5 ↑ 48.9 8.0 ↑ 4.6 ↑ 4.3  0.9 5.8  4.3 7.2  3.7 ↓ 2.1 4.7 ↑ 44.5 5.5 ↑ 4.6 ↑ 3.6 0.5 3.9 4.0 6.8 Asia/Pacific Japan Australia New Zealand EM Asia China India Ex China/India Hong Kong Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand -1.1 -4.7  -2.4 -2.9  -0.2 2.3  -7.3 -2.8  -6.1 -2.1  -0.9 -5.6  -9.5 -5.4  3.1 -6.1  6.8 ↓ 2.8  4.2 5.7  7.9 ↓ 8.9 ↓ 9.0 4.6  7.1 ↑ 4.2  4.4 3.7 ↑ 5.3 6.5  6.4 ↑ 1.0 ↓ 5.2 3.8  3.0 3.5  5.6 5.7 ↑ 6.8 4.8 ↓ 2.8 4.9  4.0 6.8 ↓ 6.5 7.2 ↑ 4.5 4.5 ↓ 4.8 ↓ -3.9  7.3 6.8  6.6 ↓ 4.9  11.7 ↓ 8.2  23.9 5.3  7.1 11.3  2.8 ↑ 13.8 ↑ 12.1 ↓ 0.7  1.3 ↑ 0.5  3.1 2.6  1.4 ↑ 6.1  -17.0 ↑ -0.9  -3.6 ↑ 3.1  2.7 -7.7 ↑ -5.1 ↓ -7.2 ↓ -4.2 ↑ -3.0 ↓ 3.4 ↓ 2.0  -6.0 3.3  4.3 ↓ 2.0 ↓ 17.0 ↓ 3.3 ↓ 5.0 2.0  4.0 -6.0 ↓ 16.0 ↑ 1.0  5.2 ↓ 0.0 ↓ 8.4 ↑ 15.0  4.9 3.6  7.1 ↑ 6.6 ↑ 11.0 6.5 ↑ 3.5 4.5  7.0 12.3 ↑ 11.0 ↑ 8.0 ↑ 8.0 ↓ 1.0 ↓ 5.3 ↑ 2.0  4.8 3.8  6.1 ↑ 6.1 ↑ 8.0 5.1 ↓ 2.3 6.5  4.0 12.5 ↓ 3.5 ↓ 10.0  4.8 1.0 ↓ 4.3 ↓ 1.0  3.8 3.1  5.1 ↓ 5.2 ↓ 5.0 4.7 ↓ 2.3 6.0  3.0 8.5  6.0 ↑ 12.0 ↑ 3.6 2.0 ↓ 0.7 1.6 ↓ 2.1 ↓ 2.1 ↓ -0.9 ↓ -0.7 ↓ -0.1 ↓ 0.4 0.9 3.8 2.1 1.6 1.4  3.4  3.3  1.9 1.0 2.0 2.6 ↓ 2.5 ↓ 0.1  1.1  2.2 ↓ 2.2 ↓ 6.4 5.7 ↑ 5.0 4.9 0.5  2.4  2.5  2.0 -0.6 0.8 2.6 2.1 1.6  1.4  2.4  2.4 0.4 2.5 2.6 1.8 -1.5  4.2 ↓ 3.4  1.8 3.1 4.4 ↑ 3.2 2.3 -0.1  2.3 ↑ 2.2  1.4 0.0 2.1 ↓ 2.0 1.6 -0.4  3.0  2.3  2.5 Western Europe Euro area Germany France Italy Spain Norway Sweden United Kingdom EMEA EM Czech Republic Hungary Israel Poland Romania Russia South Africa Turkey -6.9 -6.5  -4.9 -6.7  -8.9 -10.8  -3.1 -2.9  -9.8 -2.7  -5.8 -5.0  -2.5 -2.7  -3.9 -3.0  -7.0 1.8  5.3 5.1  3.0 4.3  6.2 6.3  3.7 4.3  7.1 5.3 ↑ 3.5 6.9  4.8 5.3 ↑ 8.5 4.5  4.5 6.8  5.2 5.2  5.7 4.0  5.7 7.3  3.9 3.6  5.8 3.9  5.6 5.3  5.4 5.6 ↓ 6.5 2.6  2.5 3.4  -2.0 -1.3  -8.0 -4.0  1.0 -1.7  -4.1 3.4  -6.2 4.7 ↑ -1.4 8.3  -5.8 5.3 ↑ 11.7 5.4  4.6 7.1  10.2 8.3  6.1 0.0  11.1 11.5  6.0 3.6  20.7 ↓ 4.3 ↑ 2.4 2.8  10.4 7.8 ↑ 4.9 5.0  3.6 -2.0  10.3 10.5  13.0 9.0  10.0 12.5  9.0 8.5  9.6 3.4  11.0 8.0  10.0 8.0 ↓ 8.7 1.0  -3.0 -0.6  5.2 4.0  3.0 4.5  3.0 5.0  3.0 2.5  11.6 3.9 ↓ 7.5 5.0  4.9 6.3 ↓ 6.1 3.0  5.0 1.2  5.3 6.0  9.0 4.0  6.5 9.0  4.0 4.0  2.4 3.6  5.0 5.3  4.5 5.0  4.9 2.8  3.0 3.2  3.2 3.5  2.5 3.0  5.5 7.0  2.5 2.5  2.0 4.0  4.0 5.3  4.5 4.8  7.0 2.8  3.1 4.9  -0.1 -0.3  -0.6 0.1  -0.4 -0.8  1.3 0.6  0.6 4.9  2.6 2.8  -0.7 2.8  2.1 4.5  3.2 13.5  1.9 1.8  2.2 1.8  1.2 2.3  2.8 1.8  2.0 ↓ 6.8 ↓ 2.9 5.2  1.3 4.5 ↓ 3.6 6.0  4.8 17.1  3.3 3.3  4.3 2.7  2.3 3.5  2.6 1.6  3.6 7.3  4.2 ↑ 5.7 ↑ 2.0 5.6  6.0 6.3 ↓ 5.1 16.4  2.1 2.0 2.6 2.1 1.6 2.7 1.3 1.4 3.0 5.7 3.7 ↑ 4.1 1.4 4.2 5.4 4.9 ↓ 4.9 12.3 Global -3.5 6.2 4.6 3.8 ↓ 4.8 ↑ 6.3 ↓ 5.6 ↑ 4.5 3.5 ↓ 1.0 ↓ 3.1 ↓ 3.9 ↓ 2.9 Developed markets -4.9  5.4  4.3  2.2  6.9  7.8  5.2  4.0  2.9  0.5  3.1  3.9 ↓ 2.6 ↓ Emerging markets -1.5 7.3 ↓ 4.9 6.2 ↓ 1.7 ↑ 4.0 ↓ 6.1 ↑ 5.3 ↑ 4.5 ↓ 1.9 3.3 3.8 ↓ 3.2 ↓ Emerging ex China -4.5  6.0  4.3 ↓ 7.2 ↓ -1.8 ↑ 5.7 ↓ 5.7 ↑ 4.6 ↓ 4.0 ↓ 3.4  5.1  5.2 ↑ 4.1 Global — PPP weighted -3.3  6.5  4.8  4.7 ↓ 3.5 ↑ 6.4 ↓ 5.7 ↑ 4.8  3.8 ↓ 1.6  3.4  4.0 ↓ 3.1 ↓ Source: Government agencies and J.P. Morgan Global Economics. Details on request. Note: For some emerging economies 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. Unless noted, concurrent nominal GDP weights calculated with current FX rates are used in computing our global and regional aggregates. Regional CPI aggregates exclude Argentina and Ecuador. Source: J.P. Morgan. Any long-form nomenclature for references to China; Hong Kong; and Taiwan within this research material is Mainland China; Hong Kong SAR (Chi- na) and Taiwan (China). 4 JPMorgan Chase Bank NA Carlton Strong (1-212) 834-5612 carlton.m.strong@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com G-3 economic outlook detail Economic Research Global Data Watch August 13, 2021 2020 2021 2022 United States Real GDP -3.4 6.1 3.9 Private consumption -3.8 8.1 3.5 Equipment investment -8.3 15.0 5.8 Non-residential construction -12.5 -6.7 6.0 Intellectual property products 2.8 9.7 8.2 Residential construction 6.8 11.6 3.7 Inventory change ($ bn saar) -42.3 -9.0 74.3 Government spending 2.5 1.2 4.9 Exports of goods and services -13.6 4.5 5.2 Imports of goods and services -8.9 15.2 8.9 Domestic final sales contribution -2.4 7.2 4.2 Inventories contribution -0.6 0.4 0.5 Net trade contribution -0.4 -1.4 -0.8 Consumer prices (%oya) 1.2 4.4 3.4 Excluding food and energy (%oya) 1.7 3.5 3.3 Core PCE deflator (%oya) 1.4 3.1 2.7 Federal budget balance (% of GDP, FY) -15.0 -13.1 -5.5 Personal saving rate (%) 16.3 12.5 7.0 Unemployment rate (%) 8.1 5.6 4.4 Industrial production, manufacturing -6.6 6.6 4.1 Euro area Real GDP -6.5 5.1 5.2 Private consumption -8.0 1.6 7.6 Capital investment -7.6 4.5 5.5 Government consumption 1.4 3.2 0.1 Exports of goods and services -9.4 8.7 4.9 Imports of goods and services -9.2 5.7 5.1 Domestic final sales contribution -5.7 2.5 5.1 Inventories contribution -0.4 0.9 -0.1 Net trade contribution -0.4 1.6 0.1 Consumer prices (HICP, %oya) 0.3 2.2 1.7 ex food, alcohol and energy 0.7 1.4 1.6 General govt. budget balance (% of GDP, FY) -7.2 -6.6 -2.7 Unemployment rate (%) 8.0 8.0 7.8 Industrial production -8.5 7.9 3.4 Japan Real GDP -4.7 2.8 3.8 Private consumption -6.0 2.4 5.6 Business investment -6.2 1.2 5.0 Residential construction -7.0 0.4 1.5 Public investment 3.7 2.2 0.8 Government consumption 2.7 2.0 -1.6 Exports of goods and services -11.8 13.4 7.4 Imports of goods and services -7.3 7.0 8.4 Domestic final sales contribution -3.8 2.1 3.6 Inventories contribution -0.1 -0.3 0.4 Net trade contribution -0.9 1.0 -0.2 Consumer prices (%oya) 0.0 -0.4 0.4 ex food and energy -0.1 -0.8 -0.8 General govt. net lending (% of GDP, CY) -10.5 -8.9 -6.6 Unemployment rate (%) 2.8 2.8 2.5 Industrial production -10.6 9.2 4.8 Memo: Global industrial production -5.4 9.7 4.3 %oya Source: Government agencies and J.P. Morgan Global Economics. Details on request. 2020 2021 4Q 1Q 2Q 3Q 4Q 4.5 6.3 6.5 8.3 3.0 3.4 11.4 11.8 3.7 3.7 26.4 14.1 13.0 8.0 7.0 -8.2 5.4 -7.0 6.5 6.0 10.2 15.6 10.7 9.0 8.5 34.4 13.3 -9.8 4.0 7.0 88.8 -88.3 -165.9 107.0 111.1 -0.5 4.2 -1.5 3.2 3.4 22.5 -2.9 6.0 4.5 5.0 31.3 9.3 7.8 15.0 12.0 5.1 10.5 8.1 4.6 4.5 1.1 -2.6 -1.1 5.8 0.1 -1.7 -1.6 -0.4 -2.1 -1.6 1.2 1.9 4.8 5.4 5.5 1.6 1.4 3.7 4.2 4.5 1.4 1.7 3.4 3.4 3.8 13.6 20.8 10.9 10.0 8.3 6.8 6.2 5.9 5.3 5.1 11.1 2.3 3.7 8.0 9.0 -2.5 -1.3 8.3 10.5 4.0 -11.1 -8.6 8.0 10.0 5.0 10.9 0.5 4.0 8.0 3.0 1.8 -0.8 5.0 1.5 0.0 16.6 2.6 7.0 8.0 5.0 20.9 0.4 6.0 7.5 5.0 -3.6 -4.7 6.2 7.3 3.2 2.1 2.4 1.4 2.6 0.6 -0.9 1.1 0.7 0.6 0.2 -0.3 1.1 1.8 2.7 3.3 0.2 1.2 0.9 1.4 2.2 8.3 8.2 8.0 8.0 7.9 18.3 3.2 0.5 4.0 4.0 11.7 -3.9 0.5 2.0 15.0 9.0 -5.8 1.4 2.3 25.0 18.3 -4.6 2.0 9.0 7.0 0.2 4.9 10.0 1.0 1.0 5.3 -2.1 2.0 2.0 2.0 7.3 -4.5 0.0 1.0 4.0 55.7 9.2 12.0 7.0 12.0 20.7 16.5 14.0 5.0 15.0 9.6 -4.8 1.5 3.0 15.1 -2.4 2.0 -0.7 -1.3 0.4 4.6 -1.1 -0.3 0.4 -0.5 -0.9 -0.5 -0.7 -0.4 -0.1 -0.5 0.1 -1.3 -0.9 -1.1 3.0 2.8 2.9 2.8 2.7 24.8 12.6 3.6 4.2 18.0 40.4 4.8 10.2 6.1 6.7 0.2 5.5 19.9 8.3 5.2 2022 1Q 2Q 3.5 3.0 3.0 2.8 6.0 4.0 8.0 7.0 8.5 8.0 5.0 4.0 110.6 87.3 6.9 6.9 5.5 5.5 9.0 7.0 4.5 4.1 0.0 -0.5 -1.0 -0.7 5.2 3.7 4.9 3.4 3.7 2.7 6.9 6.9 4.7 4.4 2.5 1.8 6.0 3.5 15.0 4.0 8.0 5.0 0.0 -1.0 4.0 4.0 4.5 4.5 9.0 2.9 -3.0 0.6 0.0 0.0 2.0 2.0 1.3 1.8 7.9 7.8 4.0 3.0 2.0 1.0 2.5 1.0 5.0 4.0 1.0 1.0 1.0 -0.5 -8.0 -1.0 8.0 5.0 10.0 6.0 0.5 1.0 1.9 0.2 -0.3 -0.2 -0.2 0.4 -1.0 0.3 2.6 2.5 2.0 1.0 3.7 2.9 5.1 4.8 5 JPMorgan Chase Bank NA Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Carlton Strong (1-212) 834-5612 carlton.m.strong@jpmorgan.com Economic Research Global Central Bank Watch August 13, 2021 Global Central Bank Watch Official Current 4-qrtr change (bp) rate rate (%pa) Last Next Last change Next mtg Forecast next change Forecast (%pa) Sep 21 Dec 21 Mar 22 Jun 22 Sep 22 Global 1.34 13 8 1.39 1.42 1.41 1.41 1.42 excluding US 1.75 61 11 1.82 1.86 1.86 1.85 1.87 Developed - 0.02 -16 1 -0.02 -0.01 -0.01 -0.01 -0.01 Emerging 3.43 55 18 3.55 3.63 3.61 3.59 3.63 Latin America 4.12 132 144 4.72 5.49 5.56 5.63 5.82 EMEA EM 6.17 273 -8 6.39 6.28 6.09 5.93 5.91 EM Asia 2.75 -3 1 2.77 2.75 2.75 2.76 2.78 The Americas 0.81 19 21 0.90 1.01 1.02 1.03 1.06 United States Fed funds 0.25 0 0 15 Mar 20 (-100bp) 22 Sep 21 On hold 0.25 0.25 0.25 0.25 0.25 Canada O/N rate 0.25 0 0 27 Mar 20 (-50bp) 8 Sep 21 4Q 22 (+25bp) 0.25 0.25 0.25 0.25 0.25 Brazil SELIC O/N 5.25 325 225 4 Aug 21 (+100bp) 22 Sep 21 Sep 21 (+100bp) 6.25 7.50 7.50 7.50 7.50 Mexico Repo rate 4.50 -60 50 12 Aug 21 (+25bp) 30 Sep 21 Sep 21 (+25bp) 4.75 5.00 5.00 5.00 5.25 Chile Disc rate 0.75 25 125 14 Jul 21 (+25bp) 31 Aug 21 Aug 21 (+25bp) 1.00 1.50 2.00 2.50 3.00 Colombia Repo rate 1.75 -50 75 25 Sep 20 (-25bp) 30 Sep 21 3Q 21 (+25bp) 2.00 2.50 2.50 2.75 3.25 Peru Reference 0.50 25 125 12 Aug 21 (+25bp) 9 Sep 21 Sep 21 (+25bp) 0.75 1.25 1.75 2.00 2.50 Europe/Africa 0.98 30 0 1.03 1.01 0.98 0.95 0.94 Euro area Depo rate - 0.50 0 0 12 Sep 19 (-10bp) 9 Sep 21 On hold -0.50 -0.50 -0.50 -0.50 -0.50 United Kingdom Bank rate 0.10 0 0 19 Mar 20 (-15bp) 23 Sep 21 4Q 22 (+15bp) 0.10 0.10 0.10 0.10 0.10 Norway Dep rate 0.00 0 75 7 May 20 (-25bp) 19 Aug 21 3Q21 (+25bp) 0.25 0.50 0.75 1.00 1.00 Sweden Repo rate 0.00 0 0 19 Dec 19 (+25bp) 21 Sep 21 On hold 0.00 0.00 0.00 0.00 0.00 Czech Republic 2-wk repo 0.75 50 100 5 Aug 21 (+25bp) 30 Sep 21 3Q 21 (+25bp) 1.00 1.50 1.75 2.00 2.00 Hungary Base rate 1.20 60 80 27 Jul 21 (+30bp) 24 Aug 21 3Q 21 (+30bp) 1.50 2.00 2.00 2.25 2.50 Israel Base rate 0.10 0 0 6 Apr 20 (-15bp) 23 Aug 21 On hold 0.10 0.10 0.10 0.10 0.10 Poland 7-day interv 0.10 0 15 28 May 20 (-40bp) 24 Aug 21 1Q 22 (+15bp) 0.10 0.10 0.25 0.50 0.75 Romania Base rate 1.25 -25 25 15 Jan 21 (-25bp) 5 Oct 21 1Q 22 (+25bp) 1.25 1.25 1.50 1.75 2.00 Russia Key pol rate 6.50 225 50 23 Jul 21 (+100bp) 10 Sep 21 Sep 21 (+50bp) 7.00 7.00 7.00 7.00 6.75 South Africa Repo rate 3.50 0 50 23 Jul 20 (-25bp) 23 Sep 21 Nov 21 (+25bp) 3.50 3.75 4.00 4.25 4.50 Turkey 1-wk repo 19.00 1075 -250 18 Mar 21 (+200bp) 23 Sep 21 Nov 21 (-50bp) 19.00 18.00 16.50 15.00 15.00 Asia/Pacific 2.10 -4 1 2.11 2.11 2.11 2.11 2.13 Australia Cash rate 0.10 -15 0 4 Nov 20 (-15bp) 5 Nov 21 On hold 0.10 0.10 0.10 0.10 0.10 New Zealand Cash rate 0.25 0 75 15 Mar 20 (-75bp) 18 Aug 21 Aug 21 (+25bp) 0.50 1.00 1.00 1.00 1.00 Japan Pol rate IOER1 - 0.10 -8 0 28 Jan 16 (-20bp) 21 Sep 21 On hold -0.10 -0.10 -0.10 -0.10 -0.10 Hong Kong Disc. wndw 0.50 0 0 3 Mar 20 (-50bp) - On hold 0.50 0.50 0.50 0.50 0.50 China 1-yr MLF 2.95 0 -5 15 Apr 20 (-20bp) - 4Q 21 (-5bp) 2.95 2.90 2.90 2.90 2.90 Korea Base rate 0.50 0 50 28 May 20 (-25bp) 26 Aug 21 Aug 21 (+25bp) 0.75 1.00 1.00 1.00 1.25 Indonesia BI RRR 3.50 -50 0 18 Feb 21 (-25bp) 19 Aug 21 On hold 3.50 3.50 3.50 3.50 3.50 India Repo rate 4.00 0 0 22 May 20 (-40bp) 8 Oct 21 On hold 4.00 4.00 4.00 4.00 4.00 Malaysia O/N rate 1.75 0 0 7 Jul 20 (-25bp) 9 Sep 21 On hold 1.75 1.75 1.75 1.75 1.75 Philippines Rev repo 2.00 -25 0 19 Nov (-25bp) 23 Sep 21 On hold 2.00 2.00 2.00 2.00 2.00 Thailand Taiwan 1-day repo 0.50 0 Official disc. 1.125 0 0 20 May 20 (-25bp) 29 Sep 21 On hold 0 19 Mar 20 (-25bp) 23 Sep 21 2Q 22 (+13bp) 0.50 0.50 0.50 0.50 0.50 1.13 1.13 1.13 1.25 1.38 Source: Government agencies and J.P. Morgan Global Economics. Details on request. 1 BoJ sets the policy rate on IOER (O/N) and targets 10-year JGB yields as policy guidance. Bold denotes move since last GDW and forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages. Any long-form nomenclature for references to China; Hong Kong; and Taiwan within this research material is Mainland China; Hong Kong SAR (China) and Taiwan (China). 6 JPMorgan Chase Bank NA Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Bennett Parrish bennett.parrish@jpmchase.com Olya Borichevska (1-212) 834-5398 olya.e.borichevska@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Nowcast global GDP: Downside risk partly realized The J.P. Morgan forecast for 3Q global GDP growth moved down 0.6%-pt this week to 6.3%ar. The move lower reflects adjustments to growth forecasts in Asia, where virus dynamics have intensified. The region is vulnerable given low vaccination rates that suggest a move lower in mobility is likely needed to curb the spread of the virus. In China, this is exactly what is happening with a number of provinces imposing restrictions on activity. This week, we cut China’s 3Q growth by 2.3%-pts to 2%ar. We also made adjustments to the Philippines, Singapore and Thailand. While India also saw a downward revision to 3Q growth, this followed an upward revision for 2Q based on highfrequency data. Overall, since midyear we have cut the 2H21 growth forecast by nearly a 1%-pt, which follows concerns on the virus (Figure 1). Figure 1: J.P. Morgan global GDP % change saar; forecast by date made 10 8 6 4Q21 4 2 2Q21 3Q21 1Q21 0 Sep 18, 20 Dec 7, 20 Feb 26, 21 Source: J.P. Morgan Global Economics May 17, 21 Aug 6, 21 Figure 2: Global real GDP %q/q, saar. J.P. Morgan projection through 3Q21; Nowcaster through July 8 Nowcaster 6 (dashed is %m/m, saar) 4 2 0 Actual/JPM -2 (%q/q, saar) -4 2Q20: -19%ar 3Q20: +38%ar -6 13 15 17 19 21 Source: J.P. Morgan Global Economics. Details on request. The top-down global nowcaster points to 3Q global GDP growth at a 4.3%ar pace, unchanged from last week. While the official forecast has moved down this week, the top-down nowcaster is still a fair bit below the official forecast. However, it is still very early in the quarter, and the nowcaster puts a large weight on the nearly 3-pts decline in the PMI over the last two months. The nowcaster correctly pointed to slower global GDP growth last quarter. At the regional level, there is considerable variation early in the tracking of 3Q21 growth. The nowcaster suggests downside risk in the DM (even after recent delta wave-related downgrades) and upside risk in EM Asia Figure 3 and Table 1). The nowcaster for 3Q is not that far from the official forecast in the Latam and EMEA EM regions. Figure 3: Risk bias, 3Q21 %-pts. Nowcast minus forecast 12 10 8 6 4 2 0 -2 -4 -6 -8 Per Tur Chn Zaf Bra Kor Twn Col Rus Jpn Mex Pol US Chl UK EMU Glob Glob,wt DM EM EM Asia Latam EMEA EM Source: J.P. Morgan Global Economics. Note: Not all nowcasters shown Table 1: Real GDP %q/q, saar. Underline indicates J.P. Morgan forecast 2Q21 3Q21 Actual/Fcst Nowcast Forecast Nowcast Global 4.8 4.5 6.3 4.3 Weighted Avg* 6.0 5.5 6.2 4.7 Developed* 7.1 5.3 8.3 3.4 US 6.5 7.6 8.2 4.4 EMU 8.3 2.9 10.5 2.0 UK 20.7 4.3 9.6 3.2 Canada 2.7 3.8 7.5 6.1 Japan 0.5 3.1 2.0 1.7 Emerging* 4.1 5.8 2.5 7.0 EM Asia* 5.1 7.0 2.3 8.7 China 6.1 6.9 2.0 9.1 Korea 2.7 7.3 4.0 5.9 Taiwan -4.2 8.6 5.2 7.1 Singapore -7.2 6.4 1.0 9.0 Latam* 0.9 4.2 3.3 3.8 Brazil 0.4 4.4 3.3 5.9 Mexico 6.3 5.4 3.2 0.4 Argentina -5.9 1.6 2.0 0.3 Chile 2.6 5.6 12.7 8.4 Colombia -6.5 3.7 4.0 5.4 Peru -4.0 -0.8 -6.0 5.4 EMEA EM* 3.7 2.5 2.7 3.6 Poland 7.8 3.1 8.0 4.6 Hungary 2.8 1.1 7.9 3.8 Czech Rep. 2.4 4.9 11.0 3.8 Romania 4.9 6.3 8.7 6.2 Russia 5.0 3.8 1.0 2.2 Turkey -2.0 -2.8 -0.6 6.8 South Africa 3.6 2.7 -3.0 0.3 * Aggregates are GDP weighted averages of constituents. Source: J.P.Morgan Global Economics. Any long-form nomenclature for references to China; Hong Kong; and Taiwan within this research material is Mainland China; Hong Kong SAR (China); and Taiwan (China). This week we updated July global confidence and consumer price inflation. We also took a closer look at the latest virus developments. Here the news is positive as UK cases have fallen significantly while cases in the Euro area might be peaking. What’s more encouraging is that these moves came 7 JPMorgan Chase Bank NA Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Bennett Parrish bennett.parrish@jpmchase.com Olya Borichevska (1-212) 834-5398 olya.e.borichevska@jpmorgan.com Economic Research Nowcast global GDP August 13, 2021 May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 at the same time regional mobility continued to trend higher. However, a hit from the delta wave is apparent in our confidence readings. Both global consumer and business confidence took a step down in July with the largest declines concentrated in Europe (Table 2). As for inflation, the story is more of the same: inflation is elevated with little sign of cooling. Table 2: J.P. Morgan global aggregates %ch, sa (ar for qrt). PMIs are levels. Confidence is std. dev. from 2010-pres avg 2Q21 3Q21 Jun21 Jul21 Aug21 Sep21 PMI, mfg 55.2 54.3 54.4 54.3 54.2 54.2 PMI, serv 58.0 56.3 57.5 56.3 56.5 56.3 IP 1.9 7.3 0.8 0.9 0.7 0.3 Retail sales 12.5 4.5 0.2 0.4 0.4 0.4 Auto sales 3.6 -5.6 -1.4 1.4 1.2 0.6 G-3 cap. ship. 12.5 8.8 0.6 1.2 0.4 0.4 G-3 cap. orders 18.5 22.2 -3.5 5.3 1.5 -0.7 Cap. exports 20.6 17.9 1.9 1.7 1.0 1.1 Bus conf 1.2 0.8 1.0 0.9 0.8 0.7 Cons conf 0.5 0.7 0.7 0.7 0.7 0.7 Nowcast (ar) 4.5 4.3 4.4 4.7 4.2 3.9 Note. Shaded values show forecasts computed by the Kalman filter estimates from the dynamic factor model. Underlined values are our estimates based on available data and our judgment. Source: J.P. Morgan Global Economics, Markit, and national statistical agencies. Figure 4: Global real GDP, 2Q21 %q/q, saar 7 6 5 4 3 2 1 0 Source: J.P. Morgan Global Economics Figure 5: US real GDP, 2Q21 %q/q, saar 12 10 8 6 4 2 0 Source: J.P. Morgan JPM forecast JPM Global nowcast Nowcast, wghtd avg JPM forecast JPM nowcast Figure 6: Euro area real GDP, 2Q21 %q/q, saar 10 8 6 4 2 0 Source: J.P. Morgan Global Economics Figure 7: EM Asia real GDP, 2Q21 %q/q, saar 12 10 8 6 4 2 0 Source: J.P. Morgan Global Economics Figure 8: Latam real GDP, 2Q21 %q/q, saar 4 2 0 -2 Source: J.P. Morgan Global Economics Figure 9: EMEA EM real GDP, 2Q21 %q/q, saar 4 3 2 1 0 May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 JPM forecast JPM nowcast JPM forecast JPM nowcast JPM forecast JPM nowcast JPM forecast JPM nowcast May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 May 07 May 14 May 21 May 28 Jun 04 Jun 11 Jun 18 Jun 25 Jul 02 Jul 09 Jul 16 Jul 23 Jul 30 Aug 06 Aug 13 Aug 20 Source: J.P. Morgan Global Economics *For a primer on our nowcaster suite, see methodology report and podcast. 8 JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com Joseph Lupton (1-212) 834-5735 joseph.p.lupton@jpmorgan.com Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com Economic Research Global Data Watch August 13, 2021 Selected recent research from J.P. Morgan Economics Global Exhibit 'A' for global supply shock: Record inventory slump, Aug 6, 2021 EM inflation: The cost of re-opening, Jul 30, 2021 EM vulnerabilities to the Delta variant, Jul 9, 2021 The road to global economic recovery: On vaccines, Jul 2, 2021 This is the way that QE ends, Jul 2, 2021 The race between vaccinations and variants: US and Germany, Jun 25, 2021 Labor shortages are a US phenomenon, so far, Jun 18, 2021 Global vulnerabilities to SARS-Cov-2 variant B.1.617.2, Jun 11, 2021 Global inventories get even leaner after second wave, Jun 4, 2021 EM inflation: Will you still love me tomorrow, Jun 4, 2021 EM inflation unlikely to become unmoored, Jun 4, 2021 Global mobility: Go your own way, May 28, 2021 United States and Canada US: A good(s) consumption rebound, Aug 6, 2021 US: Will Fed heads roll? Jul 23, 2021 US: Are we FAIT-ed for a hard landing? Jul 16, 2021 US: Still little sign of employment gain from UI pain, Jul 9, 2021 US: Hard to get too worried about corporate debt, Jun 18, 2021 US: The peculiar pandemic-era pickup in productivity, Jun 11, 2021 Western Europe Sharp fall in ICU/hospital occupancy in Southern Europe, Jul 30, 2021 ECB: Housing costs complicate the "simpler" target, Jul 16, 2021 UK: Assessing the risks to the recovery from further easing, Jul 16, 2021 France: Government pushing hard for vaccination, Jul 16, 2021 ECB: A new target and no comment on how to hit it, Jul 9, 2021 Euro area fiscal policy in 2022 and the debate on the SGP, Jul 9, 2021 Euro area: Temporary rise in core inflation ahead, Jul 2, 2021 Euro area: GDP to bounce despite Delta test for tourism, Jul 2, 2021 UK: Measures of underlying inflation have moved up, Jul 2, 2021 EU deploys recovery fund quickly, Jun 25, 2021 Defying protocol: UK, EU, and Northern Ireland, Jun 25, 2021 UK: Looming fiscal adjustment to determine the BoE's stance, Jun 25, 2021 Euro area: Tracking bottlenecks and supply constraints, Jun 18, 2021 The ECB’s big decisions on its strategy, PEPP & Co, Jun 11, 2021 Euro area: A big and possibly lasting shift in fiscal policy, Jun 11, 2021 UK: Surveys start to flag labor market friction, Jun 11, 2021 France: Full political calendar for the next 12 months, Jun 11, 2021 Scandinavian monetary policy on diverging paths, Jun 4, 2021 Central Europe, Middle East, and Africa CEE inflation: The good, the bad and... the transitory? Aug 6, 2021 Bank of Israel: A hawkish tilt, Aug 6, 2021 GCC path toward a new economic model, Aug 6, 2021 Turkey: Strong fiscal performance goes unnoticed, Jul 30, 2021 Policies & politics in Brazil and South Africa, Jul 23, 2021 Kenya: Debt likely to decline more slowly, Jul 16, 2021 Israel: Back to work, Jul 2, 2021 Uzbekistan: Soum'er solstice, Jun 25, 2021 SA: Is fiscal sustainability within reach? Jun 18, 2021 South Africa: Terms of trade jolt puts onus on fiscal framework, Jun 4, 2021 Russia's CBR: Predictably unpredictable, May 28, 2021 Japan General election could be a catalyst for Japan's growth, Jul 30, 2021 BoJ's monetary policy expands to climate change, and next? Jul 23, 2021 Japan: The role of semiconductors and autos in Japan’s pandemic inventory cycle, Jul 9, 2021 Japan: Round trip back to the BoJ, Jun 25, 2021 BoJ: To taper or not to taper, that is the question, Jun 4, 2021 Japan: Next prime minister rests on Olympics and vaccination, May 28, 2021 Non-Japan Asia and Pacific China: End of countercyclical industrial policies, Aug 6, 2021 India: Leaning against the wind, Jul 23, 2021 Bank of Korea's reaction function, Jul 16, 2021 Australia: Truths and myths on the labor market recovery, Jul 2, 2021 Malaysia: Tech, the next exports chapter, Jul 2, 2021 Indonesia: External tailwinds slow CAD widening, Jun 25, 2021 EM Asia’s vaccination path: Waiting on supply to turn, Jun 4, 2021 India's second wave: A recovery interrupted, May 28, 2021 Korea: Fiscal policy update, May 28, 2021 Latin America Mexico: The risks of deterioration in core CPI expectations, Jul 30, 2021 Southern Andeans: On the potential il consequences of structural fiscal expansions, Jul 30, 2021 Policies & politics in Brazil and South Africa, Jul 23, 2021 Proposing a COVID-specific core CPI measure for Brazil, Jul 9, 2021 Argentina: The real (exchange rate) debate, Jun 18, 2021 Mexico: Prices and the reopening, and the other way around, May 28, 2021 Mexico: Midterms likely to confirm Morena's consolidation, May 14, 2021 Peru: Policy regime change and the macroeconomy, May 14, 2021 Special Reports and Global Issues India: Looking for post-COVID-19 growth drivers, Jul 26, 2021 China: From post-pandemic recovery to sustainable growth, Jul 8, 2021 Breaking the waves: Vaccines pave the way for normalization, Jul 7, 2021 US Mid-year economic outlook: After the gold rush, Jun 25, 2021 Outlook for Japan's DX and its impact on productivity, Jun 25, 2021 How should the BoJ dispose of its ETF holdings? Jun 14, 2021 Keep it simple: Inflation is a policy choice, May 12, 2021 Live from J.P. Morgan: Real-time nowcasting for 22 countries, April 20, 2021 Ten questions about China in 2021, Jan 8, 2021 Japan 2021 Outlook: If winter comes, can spring be far behind? Nov 25, 2020 Down, up, and a way to go: 2021 global economic outlook, Nov 24, 2020 The 2021 US Economic Outlook: The needle and the damage undone, Nov 20, 2020 Note: 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. 9 J.P. Morgan Securities LLC Marko Kolanovic, PhD (1-212) 622-3677 marko.kolanovic@jpmorgan.com Bram Kaplan, CFA (1-212) 272-1215 bram.kaplan@jpmorgan.com J.P. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan.com Federico Manicardi (44-20) 7742-7008 federico.manicardi@jpm organ.com Economic Research Global Data Watch August 13, 2021 J.P. Morgan Market Watch Equities We believe that bond yields and cyclicals bottomed earlier this month and are now on an upward trajectory for the rest of the year. We remain constructive on Equities, given the strong earnings season, market positioning, signs of receding COVID-19 Delta variant in the US, and normalization of bond-equity correlation. We like cyclical/reflation-linked segments, and are cautious on beneficiaries of lockdowns/low bond yields. We have also assessed some of the main market risks troubling clients. 1) Our estimates of Equity positioning have been rising but are currently around 10-year average levels, while most corrections historically happened when these measures are above ~80th percentile. 2) While we see risk of a potential sharp rise in yields, we don’t expect higher yields to drive a broad market sell-off given normalizing bond-equity correlation and limited risk of a var shock similar to Feb 2018 (volmageddon) and Oct 2018 (hawkish Fed selloff) given the more moderate positioning set-up. Additionally, the risk of a yield-driven market sell-off can be hedged by reducing duration in bonds and equities, for example, reducing tech/increasing cyclicals exposure. Relatedly, last week, we also published detailed analysis on what higher yields means for LatAm and SMid caps. 3) On the COVID-19 Delta variant we have argued that low mortality in vaccinated countries should help investors look through this – likely last – wave. It appears that investors are waiting for the inflection in US cases and we believe this is days away. After all, the effective reproduction number is now declining in 40 out of 50 states, and in several states with early Delta variant outbreaks COVID-19 cases already started declining. 4) In terms of other risks we believe that there will be another leg lower in sectors that exhibited bubble-like behavior since the onset of the pandemic but we don’t think these segments are significant enough to destabilize the whole market. Finally, next year we expect an increase and amplification of geopolitical and political risks (Market and Volatility Commentary, Aug 12th). Equities should be largely immune to the price gyrations in mini “bubble” areas such as SPACs, IPOs, Bitcoin and Hydrogen. The fact that stocks moved higher when a number of these “hot” areas lost 20-50% since their Q1 peak is already a big positive. Further, the broad equity market is not displaying worrying levels of valuations, and the pockets of concern are too small/tangential to drive overall sentiment for equities. Many pundits use the peaking in liquidity as another reason to be bearish on equity markets. However, cumulative excess liquidity is unlikely to start contracting before the end of next year, with the expansion in central banks’ balance sheet staying high vs nominal GDP growth for at least the few coming quarters (Equity Strategy, Aug 9th). 2Q21 earnings delivery was very strong. Nearly 90% of companies have reported in both US and Europe with earnings growth reaching 90%oya and 71%oya, respectively (the high growth is helped by base effects). At a sector level, Energy, Financials and most Cyclical sectors outpaced Defensives by a sizeable margin. The proportion of companies beating estimates has shot up in both regions and encouragingly, 70% of the companies revising guidance made upward revisions to their profit outlooks (Q2 Earnings Season Tracker, Aug 13th). Bonds Bonds yields kept grinding higher as last week started with some hawkish Fed speak, a jump in job openings/hires and passing in the Senate of the Infrastructure Investment & Jobs Act. Yields kept moving higher also after US CPI disappointed on the margin but eventually they reversed some of the weekly up-move on Friday after consumer sentiment unexpectedly plummeted. We stay short in 10-year Treasuries and keep 3s7s steepeners as the Fed is likely to taper later this year while the delta surge in COVID-19 infections could slow in coming weeks. Moreover, investor positioning has turned more neutral and valuations remain rich. Figure 1: Year-to-date returns % Commodities S&P500 Quality S&P500 Growth MSCI EMU S&P500 S&P500 Value MSCI India ($) S&P500 Momentum Australia equities Nasdaq MSCI ACWI Russell 2000 FTSE Topix Convertibles Euro linkers Euro HY credit US HY credit US linkers US Lev Loans EM Frontier Sovs USD trade-wtd EM Corporates JGBs USD 3M cash MSCI EM (in $) 0 Euro HG credit -1 EM Sovereigns -1 US HG credit -1 EMU Bonds -1 MSCI Brazil ($) -1 GBI Global -1 EM FX (ELMI) -2 MSCI Korea ($) -2 EM Bonds (GBI-EM) -2 US Treasuries -2 MSCI China ($) -12 5 5 4 4 4 3 2 2 2 0 0 23 20 19 19 19 18 16 16 16 15 14 13 12 8 -15 -10 -5 0 5 10 15 20 25 Source: J.P. Morgan Global Economics In the Euro area, we remain neutral on German duration over the near term but we keep 2s/3s Germany steepeners given stretched valuations and keep greens/15Yx5Y EUR forward curve steepeners as a medium-term carry-efficient bearish proxy. Intra-EMU, we keep longs in 10Y Spain and France 10 J.P. Morgan Securities LLC Marko Kolanovic, PhD (1-212) 622-3677 marko.kolanovic@jpmorgan.com Bram Kaplan, CFA (1-212) 272-1215 bram.kaplan@jpmorgan.com J.P. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan.com Federico Manicardi (44-20) 7742-7008 federico.manicardi@jpm organ.com Economic Research Global Data Watch August 13, 2021 vs. Germany. In the UK, we keep SONIA curve steepeners and shorts in 10y real yields. In China, regulatory tightening looks set to continue and potentially opens the door for more medium term countercyclical PBoC easing. We stay OW CGBs in GBI EM (China Strategy, Aug 13th). In EM, we remain UW local market duration via UW EMEA EM and LatAm while being OW EM Asia (EM local markets recommendations, Aug 13th). Credit In US HG, our bias is to continue to expect an incremental grind tighter and our current JULI year-end forecast remains at 105bp. Supply surprised to the upside last week and investors consequently sold the most in the secondary market since June of 2020 to fund the calendar, yet spreads only widened about 1bp. In our view, this is testament to the continued strong appetite for HG spurred by yields rising from 6M lows hit two weeks ago. It would appear that the prospect of the Delta variant weighing on the growth outlook in H2 2021 is pushing investors to rapidly put money to work on any yield backup. That said, the fact that investors were significant net sellers of secondary paper to fund the calendar implies that many expect an additional wave of supply in September. The bear case for spreads near term would be if somehow the current COVID-19 wave morphs into something more disruptive, (e.g. in the unlikely scenario where vaccines start to prove less effective). Additionally, after being surprised by the appetite from issuers this week, some investors may choose to lighten up into September in anticipation of the usual heightened primary activity (Credit Market Outlook & Strategy, Aug 13th). Commodities The oil market will likely remain in deficit and continue to draw inventories through year-end, but just a bit less than what we projected last month. The recent surge in cases in China combined with cuts to other Asian demand, drives the majority of our 1 mbd downgrade to 3Q21 global demand. About one-third of the 3Q demand downgrades have been offset by cuts to supply, with production averaging about 300 kbd lower than our forecast for this quarter. We expect the COVID-19 situation will improve in China, and for now we still see global demand recovering around 99.4 mbd in 4Q21, while we extrapolate the underperformance in supply over the rest of the year. Hence, we see a lower deficit in the current quarter but a slightly tighter balance in 4Q21. We lowered our 2021 year-end target for Brent from $83 to $78, but maintain the trajectory of gradually rising prices. We think the overall balance of risk around our forecast is skewed to the downside mainly due to the lingering risks to demand. This could occur, for example, if Asian demand does not recover as we expect in 4Q or successive variants more materially dent mobility and travel in other major consumers. Upside price risks around Iranian production could be enough to push oil prices to $80-81/bbl. Since the last round of US-Iran nuclear talks ended on June 20, progress has stalled and concerns that a return to the negotiations might not be possible have arisen. Absent full sanctions relief, exports could stay at around current levels, potentially removing 0.50.7 mbd from the market’s expectations around the scale-up in Iranian output (Oil Markets Weekly, Aug 13th). Currencies We maintain a light barbell strategy of long-USD against select low-yielders and high beta currencies ahead of a potentially-pivotal September for FX. Short EUR/USD remains the highest-conviction view. A growing chorus of more hawkish (less dovish) Fed speakers complements strong payrolls data and gives us conviction that additional re-pricing in short-end rates can drive the dollar higher into the fall. With yields looking primed to rebound, this should turn the focus back to USD outperformance vs. cyclical laggards with anchored monetary policy. September will also be a crucial month for US politics, where a confluence of infrastructure debate, debt ceiling negotiations and government funding deadlines converge. The upshot is for an infrastructure package that could exceed current JPM estimates, and so provide additional cyclical support to the dollar via yet-further deficit-financed spending (FXMW, Aug 13th). 11 J.P. Morgan Securities LLC Marko Kolanovic, PhD (1-212) 622-3677 marko.kolanovic@jpmorgan.com Bram Kaplan, CFA (1-212) 272-1215 bram.kaplan@jpmorgan.com J.P. Morgan Securities plc Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan.com Federico Manicardi (44-20) 7742-7008 federico.manicardi@jpm organ.com Economic Research Global Data Watch August 13, 2021 GAA Long Only Model Portfolio Asset Classes Equities Govt. Bonds Corp. Bonds Commodities Cash Sectors Equities US EMU Japan UK EM Other Govt. Bonds US Nominal US TIPs Europe Core Europe Periphery Japan UK EM Local Australia Corp. Bonds US HG Europe HG UK HG US HY Europe HY US Loans EM Sovereigns EM Corporates Commodities Energy Industrial metals Agriculture Precious metals Active Weights 10% -15% -4% 7% 2% Active Weights -2% 1% 1% -2% 2% 0% -1% -1% -2% 2% 2% 0% 0% 0% -1% -1% 0% 1% 1% 1% 1% -2% 4% -1% 0% -3% UW | OW Equity sector recommendations and YTD returns US Europe Japan Energy 35% OW 21% OW 33% N Materials 20% N 26% OW 9% N Industrials 18% N 25% N 13% OW Discretionary 11% OW 24% N 13% OW Staples 8% UW 13% UW 2% N Healthcare 18% OW 20% UW -5% UW Financials 33% OW 24% OW 22% OW Technology 18% OW 33% N 14% N Comm Services 24% N 19% OW -4% UW Utilities 10% UW 5% OW 1% UW Real Estate 28% UW 16% UW 18% N Overall 19.3% 21.5% 9.5% EM 12% 19% 9% -13% -4% -2% 7% 6% -5% 4% -13% 1.3% Source: J. P. Morgan, Bloomberg Finance L.P. JPM Forecasts Current Sep-21 0.10 0.00 1.34 1.50 -0.50 -0.50 -0.46 -0.20 102 90 70 55 0.10 0.10 0.58 0.95 -0.10 -0.10 0.04 0.10 5.01 Current Sep-21 120 120 1.17 1.17 110 110 1.39 1.38 0.74 0.75 6.48 6.50 1161 1175 19.92 20.25 5.22 5.25 8.58 8.50 14.69 14.00 Current Sep-21 71 75 69 73 1,752 1,590 9,484 8,180 2,583 2,350 166 188 7.3 6.0 14.1 10.5 Credit US High Grade (bp over UST) Euro High Grade (bp over Bunds) US High Yield (bp vs. UST) US Lev Loans (bp vs. 3Y Index) Euro High Yield (bp over Bunds) NEM Sovereigns (bp vs. UST) OW OEWM Corporates (bp vs. UST) OEWquities UW USW&P 500 OMWSCI Europe NMSCI Eurozone FTSE 100 NTOPIX UMWSCI EM ($) NMSCI China MSCI Korea MSCI Taiwan MSCI India Brazil (Ibovespa) Mexico (MEXBOL) MSCI South Africa (USD) Dec-21 0.00 1.75 -0.50 -0.10 100 60 0.10 1.15 -0.10 0.15 4.92 Dec-21 121 1.16 111 1.37 0.74 6.50 1180 20.50 5.40 9.00 14.25 Dec-21 78 75 1,550 7,550 2,200 172 6.3 10.5 Mar-22 0.00 1.85 -0.50 0.00 100 60 0.10 1.25 -0.10 0.15 Mar-22 122 1.15 112 1.37 0.73 6.50 1185 21.00 5.35 9.50 14.50 Mar-22 76 73 1,500 7,550 2,075 160 JPM JULI iBoxx HG JPM HY JPM Lev Loans iBoxx HY JPM EMBIGD JPM CEMBI Jun-22 0.00 2.00 -0.50 0.05 100 60 0.10 1.35 -0.10 0.15 Jun-22 122 1.15 112 1.37 0.74 6.50 1185 21.30 5.50 10.00 14.50 Jun-22 72 69 1,400 8,100 2,100 150 Current 113 96 405 434 320 349 260 Current 4,462 1,894 272 7,214 1,956 1,291 97 980 679 1,885 122,05 6 51,312 484 Dec-21 105 90 360 450 275 310 225 Dec-21 4,600 1,830 268 7,100 2,000 1,550 125 1,100 755 1,800 134,00 0 46,300 628 Source: J.P. Morgan, Bloomberg Finance L.P., Datastream 12 JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com Olya Borichevska (1-212) 834-5398 olya.e.borichevska@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Economic Research Note Delta drag is modest and uneven thus far  Infections rise broadly, but high vaccination rates effective in limiting health care and economic damage  Europe’s downside growth risk fades as infections stabilize despite continued increase in mobility  Growth risks concentrated in Asia, where vaccination lags and risk tolerance on COVID is low  An interesting contrast, as mobility is rising but business and consumer sentiment look to be downshifting As the delta variant began spreading globally, we calibrated our 2H21 global growth forecast based on three judgements:  A rising wave lifts all boats. The variant was viewed as highly infectious with vaccinations providing less immunity to infection than in earlier waves. As a result, we looked for a significant rise in infections across the globe this quarter that lifted our (GDP-weighted) measure of global infections above the second-wave peak in January.  Where vaccinations are high, health impacts will be low. Despite the expected rise in infections, we saw the health care consequences of the delta wave as likely to be far less severe than the second wave, largely as a result of high vaccination rates among more vulnerable population cohorts.  Few restrictions, a modest mobility pullback. With the rise in mortality and hospitalization rates expected to be far smaller than during the second wave, we expected policy restrictions to be limited and the turn towards caution by the private sector to be more modest. Based on these considerations, we tempered the projected global growth acceleration. We have lowered our 2H21 global GDP growth forecast by 0.7%-pts annualized since midyear, but we continue to forecast boomy 6.1%ar growth. While anticipating the rise in infections to be felt broadly, these downward revisions to growth were concentrated in countries with relatively low vaccination rates and/or limited risk tolerance for deteriorating health care outcomes. As a result, forecast downgrades were largest in Western Europe (where tolerance is low) and countries in Asia with both low tolerance and low vaccination rates. Fewer infections, no mobility drop thus far The delta wave has spread widely but thus far generated a more modest increase in infections than had been anticipated. Our GDP-weighted global measure of new cases per million has more than doubled over the past two months, but remains at roughly half of its peak in the second wave (Figure 1). Figure 1: Global mobility and new COVID-19 cases per million % relative to pre-pandemic avg, 7-day avg 0 Google Activity -8 Index New cases/million, 7-day avg 350 280 -16 210 -24 140 -32 New cases 70 -40 0 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21 Source: Google, Our World in Data, J.P. Morgan Figure 2: COVID-19 cases per million New cases/ million; both scales 1000 800 US 600 400 200 0 Sep 1, 20 Nov 24, 20 Source: OWID, J.P. Morgan Feb 17, 21 EM 100 UK 90 80 70 EMU 60 50 40 May 13, 21 30 Aug 6, 21 The news from Western Europe, where the delta wave started early, is significant, as it points to a potential early peak (Figure 2). While the recent roll-off in cases in the UK and the Euro area is by no means assured—UK infections have turned up again in the last week—the stall in Western European infections has not followed the path of early waves where virus control required restrictions and a step back in our Google activity index (GAI) measure of mobility (Figure 3). The UK and Euro area GAIs have continued to rise over July and August, with the Euro area returning to its pre-pandemic level. Figure 3: Google activity index (GAI) % relative to pre-pandemic avg, 7-day avg 0 US -10 EMU UK -20 EM -30 -40 Sep 1, 20 Nov 24, 20 Source: OWID, J.P. Morgan Feb 17, 21 May 13, 21 Aug 6, 21 13 JPMorgan Chase Bank NA Bruce Kasman (1-212) 834-5515 bruce.c.kasman@jpmorgan.com Olya Borichevska (1-212) 834-5398 olya.e.borichevska@jpmorgan.com Economic Research Delta drag is modest and uneven thus far August 13, 2021 These developments point to significant protection afforded by relatively high vaccination rates, a signal reinforced by still-low hospital occupancy rates (Figure 4). Against this backdrop, some European countries have relaxed restrictions in recent weeks as the policy focus shifts towards differentiating between the vaccinated and unvaccinated. Figure 4: COVID-19 hospital occupancy Persons, nsa 600 UK 500 France 400 300 200 100 Germany 0 Sep 1, 20 Nov 25, 20 Source: OWID, J.P. Morgan Feb 19, 21 May 16, 21 US Aug 10, 21 The picture elsewhere validates the judgment that risk tolerance in the face of rising infections matter. LATAM and the US have seen mobility move up in the face of rising infections. The contrast between the US and Europe on pressure building in hospitalization rates is striking, but there are no signs of a move towards additional restrictions. Meanwhile, restrictions imposed in Asia and Australia have depressed the GAI (Figure 5). Figure 5: Google activity index, low vaccination rate regions % relative to pre-pandemic level, 7-day ma 0 -5 Australia LATAM -10 Japan -15 -20 -25 Dec 30, 20 Feb 23, 21 Source: J.P. Morgan Apr 19, 21 EM Asia ex. China, Ind. Jun 13, 21 Aug 7, 21 is echoed in the US card data, where spending on items related to travel have softened in recent weeks (Figure 7). Figure 6: Global sentiment Std units, deviation from previous expansion average 2 Mfg. expectations (MEI) 1 0 -1 Consumer confidence -2 -3 2015 2016 2017 2018 2019 2020 2021 2022 Source: J.P. Morgan  Our measures of mobility and tracking of the delta wave are far more limited in China, where an outbreak has spread to a number of provinces recently. Given its relatively low vaccination rate and self-described “zero tolerance policy,” mobility restrictions have been implemented in affected areas. While we expect the situation to be brought under control, it is hard to gauge the potential drag on China’s growth this quarter. It also is difficult to determine whether there will be any spillovers into global supply chains. Figure 7 : US Chase card spending Index, Jan 2019=100 150 100 50 Restaurants Lodging Airlines 0 Jan 20 Apr 20 Jul 20 Oct 20 Dec 20 Apr 21 Jul 21 Oct 21 Source: J.P. Morgan https://www.jpmm.com/research/open/latest/publication/9002054 Better outcomes, balanced risk The path of the delta wave thus far points to upside risk to 2H21 growth, as neither the anticipated rise in infections or fall in mobility appears to be taking hold. However, we are hesitant to consider growth upgrades at this time and generally assess risks around our current forecasts as balanced. Two recent developments foster caution:  Although our global GAI has continued to move higher over July and August, there has been a step back in global sentiment—both business and consumer confidence have eased since the delta wave took hold (Figure 6). This shift 14 JPMorgan Chase Bank NA Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com Economic Research Global Data Watch August 13, 2021 Economic Research Note Record global FX reserves after COVID shock  The COVID-19 pandemic resulted in limited capital outflows from EM economies  Global FX reserves reached an all-time high of $12.7tn this year, with EM Asia recording a large increase  The share of USD-denominated reserves hit a 25-year low of 59% in 2020, but has recovered modestly  Holding fixed the exchange rate, the share of reserves held in USD has remained steady since late 2019 The pandemic has produced unprecedented swings in global growth: early-2020 saw the deepest contraction in nearly 75 years, followed by the strongest growth surge in half a century. Growth plunged at a 15.2%ar in 1H20 before rebounding 22.0%ar in 2H20, despite a second global wave of COVID-19 infections. But if the pandemic has been the primary driver of the global economic outlook over the past year and a half, the policy response is a close second. Extraordinary monetary and fiscal support stabilized credit flows, bolstered aggregate demand, and precluded significant economic scarring. Following a brief dislocation in March 2020, global financial conditions have been broadly supportive thanks to this policy accommodation. As a result, the goods sector in particular has rebounded strongly, boosting the current account surpluses of some EM economies. At the same time, a number of central banks adopted unconventional policy tools, such as QE, that allowed them to pursue multiple objectives—in some cases including FX stabilization. One notable feature of these policies through the pandemic has been a relatively benign impact on global FX reserves. In contrast to past global downturns, when financial instability begat material cross-border capital flows, particularly from EM, the past year has been relatively calm. As a result, rather than dip into rainy day funds to protect currencies, FX reserves have continued to increase, reaching a new record of $12.7 trillion this year (Figure 1). Even as global growth accelerated further during 1H21, a number of EM economies have faced setbacks as limited progress on vaccination forced them back into lockdowns to combat a jump in cases due to the delta variant. This has created a gap between DM and EM growth that we anticipate will narrow over the next several quarters as rising vaccination rates allow for further re-opening of economies, particularly the service sector. But this dynamic has also created an incentive for EM policymakers to accumulate reserves on a precautionary basis against adverse macroeconomic shocks. Most of the reserve accumulation since March 2020 has been by EM Asian economies. Data from the IMF indicate that, once swings in exchange rates are taken into account, the share of reserve assets held in US dollars has remained relatively steady since the onset of the pandemic following several years of decline. Figure 1: Foreign exchange reserves Tn USD (excl. gold and SDR), through June 2021 12 Latin America 10 EMEA EM 8 EM Asia excl. China 6 4 China 2 Developed 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: IMF, J.P.Morgan Reserves surge with COVID-19 recovery Official holdings of foreign exchange (excluding gold and SDRs) reached a record $12.7tn in May, and remained at that level in June (Table 1). This is nearly $1.1tn higher than the recent pandemic-induced low in March 2020, and exceeds the $12.0tn prior peak reached in 2014. Despite the historically deep global recession in 1H20 and the concomitant rifts in global financial markets, FX reserves declined sharply but modestly during March 2020, and rebounded quickly thereafter. That decline was only a fraction of the cumulative outflow of reserves during the EM credit unwind and commodity price collapse in 2014-16. Table 1: Foreign exchange reserves Jul08 - Feb0 9 Feb09 - Jun14 Jun14 - Dec16 Global -451 4,942 -1,290 Developed -51 913 109 Japan 3 236 -58 Switz. -2 462 129 Emerging -400 4,029 -1,399 EM Asia -62 2,919 -886 ...China 67 2,081 -983 …ex Chn -129 838 97 Mideast/Africa -19 577 -357 EM Europe -284 200 -141 …Russia -215 52 -111 …Turkey -8 43 -21 Latam -35 333 -15 …Brazil -17 178 -7 …Argen. 0 -22 10 Source: J.P. Morgan, IMF, national sources Dec16 - Feb20 1,154 353 131 160 801 528 96 432 43 213 132 -14 17 -5 6 Feb20 - Mar20 -185 14 7 -4 -199 -94 -46 -48 -47 -38 -7 -17 -19 -19 -1 Mar20 - Jun 21 1,078 233 -2 211 844 681 153 527 21 104 16 -5 38 4 0 Tn USD Jun 21 12.7 3.1 1.3 1.0 9.6 6.5 3.2 3.3 1.3 1.0 0.4 0.1 0.8 0.3 0.0 15 JPMorgan Chase Bank NA Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com Economic Research Record global FX reserves after COVID shock August 13, 2021 EM economies have accounted for most of the increase in reserve holdings since March 2020, with Asian central banks and sovereign wealth funds accounting for more than half of the rise. China’s reserves had been fairly stable in recent years and into the pandemic, but have increased to $3.2tn in June— the largest holdings by any single economy, comprising 25% of global FX reserves. This is down slightly from China’s share prior to the pandemic, and some 7%-pts below its maximum share in mid-2014, when China’s holdings totaled $4tn. The rest of EM Asia, by contrast, significantly increased its FX reserves over the prior 15 months, and the other economies in the region now collective hold slightly more reserves than China: 26% of the global total. This group’s share has grown by 3%-pts since 2019, and represents the mirror image of China’s 7%-pt decline since 2014. Recent reserve accumulation by Singapore, India, and the Philippines stand out in the region, with their reserves rising 43%, 29%, and 20%, respectively, since March 2020 (Figure 2). In India, the central bank has actively intervened to prevent the rupee from appreciating further, while pandemic-induced precautionary saving and weaker private sector investment helped push India’s current account into surplus. Deposit flows into Singapore, possibly as a safe haven destination, as well as some corporate repatriation, have lifted the financial account there. Figure 2: FX reserves through June 2021, EM Asia Index, Jan 2018=100 145 135 Thailand 125 115 105 95 85 2018 2019 2020 2021 Source: IMF, J.P. Morgan India S'pore Taiwan Korea Indon. China Figure 3: Top increases in FX reserves since start of the pandemic % change (USD terms), Mar 2020 to Jun 2021 418 50 40 30 20 10 0 chn emu tha mys col chl hkg twn idn kor nor cze rom hun phl ind pol sgp ecu Source: J.P. Morgan, IMF A few other economies stand out with large percentage increases in their official holdings since the aggregate reached its nadir in March 2020 (Figure 3). These include Ecuador, which benefitted from the recovery in oil prices last year while weak domestic demand held down imports. The CEE-4 also experienced sizable accumulations; Poland led the way with a 36% gain. Among DM economies, Switzerland saw a near-27% increase, while Norway’s reserves rose 14%. These gains reflect efforts to forestall currency appreciation in the face of unprecedented monetary easing by the Fed and ECB. Goods rebound supports exports The pandemic shock produced a nearly 20% collapse in global goods output through April 2020, as production was temporarily halted and as demand plunged. But the re-opening in 2020 heavily favored a strong rebound in goods output, supported by policy easing and pent-up demand. In addition, spending shifted to the goods sector as restrictions on activity continued to fall most heavily on services. One year after the trough in manufacturing output, production had risen nearly 28%, putting global IP nearly 3% above its pre-pandemic level. Merchandise exports followed a nearly identical path, collapsing in early 2020 and rebounding strongly thereafter. In April 2021, the value of global exports had surged 50% over a year ago (Figure 4). Based on IP dynamics, the growth rate is projected to have slowed to just under half that pace in June, but that remains a remarkable pace of growth as the recovery continues. Figure 4: Global manufacturing and trade %oya; both scales (IP to June 2021, trade to April 2021) 30 60 Manufacturing output (volume) 20 40 10 20 0 0 -10 Exports (value) -20 -20 -40 03 05 07 09 11 13 15 17 19 21 Source: J.P. Morgan Trade balances tended to narrow in 2020 relative to 2019, thanks to the boom that followed their pandemic-driven collapse. The main exceptions in our panel of economies were Russia and Turkey. For the first several months of this year, merchandise trade balances widened on average across the economies we track (Figure 5). Countries with increasing trade surpluses include exporters of commodities (e.g., Russia, South Africa, Brazil, Australia) and manufactured goods (e.g., Taiwan, Korea, Hungary, Czechia). All else equal, wider trade deficits have put pressure on a handful of EM economies, namely India, Colombia, the Philippines and Romania, to ensure they have sufficient reserves. 16 JPMorgan Chase Bank NA Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com Economic Research Global Data Watch August 13, 2021 Figure 5: Merchandise trade balance % of GDP, Jan-May 2021 sgp 16 mys twn 12 zaf cze 8 ausperhun rus 45 degree 4 0 -4 can jpn idn swe pol arg chnbra emu tha kor chl tur gbrusa mex nzl -8 nor col ind phl NX(Jan-May) = 1.20*NX(2020) + 0.03 R² = 0.93 -12 rou -9 -6 -3 0 3 6 9 12 Source: J.P. Morgan Global Economics % of GDP, 2020 Trade balance surges; capital flows steady FX reserve dynamics are largely driven by EM economies, as most of the DM have free-floating currencies. Across the EM, central banks have tended to use official reserves to manage the volatility driven by rapid shifts in capital flows. While trade flows typically are not nearly as variable as financial market flows, the past year has seen a sharp rise in trade and current account balances among EM economies that mirrors the sizable accumulation of reserves (Figure 6). The improvement in the EM current account balance is mirrored by much higher net private savings. Figure 6: Merchandise trade and FX reserves, EM* Bn USD, 12 month flow 1200 Trade balance (dashed: current account) 900 600 300 0 -300 Reserve Accumulation (dashed: excl FX effect) -600 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: J.P. Morgan; * Data reflect JPMorgan universe of countries only (No Mideast) An implication of the recent co-movement between EM FX reserves and the current account is the relative stability of capital flows. The balance of payments identity implies that the current account plus the financial account has to equal official FX reserve accumulation. This allows us to construct a proxy for capital flows in the EM that reflects this recent relative stability, implying modest capital outflows on net since late 2017 (Figure 7). This relative stability is remarkable given the period included protracted uncertainty around the US-China trade war and the deep (if short) COVID-19 pandemic recession. Figure 7: EM* proxy for capital inflows Bn USD, 12 month flow 1000 500 0 -500 -1000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: J.P. Morgan; Proxy is defined as current account less change in FX reserves (adjusted for moves in EUR, JPY, and GBP crosses exchange rates. *EM aggregrate comprises JPMorgan universe of countries only (notably excludes the Middle East) Our proxy for EM capital flows aligns with the capital flow data for a slightly more limited set of economies reported by the Institute for International Finance (IIF), although the fit has weakened somewhat in recent years (Figure 8). But the broad contours of a large outflow between 2014 and 2017, followed by a few years of roughly balanced net capital flows before a more modest net outflow following the onset of the pandemic, remain. Figure 8: EM capital net inflows Bn USD; 12m flow 1000 JPM proxy 500 0 -500 -1000 IIF EM subset (1m flow ann rate, dashed) -1500 10 12 14 16 18 20 Source: J.P. Morgan; IIF subset 77% of JPM EM GDP universe (incl China and Brazil) USD share stabilizes after long decline The US dollar’s role as the global reserve currency of choice has weakened somewhat over the past decade, but USD reserves remained nearly 60% of the total as of 1Q21. These data come from the IMF’s latest Composition of Official Foreign Exchange Reserves (COFER) survey, which includes 149 countries and covers nearly 94% of reserves. While it does not give information on holdings by individual institution (in order to maintain confidentiality and thus boost participation), it is considered the most authoritative source on the currency allocation of global FX reserves. Based on the COFER survey, the USD’s share of global FX reserves declined 9%-pts from 2000 to 2010, largely as the euro gained 7.5%-pts (Table 2). The Japanese yen’s share declined as well, with the difference being made up by increased holdings of British pounds and other currencies not 17 JPMorgan Chase Bank NA Michael S Hanson (1-212) 622-8603 michael.s.hanson@jpmchase.com Economic Research Record global FX reserves after COVID shock August 13, 2021 specifically identified. In the subsequent decade, USD holdings slipped modestly further, but the euro saw the biggest decline as both the yen and pound gained somewhat, while the share of “other” currencies—which now includes data on holdings of CAD, AUD, and RMB—more than doubled to around 9%. Table 2: Global foreign exchange reserves, allocation by currency % of reserves USD EUR GBP JPY CHF CAD AUD RMB Other 00Q4 71.1 18.3 2.8 6.1 0.3 … … … 1.5 07Q4 63.9 26.1 4.8 3.2 0.2 … … … 1.8 10Q4 62.2 25.8 3.9 3.7 0.1 … … … 4.3 12Q4 61.5 24.1 4.0 4.1 0.2 … … … 3.2 16Q4 65.2 21.2 3.7 3.5 0.2 1.8 1.6 0.0 2.8 (6.1) 17Q4 65.4 19.1 4.3 4.0 0.2 1.9 1.7 1.1 2.3 (7.0) 18Q4 61.7 20.7 4.4 5.2 0.1 1.8 1.6 1.9 2.5 (7.8) 19Q4 60.7 20.6 4.6 5.9 0.1 1.9 1.7 1.9 2.5 (8.0) 20Q4 58.9 21.3 4.7 6.0 0.2 2.1 1.8 2.3 2.7 (8.8) 21Q1 58.9 21.3 4.7 6.0 0.2 2.1 1.8 2.3 2.7 (8.8) Source: IMF COFER survey; Parentheses for "Other" include CAD, AUD, RMB The recent COFER data reveals some volatility in holdings since the pandemic began. The share of USD-denominated holdings hit a recent high of 61.8% in 1Q20, as global financial market stress—and the trade-weighted value of the USD—peaked. It then declined to an all-time (nearly 25-year) low of 58.9% in 4Q20 before inching back up in 1Q21. The JPY’s share also peaked in 1Q20, at 6%, but has largely retained at that level since. Most other currencies, including the EUR, hit recent lows in 1Q20 before largely returning to their pre-pandemic shares (Figure 9). Figure 9: Change in reserve shares, at current FX rates %-pt change since 1Q13 4 3 2 1 0 -1 -2 -3 -4 -5 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: IMF, J.P. Morgan USD EUR JPY GBP Other However, swings in these shares—whether since the pandemic began or over a longer time horizon—should not be interpreted as active policy decisions. Rather, a sizable portion of these moves reflect valuation effects. FX reserves in the COFER survey are denoted in US dollars, so an appreciation of the USD mechanically increases the recorded USD share. This happened in 2014-15, when the trade-weighted USD appreciated over 22% and the USD share jumped over 4%- pts. Its share has been trending lower since 2017 despite a small appreciation over that period. As noted above, the USD share briefly rose over a percentage point in early 2020 when the trade-weighted USD jumped 9%. It has since depreciated over 10% and the USD share has fallen about 3%-pts. Fixing exchange rates at their 1Q2013 values gives a measure of how monetary authorities have actively adjusted the composition of their reserve holdings since then. By this measure, the US dollar’s share of global FX reserves briefly rose around 2% early in 2014, with the increase fully reversed during 2015. Since then, the USD share has slid lower by about 4.5%-pts over past five years, with most of the decline occurring since 2018 (Figure 10). Put another way, the 25% appreciation of the USD from 2014 to 2016, and 20% cumulative gain to date, should have significantly boosted the USD share of reserves. That it has not reflects active diversification into other currencies by reserve managers. Figure 10: Change in reserve shares, at constant 1Q13 FX rates %-pt change since 1Q13 3 2 1 0 -1 -2 -3 -4 -5 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: IMF, J.P. Morgan USD EUR JPY GBP Other Despite the volatility around the pandemic shock, fixing exchange rates implies a fairly constant USD share over the past year and a half—a notable stabilization following the considerable move down in 2018 and 2019, likely reinforced by flight-to-safety dynamics set in motion by the pandemic. While the on-going strong recovery in global activity should relax this motivation somewhat, the US remains one of the primary sources of global growth this year. In fixed-value terms since 2013, the euro has seen its share of global FX reserves decline about 2%-pts, with the “other” category—primarily RMB—accounting for the largest corresponding share increase, followed by the JPY and GBP. However, since 2018, when the USD share has seen its most significant decline (-3.7%-pts), the euro, yen, and renminbi have each seen their shares increase by around 1%-pt or more, with the remaining currency shares up marginally. 18 JPMorgan Chase Bank, N.A., Singapore Branch Sin Beng Ong (65) 6882-1623 sinbeng.ong@jpm organ.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Economic Research Note Rising divergence in EM Asia's path through the pandemic  EM Asia's growth profile over the next three quarters is expected to mirror vaccination rates in the population  We expect Singapore, Malaysia and India to lead the growth recovery  Policy expected to weigh on growth in China, tourism remains a headwind for Hong Kong and Thailand  Policy normalization started with China, Korea followed by Singapore and possibly Malaysia The broad macroeconomic narrative in EM Asia this year comprised three sub-plots. The first is diverse recoveries across sectors and countries, broadly reflecting differing policy postures and vaccination rates. The net impact would be reflected in EM Asia’s relative growth underperformance versus the US. The second aspect, drawing on the first, is the expectation of slow-moving core inflation, mirroring tepid employment gains amid a pedestrian recovery, leading to slow moving central banks. The third aspect is the relative stability provided by the CNY anchor despite the undulations in regional growth. These threads have broadly transpired and we expect the coming quarters to mark even more differentiation than in the past year, reflecting differing levels of immunity across the region. In this context, we expect Singapore, Hong Kong and Malaysia to attain herd immunity this year, premised on current vaccination run-rates, followed by the Philippines and Korea. We would thus expect underlying inflation to mirror the recovery and policy to normalize broadly in line with the trajectory of recovery. Herd immunity a key marker amid policy conservatism Two of the key differentiating aspects that set EM Asia apart from the rest of the world is the post-pandemic normalization of policy in China and the region’s conservative approach toward managing the pandemic. This implied a more rapid imposition of containment measures in response to new COVID-19 cases and is evident in the underperformance of EM Asia relative to both the US and other EMs (Figures 1-2). In particular, downward revisions to growth have been focused in South Asia, especially in countries that have seen the delta variant emerging as the dominant COVID-19 strain (Figure 3). Thus, the attainment of herd immunity, defined as 70% of the population being vaccinated, would facilitate a more sustained recovery by reducing the burden on healthcare systems. Figure 1: Elasicity of mobility to COVID-19 case rise Δ(decline in mobility)/Δ(cases per mn), trough to peak 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 TW TH KR HK ID IN MY SG GER PH UK US Source: J.P. Morgan derived from Our World in Data and Google Mobility data Figure 2: EM 2021 growth forecast revision index Index, Jan. 4 2021=100 104 LATAM 103 102 EMEA 101 EM Asia 100 99 Jan 8, 21 Mar 1, 21 Source: J.P. Morgan Apr 23, 21 Jun 14, 21 Aug 6, 21 Figure 3: EM Asia 2021 growth FRI % change, year-to Aug. 6 2 0 -2 -4 -6 -8 -10 HK TW KR ID SG CN EM PH MY IN TH Source: J.P. Morgan Asia Different trajectories to herd immunity Vaccination has moved at very different speeds across EM Asia. As a result, the share of the population that is vaccinated differs materially across the region, with the highest in Singapore and the lowest in Taiwan (Figure 4). Encouragingly, the pace of vaccination in the region has accelerated in the past couple of months, with notable pick-ups in Singapore, Malaysia, Hong Kong and the Philippines. Indeed, the regional policy focus on attaining herd immunity is evident through the acceleration in vaccinations, helped also by the increased availability of vaccines (Figure 5). Based on the weekly pace of vaccination in July, Singapore has reached herd immunity, while Hong Kong and Malaysia could reach herd immunity within the next three months (Figure 6). 19 JPMorgan Chase Bank, N.A., Singapore Branch Sin Beng Ong (65) 6882-1623 sinbeng.ong@jpm organ.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research Rising divergence in EM Asia's path through the pandemic August 13, 2021 Figure 4: EM Asia share of fully vaccinated population % of population fully vaccinated 70 May June 8-Aug 60 50 40 30 20 10 0 SG HK MY KR PH ID IN TH TW Source: Our World in Data Figure 5: EM Asia weekly vaccination rate %pt of population fully vaccinated per week 6 June July-Aug. 8 4 2 0 SG MY HK PH KR IN ID TH Source: Our World in Data Figure 6: EM Asia time to attain 70% of fully vaccinated population Months to 70% fully immunized population at July/Aug. vaccination run rate 50 40 30 20 10 0 SG HK MY PH KR IN ID TH Source: Our World in Data Mapping herd immunity to the macro forecasts Given the variation in the attainment of herd immunity, we expect a widening dispersion of growth outcomes over the next several quarters. In relative terms, we expect regional growth to accelerate in the next three quarters compared to the prior three, with the largest gains in Malaysia, Singapore and India, while growth in China is expected to decelerate due in large part to the lagged effects of policy normalization (Figure 7). In the cases of Thailand and Hong Kong, which have the largest regional exposures to international travel, uncertainty around cross-border travel, which we expect to re-open more slowly than the relaxation of restrictions on domestic mobility, could impede the full normalization of activity (Figure 8). Aside from activity, an added determinant of policy normalization is expected to be underlying inflation, which itself will likely be a function of labor market performance. Regionally, only Korea has returned to pre-COVID-19 levels of employment and thus is expected to lead monetary policy normalization, followed by Singapore in 2Q22 and possibly Malaysia (Figure 9). Figure 7: EM Asia real GDP trajectory % change over period 8 3Q20-2Q21 3Q21-2Q22 6 4 2 0 -2 -4 MY SG IN PH CN ID TW KR TH HK Source: National sources and J.P. Morgan forecasts from 2Q21 Figure 8: EM Asia tourism exports % GDP, 2019, BOP basis 12 8 4 0 TH HK MY SG PH TW ID KR IN Source: National sources Figure 9: EM Asia employment Index, 4Q19=100, sa 102 KR 100 98 96 94 2019 Source: National sources 2020 TW SG HK 2021 2022 20 JPMorgan Chase Bank NA Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Economic Research Global Data Watch August 13, 2021 Economic Research Note US: Rent inflation from the penthouse to the farmhouse  If COVID-19 results in an increase in demand for all kinds of housing nationwide, overall rents will likely rise  It is debatable whether these shifts would cause a oneoff price change or a persistent change in inflation rates  We and the Fed will continue watching inflation expectations measures for hints about persistent changes  If COVID-19 prompts moves to areas with less constrained housing supply, longer-run inflation could be weaker COVID-19 prompted many people to move out of dense urban areas and into suburbs, rural areas, and less dense metros. If this means that demand has shifted toward cheaper or more elastic housing markets, nationwide rents should fall, as they did initially during the pandemic. Now, however, nationwide measures of rents on new leases have moved above preCOVID-19 trends, suggesting a broad-based increase in demand for housing, which looks set to push official CPI rent measures up next year. But even a permanent increase in the level of rents need not produce a sustained increase in the rate of inflation if expectations remain well-anchored (as the Fed will likely keep reminding us). Plus, if the end result involves a shift in demand toward areas with less-constrained housing supply, rent inflation could end up softer in the long run. They didn’t stay when things got tough A simple view of the effect of COVID-19 on housing markets is that it prompted people to move out of dense urban areas and into suburbs or less dense metros. The data are generally consistent with this simple view. Data from Zillow, which measure asking rents for new leases, show that rents dropped sharply early in the pandemic in some of the densest areas like New York and San Francisco. Although new rents have now begun rebounding in those areas, they are still below prepandemic levels. Meanwhile, some other areas like Dallas and Miami saw only a minor initial dip in rents, followed by more recent rapid increases (Figure 1). Rent data from ApartmentList.com show similar patterns. Vacancy data from the Housing and Vacancy Survey tell a similar story. The rental vacancy rate in the New York City metro area rose from roughly 4.3% in 2019 to around 6% recently. In some metro areas, by contrast, rental markets tightened sharply. As an extreme case, the rental vacancy rate in Richmond, Virginia, fell from nearly 10% in 2019 to around 2% during the pandemic (Figure 2). Figure 1: Zillow rent indexes for selected metro areas Index, Jan 2020=100, sa 116 Miami 112 Dallas 108 San Francisco 104 New York 100 96 92 88 2019 Source: Zillow, J.P. Morgan 2020 2021 Figure 2: Change in rental vacancies and rental rates % deviation of metro rental prices from trend 20 Memphis, TN 10 0 Richmond, VA -10 y = -0.990x + 2.183 NYC SF R² = 0.162 -20 -10 -5 0 5 Change in metro area rental vacancy rates Source: Zillow, Census Bureau, J.P. Morgan Figure 3: National rent indexes: Zillow and CPI Index, Jan 2020=100, sa 108 Zillow observed rent index (new leases) 106 CPI: Tenants' rent (all leases) CPI: Owners' equivalent rent (all leases) 104 102 100 98 96 2019 2020 Source: Zillow, BLS, J.P. Morgan 2021 At the national level, the Zillow rent index fell by about 1.2% from its pre-COVID-19 peak to its trough in August 2020. Unlike the Zillow data, which measure rents on new leases, the rent components of the Consumer Price Index track average rents across both new and existing leases. So the CPI should respond slowly to declines in rents on new leases. Indeed, the CPIs for both tenants’ rent and owners’ equivalent rent decelerated during the pandemic, but never actually fell (Figure 3). Every man rises from the ash Although data early in the pandemic largely fit this relatively simple story, what happens next is less clear. As Figure 1 showed, demand now appears to be returning to the dense metros where it had fallen during the initial pandemic waves. If all that happened was that people moved back from the 21 JPMorgan Chase Bank NA Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Economic Research US: Rent inflation from the penthouse to the farmhouse August 13, 2021 suburbs to the city or moved back from Miami to New York, we might expect a spurt of above-average national housing inflation to counteract the softness last year, leaving the overall level of rents little changed from their pre-pandemic trend. But although Figure 1 shows rents rebounding in New York and San Francisco, there is no sign that they are falling back to pre-pandemic levels in Dallas and Miami. Indeed, Figure 3 also shows that the national Zillow rent index is now notably above its pre-COVID-19 trend and appears to be accelerating. In the three months through June, the Zillow rent index rose at a sprightly 19% annualized rate. These data suggest that COVID-19 may leave us with an overall increase in demand for square footage of housing in many markets. In the short run, this demand increase could produce a significant step-up in rent inflation rates. It would take some time for the demand increases that are apparent in the Zillow measure of new rents to filter into CPI measures of average rents. If the Zillow rent measure immediately stopped rising and remained constant at its current level, our models suggest that shelter CPI inflation would still rise from its June rate of 2.6%oya to 4.7%oya by February 2022 (Figure 4). If growth in the Zillow rent index returned to a rate of 4%, a bit above pre-COVID-19 norms, shelter CPI inflation would reach 5.5%. If Zillow rent growth slowed to the still-rapid rate of 12%, shelter CPI inflation could hit 8.3%oya by fall 2022. Figure 4: CPI shelter inflation in alternative scenarios for Zillow rent CPI shelter inflation, %oya 9 Zillow index grows at 12% 8 Zillow index grows at 8% 7 Zillow index grows at 4% (near trend) 6 Zillow index grows at 0% 5 4 3 2 1 2019 2020 Source: Zillow, BLS, J.P. Morgan 2021 2022 2023 Things will be alright To be fair, these forecasts from the Zillow data are considerably stronger than forecasts based on other rent inflation indicators (Figure 5). Although the Zillow data did well in foreshadowing the softening in the national CPI rent indexes last year, their track record is short. consumers, forecasters, and markets have not yet internalized a more rapid rate of inflation as a new normal. But we and the Fed will keep watching these data carefully for signs of more persistent firming. Figure 5: Other model forecasts for CPI shelter inflation CPI shelter inflation, %oya 9 Based on vacancy rate 8 Based on house prices 7 Based on housing activity indicators 6 Based on unemployment rate 5 Based on economic growth 4 3 2 1 2019 2020 2021 2022 2023 Source: BLS, J.P. Morgan Figure 6: Change in rental vacancies and housing supply elasticities Long-run metro area inverse housing supply elasticity 2.5 2.0 1.5 Richmond, VA 1.0 NYC SF 0.5 Memphis, TN 0.0 y = 0.05x + 0.99 R² = 0.06 -10 -5 0 5 Change in metro area rental vacancy rates Source: Guren et al. (2020), Census Bureau, J.P. Morgan Finally, looking further out, we can see that cities with the largest decline in vacancy rates (which proxies for net inflow of residents) are also those that can most rapidly expand their housing stock in the long run (e.g., Memphis, TN). Conversely, metro areas that saw large increases in rental vacancy rates tend also to be those places where it is difficult to increase the supply of new housing (e.g., San Francisco, CA). Stated more technically, the change in rental vacancy rates during the pandemic is positively correlated with the inverse housing supply elasticity (Figure 6).1 Thus, some currently-fervid housing markets may be able to construct more houses in the coming years to push prices and rents back down. And even further out, as populations and incomes rise in future years and decades, it may be easier for the stock of housing to expand, producing softer rent inflation in the long run. Furthermore, even if recent demand shifts produce a longlasting increase in the level of rents, they may still not produce more than a transitory increase in rates of inflation. For one reason, even the recent spike in overall inflation and rapid increases in new rents have thus far made relatively little imprint on measures of inflation expectations, suggesting that 22 1 We use metro-area inverse housing supply elasticities estimated by Guren, McKay, Nakamura, and Steinsson by looking at how sensitive house prices in each city in the US are to regional house price movements. Those that exhibit excess sensitivity are those deemed to have relatively more inelastic housing supply markets. JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Economic Research Note Japan: Leveling fiscal spending through leftovers  The pandemic budget formulated in FY2020 exceeded execution capacity and the need for fiscal support,…  …leaving a large budget leftover, providing ample spending resources for FY2021  But this leftover is unlikely to be fully spent in FY2021, and we expect leftover to be carried forward again  The pandemic experience highlighted the budget execution problems that Japan has faced in recent years To mitigate the economic impact of the pandemic, in FY2020, the government adopted a comprehensive economic package of unprecedented scale that totaled over 10% of GDP. However, only a little over half of this was executed by the end of the fiscal year, and the rest was carried over to FY2021. While cash benefits for households and SMEs were used fully, budgets for business loans and subsidies were carried over without being fully executed. In addition, subsidies to stimulate services consumption such as travel and dining have yet to be resumed, after having been suspended due to the resurgence of infections in late 2020. The pandemic budget formulated last year appears to have far exceeded the economy’s execution capacity and actual demand. With the budget carryover from FY2020, the budget that can be executed in FY2021 stands about 3% of GDP below FY2020 outturn, even though no additional economic measures have been adopted since the beginning of 2021. Furthermore, with Lower House elections looming and the recent decline in the Cabinet’s approval rating, calls for a large-scale supplementary budget are rising among members of the ruling coalition. Thus, in addition to the huge carryover budget remaining, the government is likely to approve additional economic measures later this year. However, we think the budget carryover from FY2020 is unlikely to be fully executed during FY2021. In addition, given the Diet’s timetable, most of the expected economic package likely will be disbursed in 2022. Therefore, we expect the fiscal thrust that pushed up real GDP growth by 2.0%-pts in 2020 will turn to a 0.7%-pt drag in 2021. After 2022, the fiscal deficit, which expanded significantly during the pandemic, should continue to narrow, but the pace of consolidation likely will be slow, leaving a fiscal policy expansion relative to pre-pandemic norms. The pandemic experience emphasized Japan’s fiscal policy execution problems: large fiscal expansions run into execution bottlenecks, and the budget does not get executed quickly. Huge budget leftover in FY2020 In FY2020, the government approved three supplementary budgets designed to mitigate the economic damage caused by the pandemic. As a result, the FY2020 general account budget reached JPY175.7 trillion (32.8% of GDP), an over-70% increase from the JPY101.5 trillion (18.2%) budget outturn in FY2019. Much of this increase was attributable to pandemicrelated budgets, including infection-control measures, benefits and loans to SMEs, and cash handouts to all residents. However, at the end of the fiscal year, it became clear that much of this unprecedented pandemic-related budget increase was unspent at the end of FY2020 (Figure 1). Result Budget Figure 1: FY2020 budget and result % of GDP Resources Expenditure Resources Expenditure Surplus 0 Revenue Expenditure Transfer to FY2021 Source: MoF, J.P. Morgan 5 10 15 Bond financing Interest 20 25 30 35 Transfer from FY2019 Budget carried forward The unspent pandemic-related budget for FY2020 has been carried forward to FY2021. According to the FY2020 financial results announced by the Ministry of Finance at the end of July, only JPY147.6 trillion (27.5% of GDP) of the JPY175.7 trillion (32.8%) total general account budget as executed by end-March 2021, leaving JPY30.8 trillion (5.7%), to be carried forward to FY2021. Under the Fiscal Law, budgets should be executed within the relevant fiscal year. But if the expenditure is not completed within the fiscal year due to the nature of payments, such as multi-year investment projects, or unavoidable accidents, such as natural disasters, an exceptional budget carry-forward to the next fiscal year is allowed. The budgets carried forward under this framework amount to about 1% of GDP in normal years, and even in the years after the Great East Japan earthquake, it only reached about 2% of GDP. But in FY2020, an unprecedented 5.7% of GDP was carried forward due to the unpredictable persistence of the pandemic (Figure 2). Together with some excess revenues and JPY6.2 trillion in fiscal year-end reductions in the budget, a total of JPY37.0 trillion (6.9% of GDP) was transferred to the FY2021 budget from FY2020. 23 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Economic Research Japan: Leveling fiscal spending through leftovers August 13, 2021 Figure 2: Budget carried forward % GDP 6 East Japan great earthquake 5 4 3 2 1 0 FY08 FY10 FY12 Source: MoF, J.P. Morgan FY14 FY16 FY18 FY20 FY22 The breakdown by policy program of the budget carried over has yet to be disclosed. However, based on available information, of the 4.9%of GDP budget for SME support measures adopted in the early stages of the pandemic, only 3.0% of GDP had been executed by the end of FY2020 (Figure 3). This includes cash benefits for businesses whose income had declined by more than a threshold amount, interest-free and unsecured loans, and subsidies for business transformation to adjust to the post-COVID-19 business environment. As the cash benefit program has already ended with a JPY5.5 trillion (1.0% of GDP) in payments, much of the unexecuted budget should be for lending and subsidy programs. Apart from the SME program budget, only 5.0% of GDP out of the 7.8% of GDP other pandemic budget has been executed, with the rest apparently carried forward to FY2021. This includes budgets for infection-control measures, consumption subsidies for travel and dining out, and transfers to local governments to cover a portion of compensation payments for restaurant closures under the state of emergency. The government appears to have budgeted too much for support measures at the beginning of the pandemic, relative to its execution ability and actual demand. Figure 3: FY2020 fiscal expenditure by category % of GDP Budget Actual 0 5 Social welfare 10 15 20 25 30 35 Other current spending Public works SME supports Source: MoF, J.P. Morgan Other spending Ample budget resources in FY2021 For FY2021, the JPY30.8 trillion carryover from the FY2020 budget was added to the JPY106.6 trillion initial budget, increasing the general account budget spending capacity to JPY137.4 trillion yen (24.6% of GDP). This is about 3% of GDP lower than the FY2020 budget outturn, but significantly higher than the pre-pandemic FY2019 budget outturn at 18.2% of GDP. Although no supplementary budgets have been approved since the beginning of 2021, fiscal policy remains expansionary, reflecting the carryover budget from FY2020. However, we expect the government to be unable to execute all of the budget carried over from last year. While the budgets carried over cannot be used for other purposes, some of the ongoing programs have faced declining demand, and some others have been seen execution diminished by the lingering pandemic. Of the budget programs that we estimate have been carried over, demand for SMEs loans has decreased since late last year, as most of SMEs that need loans have already received loans up to their borrowing limits. The budget for subsidies for business conversion and innovation likely also will not be spent quickly amid the pandemic. On the other hand, additional support is still needed to compensate restaurants and bars for complying with the government’s request to shorten business hours, as well as the employment adjustment subsidies that cover firms’ wage payments for employees who have been furloughed. These payments fall under local governments’ budgets and the special account, with the general account covering a part through budget transfers to those accounts. Thus, as required payments rise with prolonged business restrictions under the state of emergency, the financial burden on the general account also has increased. Most of the JPY10 trillion reserve fund allocation in FY2020 was used for budget transfers to those accounts to cover revenue compensation and employment subsidy payments, and some was used for vaccine procurement. Despite the ample budget resources, calls from some members of the ruling coalition for a further large economic package are mounting. With the Cabinet’s approval rating the lowest since its inauguration due to a surge in infections during the Olympics, they aim to raise their rating by increasing the supplementary budget, possibly by JPY30 trillion (5.4% of GDP), according to media reports. However, given the economic stimulus budget that was carried over from last year, adding more budget resources before spending current budgetary resources will have a limited impact on near-term growth. Therefore, even if a large scale economic package is announced due to the political backdrop, the net increase in FY2021 spending likely will be smaller than the one currently 24 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Economic Research Global Data Watch August 13, 2021 expected. That said, since domestic consumption, particularly for services, has been restrained by business restrictions since the beginning of the year, additional support measures for the services industry likely will be included in the upcoming package, together with measures to support structural reform. The actual execution likely will come after the Diet’s fall session, that is, in effect after 1Q22. Passive fiscal austerity The general government primary deficit widened to 10.5% of GDP in FY2020 from 2.5% in FY2019. As cash payouts and other generous COVID-19 supports pushed up expenditures, the primary deficit was the largest in decades, even larger than in 2009, the year after the global financial crisis. For FY2021, we expect the primary deficit to narrow to 6.7% of GDP, assuming that only a part of the budget carried over is spent within FY2021 (Figure 4). This implies that the public debt will increase by 30%-pts of GDP in two years, reaching 213% of GDP by the end of FY2021 from 183% at the end of FY2019 before the pandemic. Figure 4: General government primary balance % of GDP, box denotes JPM forecasts 0 -2 -4 -6 -8 -10 -12 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19 FY21 FY23 Source: Cabinet Office, J.P. Morgan The government’s target of returning to a primary surplus in FY2025 likely is unattainable. If the pandemic subsides, the temporarily introduced support measures will be unwound. However, in order to achieve a primary surplus, the government will have to implement 1-2%-pts of GDP in fiscal consolidation, by either cutting social security expenses or tax increases, or both. In light of the 2019 consumption tax hike, which raised tax revenues by just under 1% of GDP but caused a major economic downturn and political backlash, this will not be easy in view of the likely economic impact and political fallout. ited to an extension of the existing framework, and the budget carried over from last year is unlikely to be fully disbursed within this year. Also, many of measures to be included in the upcoming supplementary budget will not be executed until 2022. As we expect some of the FY2021 budget to be carried forward again, we look for a modest 0.2% fiscal drag in 2022. Figure 5: Real GDP and fiscal thrust %oya, %-pt contribution 4.0 2.0 0.0 -2.0 Fiscal thrust (B) -4.0 Underlying (A)-(B) -6.0 Real GDP (A) -8.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Cabinet Office, J.P. Morgan The pandemic experience has highlighted problems that Japan’s fiscal policy has faced in recent years. After the global financial crisis, fiscal consolidation and structural economic transformation progressed only slowly, and fiscal policy has remained expansionary. The pandemic that arose under these circumstances resulted in fiscal easing, with large generous loans and subsidies. However, much of the unprecedented budget was unspent and carried forward, while the economic recovery remains anemic compared to Japan’s peers, raising questions about the effectiveness of fiscal policy. We believe that the financial support measures under the pandemic were effective in providing a safety net in an emergency. But, when evaluating the post-pandemic economic measures, we think focusing more on concrete measures rather than the scale of the budget becomes critical. On a calendar year basis, we estimate the fiscal thrust to have reached 2.0% of GDP in 2020, 0.9%-pt less than we initially expected 2020 (Figure 5). We also estimate a larger fiscal drag in 2021 at -0.7%, compared to the previously-expected -0.2%. Even though the state of emergency has been issued for most of the three quarters since the beginning of the year, fiscal supports to mitigate its economic impact have been lim- 25 J.P. Morgan Securities Australia Limited Tom Kennedy (61-2) 9003-7981 tom.kennedy@jpmorgan.com Economic Research Australian inflation: Where to from here? August 13, 2021 Economic Research Note Australian inflation: Where to from here?  Annual headline inflation should decline sharply from 3Q as base effects fade  The expiration of 2020 COVID-related policy measures has proven most influential for the inflation recovery  Recently-announced COVID-19 response measures will likely have a minimal influence on the CPI  We retain the view that headline inflation is unlikely to sustainably return to the mid-point of the RBA’s target band until 2023 Australia’s headline inflation spiked to 3.8%oya in the June quarter, an expected outcome but still the strongest annual print in more than a decade. However, as we noted at the time and highlighted in the RBA’s August Statement on Monetary Policy (SoMP), the inflation recovery in the past year has been narrowly focused with the rebound in childcare costs alone contributing 1.3%-pts, while the tobacco excise tax delivered a further 0.6%-pts. In fact, excluding childcare, tobacco and fuel (which combined account for just 7% of the total CPI basket), headline CPI inflation is tracking at 1.2%oya (Figure 1). Figure 1: Composition of the inflation recovery %-pts, annual 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Other Child care Fuel Tobacco Total Source: ABS, RBA, J.P. Morgan Looking forward, the base effect from the childcare subsidy unwind should disappear from 3Q, while the 12.5% annual tobacco excise tax increase that has occurred every year since 2015 will no longer be applied. These factors, alongside drags from selected government response measures (discussed below) have underpinned our view that headline inflation will fall sharply in 2H21 and finish the year marginally above 2%. The RBA’s August SoMP delivered the expected upgrades to the Bank's inflation forecasts, with officials anticipating a slightly stronger near-term trajectory, before inflation pressures fade in early 2022 (Figure 2). Figure 2: J.P. Morgan and RBA inflation forecasts %oya 4.0 3.5 3.0 J.P. Morgan RBA 2.5 2.0 1.5 1.0 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 Source: RBA, J.P. Morgan A complicating factor for the inflation outlook is how the lockdown in Greater Sydney, and to a lesser extent the shorter-run lockdowns in other parts of the country (i.e. Melbourne) will impact price dynamics. The experience from 2020 indicates that government responses to the pandemic, rather than price adjustments linked to activity/GDP shocks, were most influential for inflation outcomes. In this note we take a closer look at how previous regional lockdowns have influenced inflation in specific areas, as well as how government responses to the most recent increase in COVID-19 cases may impact the inflation landscape. Lessons from lockdowns Various Australian states and territories have imposed regional lockdowns in the past eighteen months. To date, the most prolonged response has been in Victoria with most of that state under strict mobility restrictions throughout 3Q20 and early 4Q20 while Australia’s other capital cities were gradually reopening. Inflation pressures in Sydney and Melbourne have historically been well aligned, with neither systematically reporting higher or lower inflation pressures. On this front, the inflation recovery in Sydney over the past year has been more impressive, with the annual rate spiking above 4%oya in 2Q21, ahead of Melbourne where the headline rate rebounded to 2.9%oya (Figure 3). The inflation rebound in Brisbane and Perth has also occurred more quickly than in cities where COVID-19-related lockdowns and mobility restrictions were more severe or prolonged. Figure 4 takes a closer look at the data by comparing inflation outcomes across the major sub-groups in Sydney and Melbourne. In general, the figures show that the divergence between the two capital cities is most pronounced in sub-groups exposed to distortions by subsidies. This was particularly true of household services inflation which has been materially weaker in Melbourne owing to the delayed rebound in child care costs linked to ongoing government support measures and low attendance. These same factors have also weighed on 26 J.P. Morgan Securities Australia Limited Tom Kennedy (61-2) 9003-7981 tom.kennedy@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Melbourne pre-school and primary education price growth which has undershot outcomes in other jurisdictions. Figure 3: Capital city inflation %oya, 2Q21 5.0 4.0 3.0 2.0 1.0 0.0 Sydney Melbourne Source: ABS, J.P. Morgan Brisbane Adelaide Perth Figure 4: Capital city inflation breakdown %oya, 2Q21 25 20 15 10 5 0 -5 Melbourne Sydney Source: ABS, J.P. Morgan In regards to the current lockdown, the government has announce additional child care support measures for areas deemed a ‘COVID-19 hotspot,’ but in general these policies are less comprehensive than those implemented in 2020. Specifically, current measures mostly involve providing families with additional allowable absence days where the government, rather than the household pays the childcare company if parents opt to keep their children home. It’s not yet clear how this will be treated in the CPI given no service is rendered, but we suspect this part of the CPI basket will be imputed off the Greater Sydney inflation print (as was the case when Victoria imposed a similar policy in 3Q20), and thus have no influence on the broader CPI calculation. Recreation inflation has experienced one of the few cross-city divergences not directly the result of subsidies, but instead reflecting the extended activity shock. The detailed breakdown reveals most of this wedge owes to accommodation prices with Melbourne underperforming as the extended lockdown weighed on demand. Our expectation is for a similar outcome in 3Q as accommodation prices fall in Greater Sydney, among other regions. Other subsidy effects The NSW government has reintroduced the Residential Tenancy Support Package which includes a moratorium on residential evictions and support for landlords that reduce rent. This policy will be a headwind to rental inflation in 2H21, but we also highlight that rents in Sydney and Melbourne have not rebounded from COVID-19 lows with the relevant CPI indexes still comfortably below pre-pandemic levels (Figure 5). This is important and suggests the residential rental market remains fragile, in part reflecting lower demand linked to minimal inbound migration. It’s our expectation that current measures will prove only marginally deflationary and instead delay a recovery in rental inflation, rather than lead to another round of broad-based rental price reductions. Figure 5: Rental inflation CPI Index 122 Sydney 120 118 116 114 Melbourne 112 2018 2019 2020 2021 2022 Source: ABS, J.P. Morgan The government’s HomeBuilder grant scheme has offset much of the recent strength in building costs, particularly in 2Q when new dwelling purchase costs declined 0.1%q/q versus a 1.9%q/q unsubsidized increase. Grants are captured in the CPI as they are paid out, so while the Homebuilder scheme has now expired we expect ongoing grant payments for newly-started construction will continue to weigh on headline inflation for at least the remainder of this year. Lastly, the NSW Government has also announced that the ‘Dine and Discover’ discount scheme (effectively meal and entertainment vouchers) has been extended until the end of August, which we expect will modestly drag on food service inflation in 3Q. Taking stock of the above measures our view is that while subsidies are still influential for the domestic inflation backdrop, the effect from here should be relatively minor compared to earlier in the pandemic. 27 JPMorgan Chase Bank, N.A., Seoul Branch Seok Gil Park (82-2) 758-5509 seok.g.park@jpmchase.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Economic Research Korea: Offsets to the current account surplus August 13, 2021 Economic Research Note Korea: Offsets to the current account surplus  Goods trade surplus likely has peaked, yet current account surplus should narrow only modestly  Residents’ outbound investment flows should rise further to recycle the CA surplus  FX deposits possibly play a buffering role  In all, we see the CA surplus having a broadly neutral impact on FX market liquidity While Korea’s external sector has performed well in 1H21 with a brisk recovery in exports and a buoyant current account surplus, the KRW has depreciated by 4.8% vs. USD and 3.4% in NEER terms year-to-date by July. While there can be a wide range of possible reasons for this pattern (including noise), increased financial outflows from domestic residents should offset the CA surplus, while FX deposits have grown to play a buffering role between the external accounts and liquidity in the inter-bank FX market. Current account surplus to be maintained We expect the current account surplus to be US$81bn (or 4.5% of GDP) in 2021, and then to narrow modestly to US$74bn (3.9% of GDP) in 2022, marking the 25th annual surplus. In 1H21, the CA surplus amounted to US$50.5bn, seasonally adjusted. Thus, our baseline annual forecast implies a narrower surplus in 2H. The monthly CA surplus appears to have peaked at $13.4bn sa in December 2020, and has gradually narrowed through 1H21. In the details, the merchandise trade surplus should narrow further after peaking in 2015. While we expect strong real exports growth in 2021 and 2022 on the back of our forecast of a robust global demand recovery, Korea’s terms of trade should resume their downward trend in 2021-22 after a brief recovery in 2020 due to the pandemic shock to global commodity prices, with the recovery in raw material prices leading to a narrowing in the goods trade surplus. Offsetting the narrowing of the goods trade surplus, we expect the services deficit to narrow in 2021-22 as the tourism and transportation deficit declines and the financial/IT service surplus rises modestly. The primary income and transfer balances turned to surplus in 2019 and this surplus should widen gradually, reflecting Korea’s rising net overseas investment position (Figure 1). In all, through various offsetting forces, we expect the CA surplus to be maintained. Figure 1: Current account balance US$ billion 150 Merchandise trade Forecast 100 Current account 50 Income and transfer 0 Service -50 10 12 14 16 18 20 22 Source: BoK, and J.P. Morgan Recycling CA surplus via financial outflows Continuing recent years’ trend of elevated yield-seeking demand for foreign assets by Korean residents, we expect that private financial outflows will offset the CA surplus in 202122. Net direct investment outflows amounted to US$48.9bn in 2019-20, and residents’ offshore portfolio investment outflows were US$118.2bn (mostly into foreign equities), recycling the FX supply from the CA surplus (US$135.0bn). This trend continued this year, as residents invested US$39.5bn in foreign equity securities in 1H21. Looking ahead, we expect outbound equity investment flows to rise further in 2021-22, while overall portfolio investment net outflows decline modestly on stronger offsetting inflows of foreign investment in local debt instruments (Figure 2). Figure 2: Portfolio investment flows US$bn, positive sign implies outflow 100 Residents' flow 50 Net outflow Forecast 0 -50 Foreigners' flow -100 00 05 10 15 20 Source: BoK, and J.P. Morgan One of the underlying forces for outbound portfolio investment is the National Pension Service’s (NPS’s) flows. As part of its long-term portfolio management strategy, the NPS has set a target of raising its allocation to overseas equities to 35.5% in its portfolio by end-2026 from 23.1% at the end of 2020. The NPS has also affirmed that it will increase its foreign assets position not only in equity securities but also in bonds and alternative assets, which should create demand for FX as it hasn’t hedged currency risks since 2015 (stocks) and 2019 (bonds). We estimate this should generate about US$25bn outflows per year (US$16bn in stocks, US$9bn in bonds) for the next four years (Figure 3). 28 JPMorgan Chase Bank, N.A., Seoul Branch Seok Gil Park (82-2) 758-5509 seok.g.park@jpmchase.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Figure 3: NPS overseas portfolio investment US$ bn 20 Equity 15 Bonds Projection 10 5 0 15 16 17 18 19 20 21 22 23 24 Source: NPS, BoK, and J.P. Morgan estimates Figure 5: FX deposits % of gross trade flows, 12mma % of M2 (corp and HH), 12mma 120 4.5 100 Share of M2 4.0 3.5 80 3.0 60 2.5 Share of trade flow 40 2.0 20 1.5 03 05 07 09 11 13 15 17 19 21 Source: BoK, Customs Office, and J.P. Morgan Residents’ FX deposits play a buffering role Another buffer that may break the link between CA surplus and FX supplies in the market is residents’ accumulation of FX deposits. The Bank of Korea releases monthly data on local residents’ FX-denominated (largely USD) deposits in the domestic banking system, which have been on a rising long-term trend (Figure 4). Figure 4: Residents' FX deposits US$ bn 100 USD share % of total 100 80 80 60 60 40 40 20 Outstanding 20 0 0 01 02 04 06 08 10 12 14 16 18 20 Source: BoK and J.P. Morgan These FX deposits increased relative to customs trade flows and domestic liquidity as well. If non-financial corporations accumulate FX deposits (the corporate share of FX deposits was about 80% in 2020) to manage FX liquidity associated with international trade, then FX deposits should be a broadly stable share of gross customs trade flows (exports plus imports). Alternatively, if corporates and households try to hedge against changes in the FX value of their liquidity holding, then the share of FX deposits to their M2 holdings should be stable. On both measures, FX deposit are on a long-term rising trend (Figure 5), fluctuating around 80% of 2015-19 average trade flows (the share rose materially with the pandemic shock to trade flows in 2020) and 3.9% of M2 holdings. If corporations and households maintain a larger private stock of FX liquidity, the domestic interbank FX market liquidity may become less sensitive to the developments in external flows. Another argument for the buffering role of FX deposits is through corporations’ (and possibly households)’ meanreverting expectations. In recent years, notably from 2015 to 2018 (Figure 6), FX deposits have risen when KRW appreciates against USD (and vice versa), which suggests that domestic residents expected that KRW would depreciate later (thus there was an incentive to hoard FX deposits) when KRW appreciates. Therefore, domestic residents’ adjustments of FX deposit amounts effectively acted like the central bank actions to reduce currency volatility. Notably, amid US-China trade tensions since mid-2019 and during the pandemic shock in 2020, FX deposit amounts rose above the amount implied by their correlation with the currency value in 2015-18 (Figure 6), which suggests uncertainty increased domestic resident’s demand for FX liquidity. While this increase may reverse, providing additional FX supply to the inter-bank market, this larger reservoir of FX reserves should continue to play the buffering role in the FX market. Figure 6: Residents' FX deposits US$ bn 100 90 FX deposits 80 70 60 50 15 16 17 Source: BoK and J.P. Morgan USDKRW 18 19 USDKRW, axis reversed 950 1000 1050 1100 1150 1200 1250 20 21 29 JPMorgan Chase Bank NA Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Michael Feroli (1-212) 834-5523 michael.e.feroli@jpm organ.com Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Economic Research United States August 13, 2021 United States  July CPI inflation was softer than expected at 5.3%oya and PPI inflation firmer than expected at 5.8%oya  Michigan survey shows August consumer sentiment plummet to just below level in spring 2020.  Some easing in labor market tightness but still little sign of any effect on claims from early end to UI benefits.  We forecast that retail sales fell 1.5% in July. Inflation prints for July released this week were firm, though the CPI numbers were softer than we had expected and PPI numbers were firmer than anticipated. The Delta variant continued to spread rapidly in the U.S., with hospitalizations and deaths on track to continue rising. The preliminary August report from the University of Michigan survey showed consumer sentiment plummet to a level just below where it fell in spring 2020. Initial jobless claims were flat again this week and we continue to see little sign of a material effect on the pace of the labor market recovery in those states ending benefits early. Despite the labor market being historically tight, unit labor cost growth year-over-year through 2Q21 was close to zero, suggesting little inflationary pressure arising from recent wage gains. Inflation expectations have generally remained unchanged, though some longer-run expectations have edged up slightly. This week, the Senate passed the $1.2 trillion bipartisan infrastructure bill as well as a blueprint for a much more expansive $3.5 trillion budget plan to expand the social safety net—both of which face perilous paths forward before becoming law. We will keep close tabs on how these bills develop but thus far leave our forecasts unchanged. Next week, we look for a decline in July retail sales in line with the recent softening consumer spending in the Chase consumer spending data. At the same time, we project that industrial production increased strongly in July. We will get a variety of business survey data next week, as well as some housing market indicators. Minutes from the July FOMC meeting are set to be released on Wednesday, which may provide further context for the recent and somewhat hawkish change to the statement text. Regional payroll employment data are set to be released next Friday, which could present evidence of an effect from the early end to UI benefits that has yet to reveal itself in the claims data. CPI and PPI surprise in opposite directions The July CPI was somewhat softer than we expected, with the headline index up 0.47% (5.3%oya) and the core rising 0.33% (4.2%oya, Figure 1). The historic run of large increases in used vehicle prices that boosted the headline and core indexes in recent months came to end. Similarly, the string of jumps in airfares as the sector rebounded from COVID-19 also ended but lodging prices did rise and now appear to be at or above their pre-COVID trend. Although we had flagged that alternative data on rents from Zillow and ApartmentList have shown rapid increases in recent months, increases in the rent measures in the July CPI report were relatively muted. Figure 1: Consumer price indexes %oya, both scales 6 Headline CPI 4 Core CPI 2 0 -2 -4 08 10 12 14 16 18 20 Source: BLS, J.P. Morgan 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 22 In contrast to the downside surprise on July CPI inflation, the July PPI data were firmer than expected. The PPI for final demand rose 1.0% in July (5.8%oya), as did the core final demand index (7.5%oya). The increase in the core index was broad-based across its underlying components (Figure 2). On net, the CPI and PPI data point to core PCE inflation at 0.38% in July, leaving core PCE prices up 3.62%oya, which would be the highest reading since 1991. Nevertheless, we suspect that the most rapid monthly price increases are now behind us, as used vehicle prices are starting to cool and price rebounds in some COVID-affected sectors may be complete. Figure 2: Core PPI components %oya Total core 8 Goods 7 Services 6 5 4 Construction 3 2 1 0 -1 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: BLS, J.P. Morgan While we expect price pressures to abate in the near-term, there are some signs that longer-run inflation expectations have edged up. In the preliminary August University of Michigan survey, the median five-year-ahead inflation expectation moved up slightly from 2.8% to 3.0%, one of the stronger readings reported in recent years. This lines up with a recent increase in the median ten-year-ahead inflation expectation of professional forecasters, which rose from 2.30% in 2Q21 to 30 JPMorgan Chase Bank NA Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Michael Feroli (1-212) 834-5523 michael.e.feroli@jpm organ.com Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Economic Research Global Data Watch August 13, 2021 2.44% in 3Q21. While these inflation expectation readings are high by historical standards, they nevertheless remain within ranges consistent with stable long-run inflation. Michigan consumer sentiment plummets Perhaps in response to the rapid spread of the Delta variant in the U.S.—which has led to pullbacks in some types of consumer spending—the headline consumer sentiment reading in the preliminary August University of Michigan survey plummeted from 81.2 in July to 70.2. This reading was well below the consensus forecast range and just below the minimum attained in the spring of 2020. This reading has generally trended down in recent months but this decline marks a sharp deterioration in consumer sentiment in this survey. were up just 0.1%oya through 2Q, consistent with there being essentially zero inflationary pressure from rising labor costs. Figure 4: Two measures of labor market tightness Ratio, SA 1.60 Ratio of Job Openings to Hires 1.38 Ratio of Job Openings to Unemployed 1.16 0.94 0.72 0.50 00 05 10 15 Source: BLS, J.P. Morgan Ratio, SA 1.5 1.2 0.9 0.6 0.3 0.0 20 Figure 3: U of Michigan and Conference Board consumer indicators Index, nsa Index, sa 105 Michigan consumer 100 sentiment 135 125 95 90 115 85 105 80 95 75 Conference Board 85 70 consumer confidence 75 65 65 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: University of Michigan, Conference Board, J.P. Morgan With the preliminary August reading, the Michigan survey measure of consumer sentiment has diverged even further from other measures of consumer sentiment, perhaps most notably the Conference Board measure of consumer confidence, which tends to place greater weight on labor market conditions (Figure 3). Other high-frequency sentiment measures have thus far shown no comparable decline. Tight labor markets, zero labor cost growth Job openings continued to surge in June, jumping 590,000 to 10.073mn, hitting a new all-time high for the series (dating back to December 2000). At the same time, the number of hires shot up from an upwardly revised 6.022mn in May to 6.719mn in June consistent with some aggregate easing in labor supply constraints. The ratio of openings to hires—a measure of labor market tightness and the ease with which firms can find workers—ticked down to 1.50 in June from an all-time high of 1.58 in May. Despite easing in June, this measure of labor market tightness nevertheless remained at historically elevated levels (Figure 4). Even though the labor market has tightened considerably over the last year, this appears to have had little effect on the year-over-year growth in unit labor costs, as one may have expected. Unit labor costs Ending expanded UI, no claims effect yet We continue to closely monitor the claims data for any sign that the end of pandemic-related unemployment insurance programs in nearly half the country has had a material effect on the pace of the aggregate labor market recovery and economic conditions more broadly. So far, meaningful evidence of such effects has not materialized. Among all states irrespective of whether pandemic-related benefits expired, continuing claims in regular state programs have declined at roughly the same pace they were declining prior to both the announcement of and actual expiration of benefits (Figure 5). Figure 5: Continuing claims in regular state programs index, March 6 = 100 Cancellations Cancellations announced begin 130 110 90 States ending June 12 70 States ending June 19 States ending June 26 or later All other states 50 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Source: Department of Labor, J.P. Morgan Jul-21 Aug-21 This evidence from the state-level claims data aligns with recent findings from our colleagues at the JPMorgan Chase Institute who present evidence that the disincentive effects of expanded unemployment insurance benefits (e.g. searching less intensely for a job) have neither held back the labor market recovery nor contributed to the observed wage growth among lower-paid occupations. It is important to note, however, that the lack of an effect thus far does not imply an effect will not materialize eventually. Next week’s release of regional payroll employment data could, for example, provide signs of an effect not yet apparent in the claims data. 31 JPMorgan Chase Bank NA Michael Feroli (1-212) 834-5523 michael.e.feroli@jpm organ.com Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Economic Research United States August 13, 2021 Data releases and forecasts Mon Aug 16 8:30am Empire State survey Diffusion indices, sa May Jun Jul Aug General bus. conditions 24.3 17.4 43.0 31.0 New orders 28.9 16.3 33.2 Shipments 29.7 14.2 43.8 Unfilled orders 21.4 7.9 12.1 Prices paid 83.5 79.8 76.8 Prices received 37.1 33.3 39.4 Composite 60.3 57.0 63.4 We expect the Empire State manufacturing survey’s headline index to decline 12pts to 31.0 in August. Much of the unexpected sharp rise of 26pts in the index in July was driven by a jump in new orders and shipments, which we anticipate will partially reverse in August. Excepting last month's print, this index has been moderat- ing in recent months as we move further toward normali- zation of economic conditions. Tue Aug 17 8:30am Retail sales %m/m, sa Apr May Jun Jul Total 0.9 -1.7 0.6 -1.5 Ex autos -0.1 -0.9 1.3 -1.4 Ex autos and gas 0.1 -1.0 1.1 -1.7 Building materials -3.3 -5.3 -1.6 -1.8 Control group¹ -0.4 -1.4 1.1 -2.5 Ex. autos and building mat. 0.3 -0.5 1.4 -1.4 1. Total ex. gasoline, automotive dealers, building materials, and food serv. We forecast that retail sales fell 1.5% in July. There are several signs that consumer spending pulled back in July. Unit auto sales fell during the month, some measures show that consumer spending has softened in response to the renewed spread of COVID-19, and our Chase consumer card spending tracker points to a drop in sales for the important control group in the retail sales report (which is the total excluding food services, gasoline, autos, and building materials). While we don't think the retail sales data will be as weak as implied on the surface by our spending data, we do expect a 2.5% drop in control retail sales in July. We also look for a 1.8% decline in sales at building material dealers during the month and a 1.9% drop in sales at mo-tor vehicle and parts dealers. An increase in gasoline prices should help boost the related nominal sales data, and we forecast that sales at gasoline stations increased 1.5% in July. We also look for continued growth in food services sales, as this sector recovers from the plunge in activity associated with the pandemic. Sources: ADP/Moody’s Analytics, BEA, BLS, Census Bureau, Conference Board, Department of Labor, Federal Reserve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Markit, Philadelphia Fed, Standard & Poor’s, University of Michigan, US Treasury Tue Aug 17 9:15am Industrial production %m/m,sa, unless noted Industrial production Manufacturing Motor vehicles and parts High-tech Mfg ex motor vehicles Business equipment Capacity utilization (%,sa) Manufacturing Apr May Jun Jul 0.0 0.7 0.4 0.5 -0.4 0.9 -0.1 1.0 -7.3 7.3 -6.6 9.4 1.0 1.3 0.6 0.1 0.5 0.4 0.5 -1.8 1.7 -0.6 74.6 75.1 75.4 75.7 74.7 75.4 75.3 76.0 We estimate that industrial production increased 0.5% in July. The manufacturing sector looks set for a strong increase in output in July (after seasonal adjustment) in large part because auto plant shutdowns that usually happen that month likely did not occur like normal because of the supply chain issues that have been impacting the sector. We forecast that manufacturing output increased 1.0% in July, with a 9.4% jump in motor vehicle and parts output and a 0.5% increase in other types of manufacturing on net. Away from the manufacturing sector, we think that utilities output declined 1.6% in July. While temperatures were still hotter-than-normal that month, things were more seasonal than they were in June, and we think this led to some pullback in demand for utilities (relative to normal seasonal variation). With mixed signals related to mining output, we forecast little change for the related IP series between June and July. Tue Aug 17 10:00am Business inventories %m/m, sa, unless noted Inventories Manufacturing Wholesale Retail inventories Ex autos Autos Inventory/sales ratio Mar Apr May Jun 0.9 0.1 0.5 0.8 0.8 0.5 1.1 1.0 1.2 1.1 1.3 1.1 -1.4 -1.7 -0.8 0.3 0.7 0.7 0.9 -6.2 -7.5 -5.5 1.26 1.25 1.26 1.27 We believe that nominal business inventories increased 0.8% in June. The data for the underlying components that already have been released signal that there was a solid gain for nominal inventories on net between May and June even with inventories at motor vehicle and parts retailers continuing to move lower. Tue Aug 17 10:00am Homebuilders survey Sa May Jun Jul Aug Housing market 83 81 80 79 Present sales 88 87 86 Prospective buyer traffic 73 71 65 We forecast that the NAHB survey's headline declined 1pt to 79 in August. Homebuilder sentiment has likely remained strong recently; however, we anticipate contin- ued moderation in the series as we get further from the 32 JPMorgan Chase Bank NA Michael Feroli (1-212) 834-5523 michael.e.feroli@jpm organ.com Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Economic Research Global Data Watch August 13, 2021 surge of home buying activity that took place in the early part of the year. Many other non-price housing indicators have cooled recently and we expect the NAHB survey to similarly soften in August. Wed Aug 18 8:30am Housing starts Million units, saar Apr May Jun Jul Starts 1.51 1.55 1.64 1.56 Single-family starts 1.06 1.09 1.16 1.11 Multifamily starts 0.45 0.46 0.48 0.46 Permits 1.73 1.68 1.59 1.62 We believe that housing starts declined 5.0% to 1.560mn saar in July, while related permits increased 1.3% to 1.615mn saar. Many housing indicators have been sof- tening in recent months and we think that this cooling al- so will be evident in the starts and permits data. Starts did rise in both May and June but we expect some pull- back in July, with single-family starts down 4.7% that month and multifamily starts falling 5.7%. While many housing indicators have been cooling, most show some ups and downs along the way, and we believe that hous- ing permits picked up somewhat in July following earlier recent declines. We forecast that single-family permits rose 0.4% in July, while multifamily permits increased 3.2%. Thu Aug 19 8:30am Jobless claims Thousands, sa New claims (wr.) Wkly 4-wk avg Continuing claims Insured Wkly 4-wk avg Jobless,% Jun 5 374 403 3528 3606 2.5 Jun 12¹ 418 396 3412 3557 2.5 Jun 19 416 399 3484 3485 2.5 Jun 26 368 394 3367 3448 2.4 Jul 3 386 397 3265 3382 2.4 Jul 10 368 385 3262 3345 2.4 Jul 17¹ 424 387 3296 3298 2.4 Jul 24 399 394 2980 3201 2.2 Jul 31 387 395 2866 3101 2.1 Aug 7 375 396 Aug 14¹ 365 382 1. Payroll survey week We forecast that initial jobless claims in regular state pro-grams declined 10,000 to 365,000 during the week ending August 14. The level of filings has remained fairly stable in recent weeks but we anticipate that it will move lower over time as the labor market continues to recover. Sources: ADP/Moody’s Analytics, BEA, BLS, Census Bureau, Conference Board, Department of Labor, Federal Reserve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Markit, Philadelphia Fed, Standard & Poor’s, University of Michigan, US Treasury Thu Aug 19 10:00am Philadelphia Fed survey Diffusion indices, sa General bus. conditions New orders Shipments Inventories Prices paid Prices received Composite May Jun Jul Aug 31.5 30.7 21.9 21.0 32.5 22.2 17.0 21.0 27.2 24.6 25.6 17.9 -4.0 76.8 80.7 69.7 41.0 49.7 46.8 64.0 62.7 60.0 We look for the Philadelphia Fed manufacturing survey's headline index to tick up 0.9pts to 21.0 in August. We expect this index to continue moderating off of high levels reported earlier in the year, though at a somewhat slower pace in August than in recent months. Review of past week’s data CPI (Aug 11) %m/m, sa, unless noted May Jun Total 0.6 0.9 %oya (nsa) 5.0 5.4 Core 0.74 0.88 %oya (nsa) 3.8 4.5 Core services 0.4 0.4 Core goods 1.8 2.2 Food 0.4 0.8 Energy 0.0 1.5 Housing 0.4 0.4 Owners' eq.rent 0.31 0.32 Rent 0.24 0.23 Lodging away from home 0.4 7.0 Apparel 1.2 0.7 New vehicles 1.6 1.6 Used vehicles 7.3 10.5 Public transportation 4.0 2.4 Communication 0.2 0.0 Medical care -0.1 -0.1 Jul 0.6 0.5 5.5 5.4 0.56 0.33 4.5 4.3 0.3 0.5 0.5 0.7 1.9 1.6 0.4 0.29 0.29 0.23 0.16 3.8 6.0 0.3 0.0 1.5 1.7 3.0 0.2 0.5 0.4 0.0 0.2 0.0 0.3 The July CPI was somewhat softer than we expected, with the headline index up 0.47% (5.3%oya) and the core up 0.33% (4.2%oya). The historic run of large increases in used vehicle prices that boosted the headline and core indexes in recent months came to end, with a gain of just 0.2%, although new vehicle prices rose another 1.7%. The string of jumps in airfares as the sector rebounded from COVID-19 also ended, with airfares ticking down 0.1%. Lodging prices did rise another 6% and now appear to be at or above their pre-COVID trend. Notably, there was little sign of recent price increases broadening out into a wider range of categories. Although we had flagged that alternative data on rents from Zillow and ApartmentList have shown rapid increases in recent months, increases in the rent measures in today’s CPI report were relatively muted. Rent of primary residences rose just 0.16%, its softest increase since March. Owners’ equivalent rent rose 0.29%, a reasonably firm number compared to historical averages but still a slight deceleration from the last two months’ pace. Elsewhere in the services sector, medical care prices did 33 JPMorgan Chase Bank NA Michael Feroli (1-212) 834-5523 michael.e.feroli@jpm organ.com Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Peter B McCrory (1-212) 622-5252 peter.mccrory@jpmchase.com Economic Research United States August 13, 2021 post a firm 0.3% gain, though this follows two months of decline. Education and communication prices both rose an unremarkable 0.2%. The firm readings in categories like lodging and new vehicles should also be apparent in the PCE inflation report for July, which will be released later this month. Producer price index (Aug 12) %m/m, sa, unless noted May Jun Final demand 0.8 1.0 %oya (nsa) 6.6 7.3 Core 0.7 1.0 %oya (nsa) 4.8 5.6 Energy 2.2 2.1 Core goods 1.1 1.0 Services 0.6 0.8 Construction 0.6 0.7 Intermed. processed gds 2.8 1.9 Core intermed. processed 2.3 2.3 Jul 0.6 1.0 7.2 7.8 0.6 1.0 5.8 6.2 0.1 2.6 0.8 1.0 0.5 1.1 0.9 1.5 1.7 1.6 After Wednesday’s downside surprise on July CPI inflation, Thursday’s PPI data were firmer than expected. The PPI for final demand rose 1.0% in July, as did the core final demand index, beating our expectations for a 0.6% increase in both series. The final demand services PPI increased 1.1% in July, and is now up 5.8%oya, while the final demand core goods PPI rose 1.0% and is up 7.5%oya. Alongside Wednesday’s CPI report, these data point to another month of strong gains in the Fed’s preferred PCE inflation measures. The PPI series on air transportation, hospitals, and used vehicle prices, which are used as source data for PCE inflation, were firm in July, although the physician and portfolio management price indexes were weaker. On net, our translation of yesterday's CPI and today's PPI data point to core PCE inflation at 0.38% in July, leaving core PCE prices up 3.62%oya, which would be the fastest reading since 1991. Nonetheless, we suspect that the most rapid monthly price increases are now behind us, as used vehicle prices are starting to cool and price rebounds in some COVID-affected sectors like lodging may be complete. Import prices (Aug 13) %m/m, nsa, unless noted Import prices %oya Ex-fuel import prices %oya May Jun Jul 1.4 1.3 1.0 1.1 0.3 0.3 11.6 11.2 11.3 10.2 10.2 0.9 0.7 0.0 0.0 6.1 6.5 6.3 6.3 in July than in June, representing a notable exception to the broader moderation in import price inflation in July. Consumer sentiment (Aug 13) Michigan preliminary Jun Jul Aug Univ. of Mich. Index 85.5 81.2 82.0 70.2 Current conditions 88.6 84.5 77.9 Expectations 83.5 79.0 65.2 Inflation expectations Short-term 4.2 4.7 4.6 Long term 2.8 2.8 3.0 0 0 0 The headline consumer sentiment reading substantially disappointed both our forecast and consensus in the preliminary August University of Michigan survey, plummeting from 81.2 in July to 70.2, which was below the consensus forecast range and just below the minimum attained in the spring of 2020. This reading has generally trending down in recent months but this decline marks a sharp deterioration in consumer sentiment in this survey. This may be related to growing concerns related to the rapid spread of the Delta variant. With the preliminary August reading, the Michigan survey measure of consumer sentiment has diverged even further from other measures of consumer sentiment. The Conference Board measure of consumer confidence, as of its July reading, remains near its pre-pandemic level. Other high frequency sentiment measures, such as the sentiment measure reported by Langer Research, have shown no comparable decline. Meanwhile, inflation expectations remained largely unchanged in the Michigan survey, with the median one-yearahead inflation expectation ticking down from 4.7% to 4.6% and the median five-year-ahead inflation expectations moving up slightly from 2.8% to 3.0%, one of the stronger readings reported in recent years. This lines up with a recent increase in the median ten-year-ahead inflation expectations of professional forecasters, which rose from 2.30% in 2Q21 to 2.44% in 3Q21. While these inflation expectation readings are high by historical standards, in general, measures of inflation expectations remain within ranges consistent with stable longrun inflation. The import price index increased 0.3% in July while the nonfuel price measure was unchanged, exactly as we had forecast. The headline index increase was supported principally by higher fuel costs. Even with this monthly moderation, the headline index was up 10.2%oya while the nonfuel index was up 6.3%oya. The July moderation in import price inflation occurred across many but not all underlying categories of the index. As anticipated, food price growth softened and prices for industrial supplies excluding fuel fell 1.0% in July, weighed down by a sharp monthly decline in prices for imported building materials following weeks of decline in lumber prices. Prices for imported autos increased at a faster rate Sources: ADP/Moody’s Analytics, BEA, BLS, Census Bureau, Conference Board, Department of Labor, Federal Reserve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Markit, Philadelphia Fed, Standard & Poor’s, University of Michigan, US Treasury 34 JPMorgan Chase Bank NA Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Focus: Swings in transfers now less important for income Since the start of the pandemic, personal income has been impacted significantly by swings in transfer payments associated with different rounds of fiscal stimulus (Figures 1 and 2). Most noticeably, the different rounds of economic impact payments (stimulus checks) have generated very lumpy income flows, but changes in availability and usage of different unemployment insurance programs also have meaningfully impacted incomes. We will still see some changes in transfer income in future income reports, including pandemic-related unemployment insurance programs reaching their end and payments associated with the child care tax credit starting to go out. But we think these will be fairly minor in terms of overall income flows, and labor income should regain more importance in driving changes in total income. Figure 1: Personal income $tr, saar 26 24 22 20 Total 18 16 14 Ex. transfer receipts 12 2015 2016 2017 2018 2019 2020 2021 2022 Source: BEA, J.P. Morgan Figure 2: Composition of personal income $bn, saar 30 Income ex. transfer receipts Economic impact payments Total UI Other transfer receipts 24 18 12 6 0 Jan 20 May 20 Source: BEA, J.P. Morgan Sep 20 Jan 21 May 21 Since the massive distribution of economic impact payments in March, the share of total income associated with transfer receipts has been moving down over time (Figure 2). In the BEA’s latest data for June, transfer receipts accounted for 19.9% of total person income. This is still an elevated share relative to pre-virus norms (a 17% average in 2019, for example), but down significantly from the record-high 33.6% share back in March. As of June, economic impact payments ac- counted for only about 0.3% of total income, while the three special pandemic-related unemployment insurance programs (PUEC, PUA, and FPUC) accounted for a little less than 2% of income (Figure 3). Figure 3: Composition of personal income (June 2021) Employee comp. Proprietors' income ex. PPP loans Proprietors' income PPP loans 61% Rental income 8% 1% 4% Receipts on assets PEUC, PUA, FPUC Other UI Economic impact payments All other trans. receipts less contrib. for soc. ins. Source: BEA, J.P. Morgan 14% 2% 0% 10% 0% Economic impact payments are still trickling out and may continue to do so for some time, but the outflow from the Treasury Department is very small relative to overall personal income. Income from the pandemic-related unemployment insurance programs—totaling about $32bn (not annualized) in June—should drop through September as many states end the programs early and they expire at the federal level early in September (given the time needed for processing, payments may still be made after the programs expire). Income associated with the Child Tax Credit should partially offset the reduction of income associated with economic impact payments and the special UI programs. Payments started in July, mainly with about $15bn disbursed in the middle of the month (Figure 4). We expect payments of similar sizes to be sent out around the middle of each month through the remainder of the year. This monthly amount of $15bn in income looks to be about half the size of the income from economic impact payments and the special UI programs that we expect to be paid out in July. Figure 4: Advance Child Tax Credit payments $bn, daily 15 10 5 0 -5 Source: US Treasury, J.P. Morgan 35 J.P. Morgan Securities plc Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpm organ.com Marco Protopapa (44-20) 7742-7644 m arco.protopapa@jpm organ.com Raphael Brun-Aguerre (44-20) 7134-8308 raphael.x.brun-aguerre@jpmorgan.com Economic Research Euro Area August 13, 2021 Euro Area  The car sector dragged down Euro area IP further in June  Excluding the car sector, manufacturing output is close to its pre-pandemic level, but car output is 30% lower  COVID-19 infections have declined modestly, but risks of a renewed pickup in the autumn remains  Governments are making more efforts to keep up the pace of vaccination This week has brought confirmation that shortages of semiconductors in the car sector continues to drag down the manufacturing sector. Euro area IP declined 0.3%m/m in June and was down 0.5%q/q saar in 2Q21. But, the composition is striking. Car production slumped around 35%q/q saar in both 1Q21 and 2Q21, whereas IP excluding the car sector grew 5%q/q saar in 1Q21 and was broadly flat in 2Q21 (Figure 1). Car production in June stood almost 30% below the prepandemic level, while the rest of manufacturing was only 1.5% below it. Judging by the German VDA car production data, no significant improvement is likely in July. We still expect a significant improvement during 3Q21, but uncertainty about the timing has clearly increased. At the same time, the business surveys remain very strong in the manufacturing sector and the German orders are far above production. Hence, the conditions for a strong bounce in manufacturing are in place. Figure 1: Euro area manufacturing output 1Q16 = 100 100 Manufacturing, excl. motor vehicles 80 60 40 20 Motor vehicles 0 2016 2017 2018 2019 2020 2021 2022 Source: Eurostat, J.P. Morgan At the country level, car production is around 30% below prepandemic levels in Germany, France and Spain, while output in Italy has held up better at 7% below. However, Spain stands out in the sense that other parts of its manufacturing sector are compensating for the weakness in car production to leave overall manufacturing output close to the pre-pandemic level (Figure 2). In contrast, industrial production in France is around 5% below it and in Germany is 7% below. Figure 2: Euro area IP Jan/Feb 2020 = 100 105 France Spain 95 85 Germany 75 65 Italy 55 Jan 20 Jul 20 Source: Eurostat, J.P. Morgan Jan 21 Jul 21 Tracking the Delta wave Three weeks ago, we lowered our near-term Euro area growth forecast to incorporate a stall in GDP from August to October. This reflected concerns that the Delta wave would intensify further and lead to some restrictions being reintroduced, and cause larger-scale absences from work and some new supply constraints. However, infection levels have surprisingly moderated in the most affected countries and are rising more slowly in others. Overall, this has produced a small decline in the level of new COVID-19 infections in the Euro area (Figure 3). Figure 3: Euro area COVID-19 7-day incidence New cases, 7-day incidence 400 350 300 250 200 150 100 50 0 Jan 1, 20 Jul 2, 20 Jan 1, 21 Source: Our World in Data, J.P. Morgan Jul 3, 21 Even though downside risks have eased for now, we remain concerned that infections will rise rapidly again in the autumn when social interaction moves back indoors. In this context, it is important that vaccination campaigns make significant progress in the meantime to limit any pickup in new infections. So far, 62% of the Euro area population has received one dose (Figure 4). It is likely that those who have had one dose will also get the second, which makes this a useful indicator of the take-up so far. Differences across countries are noticeable, with Eastern European countries lagging. But, there are also noticeable differences elsewhere, with Germany’s vaccination rate at 62% and Spain’s at 72%. But, overall, the Euro area has overtaken the US in terms of first doses and is closing in on the UK, despite a slower start to its campaign (Figure 5). 36 J.P. Morgan Securities plc Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpm organ.com Marco Protopapa (44-20) 7742-7644 m arco.protopapa@jpm organ.com Raphael Brun-Aguerre (44-20) 7134-8308 raphael.x.brun-aguerre@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Figure 4: COVID-19 vaccination rates % of population 100 Vaccination rate needed to control Delta 80 60 40 20 0 1st dose Fully vaccinated EA19 DE FR IT ES NL BE LU AT PT GR IE FI SI CY MT SK EE LV LT UK SE US Source: Our World in Data, J.P. Morgan Figure 5: Vaccination rates (1st doses) % of population 100 Vaccination rate to control Delta variant 80 UK 60 40 20 Euro area 0 Jan 1, 21 Apr 2, 21 Jul 2, 21 Source: Our World in Data, J.P. Morgan US Oct 1, 21 Dec 31, 21 Even though the Euro area is making good progress, vaccination campaigns are slowing down somewhat, which is acting to significantly lengthen the time needed to reach higher vaccination rates of 80% (Figure 6 and Table 1). The German vaccination campaign has lost the most steam, though holiday effects may be exaggerating the loss of momentum somewhat. This week, the German Robert Koch Institute also published a survey, which suggested that actual vaccination rates may be significantly higher than those officially reported. The reasons for the large discrepancy of up to 20%-pts are not yet entirely clear, with plausible factors explaining only a part of the gap. Elsewhere, the French government’s decision to increase the incentive for people to get vaccinated has led to a sharp pickup in first doses being administered. Figure 6: Euro area: COVID-19 vaccinations Daily vaccinations , 7d avg, % of population Spain 1.4 1.2 Italy 1.0 France 0.8 0.6 0.4 Germany 0.2 0.0 Jan-21 Jan-21 Mar-21 Apr-21 May-21Jun-21 Jul-21 Aug-21Sep-21 Source: Our World in Data, J.P. Morgan Table 1: Euro area vaccinations At least one dose Average daily pace of vac- cinations, thousands 1 month ago Current Germany 320 86 France 172 344 Italy 226 152 Spain 230 189 Netherlands 125 7 Belgium 67 19 Greece 37 14 Portugal 63 32 Austria 28 8 Finland 19 8 Slovakia 9 4 Ireland 21 22 Source: J.P. Morgan, Our World in Data Number of days to get to 70% vaccinated 68.4 4.9 13.4 0.0 16.5 0.0 117.3 0.0 104.1 8.2 376.9 0.0 Number of days to get to 80% vaccinated 165.0 24.4 53.1 19.5 252.9 48.4 191.7 22.5 215.2 78.9 513.0 20.9 This week, the German government has also acted to increase the incentive to get vaccinated. So far, 62.5% of the population has had a first dose, but progress has slowed substantially, creating vulnerabilities for the autumn (Figure 7). In essence, Germany is now creating a clearer differentiation between the vaccinated and unvaccinated. If the 7-day incidence of new infections rises above 35 per 100,000 in individual municipalities, certain activities will only be allowed for those who are fully vaccinated, recovered or tested. This includes indoor dining, indoor sports (e.g. gyms, swimming pools), indoor events, personal services (e.g. hairdressing), hotels and some large events. So, fully vaccinated individuals can continue to do these activities without needing tests, while the unvaccinated will need tests and will also have to start paying for tests from mid-October onwards. In addition, the ability to use tests may also end if the vaccination rate does not pick up sufficiently. Some of this differentiation exists already and therefore the changes do not impact our growth forecast, but the differentiation is being firmed up and the signal to the unvaccinated is certainly being strengthened. Figure 7: German COVID-19 vaccinations 000s/day, 7-day average 1000 Total 800 600 400 200 0 Jan 1, 21 Apr 2, 21 Jul 2, 21 Source: Robert Koch Institute, J.P. Morgan 2nd dose 1st dose Oct 1, 21 Dec 31, 21 37 J.P. Morgan Securities plc Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpm organ.com Marco Protopapa (44-20) 7742-7644 m arco.protopapa@jpm organ.com Raphael Brun-Aguerre (44-20) 7134-8308 raphael.x.brun-aguerre@jpmorgan.com Economic Research Euro Area August 13, 2021 Data releases and forecasts Week of August 16 - 20 Output and surveys Construction output Wed Euro area Aug 18 %m/m, sa 11:00am %oya, sa Mar Apr May Jun 4.0 -0.4 0.9 18.8 43.4 12.8 Real GDP Tue Aug 17 11:00am Euro area (2nd estimate) %q/q, sa %q/q, saar %oya 3Q20 12.4 59.9 -4.0 4Q20 -0.6 -2.5 -4.6 1Q21 -0.3 -1.3 -1.3 2Q21 2.0 8.3 13.7 Demand and labor markets Employment Tue Aug 17 11:00am Euro area Sa 000s, diff. q/q %q/q %oya 3Q20 4Q20 1Q21 2Q21 1529 626 -437 1.0 0.4 -0.3 -2.1 -1.8 -1.9 Inflation Consumer prices Apr May Jun Jul Wed Euro area (final) Aug 18 HICP (%m/m, nsa) 0.6 0.3 0.3 -0.1 11:00am HICP (%oya, nsa) 1.6 2.0 1.9 2.2 HICP core1 (%m/m, sa) 0.0 0.1 0.1 0.5 HICP core 1 (%oya, nsa)1 0.7 1.0 0.9 0.7 HICP (%m/m, ex-tob.) 0.6 0.3 0.3 Producer prices Fri Aug 20 8:00am Germany %m/m, nsa %m/m, sa %oya, nsa Apr May Jun Jul 0.8 1.5 1.3 0.8 1.5 1.3 5.2 7.2 8.5 Review of past week’s data Output and surveys Industrial production Euro area Ind production (%m/m, sa) %oya, sa Manuf prod (%m/m, sa) Apr May Jun 0.6 0.7 -1.0 -1.1 -0.3 38.9 39.2 20.6 20.7 10.0 0.6 -0.8 -0.4 Demand and labor markets Unemployment 4Q20 1Q21 2Q21 France %, sa ILO unemployment rate 8.0 8.1 8.0 ILO mainland unemp. rate 7.8 7.8 7.8 External trade and payments Foreign trade Euro area € bn, values, sa Trade balance year earlier Exports %m/m Imports %m/m Apr May Jun 13.4 13.3 9.4 13.8 1.3 1.2 9.2 9.0 198.0 197.9 195.1 199.2 0.1 0.0 -1.5 0.6 184.6 185.8 185.4 2.6 0.7 0.4 12.4 16.4 197.7 -0.7 185.3 0.0 Germany € bn, values, sa Trade balance year earlier Exports %m/m Imports %m/m Apr May Jun 15.6 12.8 3.5 7.2 111.9 112.3 0.2 0.0 0.3 0.4 96.3 99.5 -1.4 -1.3 3.3 3.4 13.6 14.5 113.7 1.3 100.1 0.6 Inflation Consumer prices Germany (final) %m/m, nsa %oya, nsa HICP (%oya) May Jun Jul 0.5 0.4 0.9 2.5 2.3 3.8 2.4 2.1 3.1 France (final) %m/m, nsa Index ex tobacco, nsa %oya, nsa HICP (%oya) May 0.1 105.00 1.2 1.6 Jun 0.3 105.34 1.4 1.8 Jul 0.1 105.48 1.2 1.5 1.6 1.9 Italy (final) %m/m, nsa %oya, nsa HICP (%oya, nsa) May Jun Jul 0.0 0.4 0.1 0.0 0.3 0.5 1.3 1.1 1.3 1.8 1.9 1.2 1.0 1.3 1.2 0.9 1.0 May Jun Jul Spain (final) %m/m, nsa 0.5 0.5 -0.7 -0.8 %oya, nsa 2.7 2.7 2.9 HICP (%oya, nsa) 2.4 2.5 2.9 1. Excluding food, alcohol, tobacco and energy. Source: European Commission, Eurostat, ECB, FSO, Bundesbank, IFO, INSEE, ISAE, Istat, INE, CBS, BNB, Markit, and J.P. Morgan forecasts 38 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Yuka Mera (81-3) 6736-1167 yuka.mera@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Japan  Increasing pressure on the medical complex as spread of Delta variant has pushed up hospital bed utilization  Small business sentiment indicate solid consumption in July, combined with rising concern about prospects  Bank lending declined further in July, reflecting moderation in firms’ demand for working capital loans  We look for a small 2Q21gain in real GDP, and a modest rise in underlying inflation in July The spread of the Delta variant remained the main focus this week. Along with a surge in infection cases, hospital bed utilization rates continued to rise, leading medical professionals to call for more stringent restrictions (Figure 1). However, the government has been reluctant to extend the state of emergency across the country, instead calling for self-containment to avoid the risk of infections. The government appears to hope vaccination, that has been progressing rapidly at an over 1million/day pace, to eventually ease pressure on hospital bed utilization, although only about one-third of the total population has been fully vaccinated thus far. This week’s smallfirms business sentiment indicators for July pointed to firm economic activity, but we expect consumption to soften in August, as people will likely respond to a rise in hospital bed utilization by practicing more self-isolation. With limited prospects for a decline in infections in coming weeks, we expect business restrictions to remain in place until the end of 3Q, with the resumption of the travel subsidy program delayed toward mid- to late 4Q. Figure 1: COVID-19 hospital bed utilization %, shading denotes periods under state of emergency 100 80 Tokyo Osaka 60 40 20 0 8-May-20 5-Sep-20 Source: MHLW, J.P. Morgan 3-Jan-21 3-May-21 Real GDP data for 2Q21 will be released next week. We expect 0.5%q/q, saar real GDP growth, with a positive domestic demand contribution. Despite the state of emergency that remained in place for most of the quarter, we estimate consumption to have been held up, marking a 1.4% gain, albeit at a low level after the 5.8% contraction in 1Q. Another important release to watch next week is the July nationwide CPI. Starting with this report, the Statistics Bureau will release the CPI using 2020-base data which indicate deeper deflation compared to the 2015-base data. We forecast that the BoJ core CPI (ex. fresh food & energy) rose 0.1%m/m, sa in July, but to fell 0.8%oya. The sharp reduction in mobile phone charges starting from April likely will continue to drag on core CPI, lowering inflation by 1.2%-pts. Excluding this factor, we project underlying inflation remained positive and rose modestly, as cost pressures continued to increase, as indicated by this week’s July PPI data. Limited damage on business sentiment In the July Economy Watchers’ survey of small firms sensitive to economic conditions, the current conditions DI rose 0.8pt to 48.4, after a 9.5pt jump in June (Figure 2). We expected a modest 1.6pt decline, against the market consensus expectation of a 4.2pt fall, but small-firm sentiment improved despite the renewed state of emergency. Household-related businesses led the July rise, while the business-related DI and the employment-related DI fell, reversing a part of their robust gains in June (Figure 3). In the commentary, firms reported a rise in consumption demand during the Olympic holidays in late July, while restaurants and bars again indicated depressed business conditions due to the government-ordered alcohol ban. Figure 2: Economy Watchers' current conditions and outlook DIs DI, sa 60 50 40 30 Outlook Current conditions 20 10 0 12 13 14 15 16 17 18 19 20 21 Source: CAO, J.P. Morgan Figure3: Economy Watchers' assessment of current conditions DI, sa 70 Employment 60 50 40 Household 30 20 Corporate 10 0 12 13 14 15 16 17 18 19 20 21 Source: CAO, J.P. Morgan Despite the rise in the current conditions DI, firms became cautious about business prospects. The outlook DI fell to 48.4, 39 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Yuka Mera (81-3) 6736-1167 yuka.mera@jpmorgan.com Economic Research Japan August 13, 2021 the same level as current conditions, from 52.4 in June, the highest reading since October 2017. The rising trend in Deltavariant infections, as well as persistent uncertainty caused by the semiconductor supply shortage, appear to have weakened business prospects. This is in line with our expectation of a slow economic recovery in 3Q, but we also think the limited damage to business sentiment caused by the current wave of infections and associated business restrictions points to firm underlying demand from both the households and business sectors. We continue to expect the economic recovery to gain momentum in 4Q, as the vaccination rate should rise enough for “herd immunity” and as supply constraints likely will ease gradually. Bank lending continued to moderate Bank lending declined for the fourth consecutive month in July, reflecting moderation in firms’ demand for operating funds. Lending edged down 0.3%m/m, sa in July (seasonally adjusted by J.P. Morgan), leaving annual growth at 0.5%oya, down from a 0.7% rise in June and 2.4% in 2Q. In the breakdown, lending by major banks, which mainly target large firms, declined for the second consecutive month, dropping 1.4%oya in July after a 1.6% decline in June, as large companies, which benefited from the firm recovery of global demand, started to repay their loans from 2Q. On the other hand, lending by regional banks, which target small and mediumsized firms, also moderated but continued to rise, increasing 2.3%oya after a 2.9% gain in June, indicating that funding demand from SMEs remained relatively firm under the continued state of emergency (Figure 4). Meanwhile, growth of bank deposits also slowed, but remained firm at 5.7%oya increase in July after growing 6.1% in June, due to the government’s revenue compensation to businesses under the state of emergency. Figure 4: Bank lending by type of banks %oya 10 8 6 4 2 0 -2 -4 -6 08 10 12 Source: BoJ, J.P. Morgan Regional banks 14 16 18 Major banks 20 22 PPI inflation accelerated The producer price index (PPI) increased 0.8%m/m July after a 0.7% rise in June (seasonally adjusted by J.P. Morgan), to stand 5.6% above the July 2020 level, the highest annual increase since September 2008 (Figure 5). One of the reasons for the July pickup was the sharp rise in electricity prices in the summer season. But the PPI excluding extra charges for summer electricity still rose a firm 0.6%m/m and 5.4%oya in July, largely reflecting firms passing through the recent surge in commodity prices. Import prices surged 27.9%oya in July after a 28.4% increase in June, while export prices jumped 11.2% after an 11.5% rise in June. Both import and export price inflation have started to ease somewhat, reflecting the moderation in the rise in oil and commodity prices from the previous year. However, in the breakdown, manufactured products prices, including those for tech-related and autorelated goods, have accelerated since the beginning of this year in response to supply shortages and strong demand. Indeed, excluding the effect of the rise in petroleum prices, import prices (calculated by J.P. Morgan) accelerated less, but still jumped 17.0%oya in July after a 16.9% rise in June. Although the relationship is not always tight, import prices (ex. petroleum products) are roughly correlated with the core goods CPI (ex. fresh food and energy) with a lead of two quarters, and thus this solid increase in the PPI report sends a positive signal on goods CPI inflation, which has remained subdued at 0.0%oya in June. Figure 5: Producer price index %oya 8 incl. the impact of consumption tax hike 6 4 2 0 -2 -4 -6 -8 06 07 08 09 10 12 13 14 15 16 17 18 19 20 21 22 Source: BoJ, J.P. Morgan 40 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Yuka Mera (81-3) 6736-1167 yuka.mera@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Data releases and forecasts Week of August 16 – 20 Mon Aug 16 8:50am Wed Aug 18 8:50am GDP - 1st estimates %q/q, saar 4Q20 1Q21 2Q21 Real GDP 11.7 -3.9 0.5 Private consumption 9.0 -5.8 1.4 Residential investment 0.2 4.9 10.0 Bus. capital investment 18.3 -4.6 2.0 Government consumption 7.3 -4.5 0.0 Public investment 5.3 -2.1 2.0 Exports 55.7 9.2 12.0 Imports 20.7 16.5 14.0 %-pt contrib. to q/q saar GDP growth Domestic final sales 9.6 -4.7 1.5 Net exports 4.6 -1.1 -0.3 Inventories -2.4 2.0 -0.7 GDP deflator (%oya) 0.3 -0.1 0.0 We expect 2Q21 GDP growth to rise 0.5%q/q, saar. Alt- hough the state of emergency had remained in place most of time during the quarter, mobility has held up, with a limited negative impact caused by the order. We estimate consumption rose in 2Q, albeit at modest 1.4%. Meanwhile, despite the supply bottleneck that has dragged production activity, both exports and imports are estimated to have been strong, supported by strong global demand. This should have lead a rebound of capex activity in 2Q, after a contraction in 1Q. Machinery orders %m/m sa Mar Apr May Jun Total Core private domestic orders1 -30.0 18.2 3.7 0.6 9.8 __ 7.8 -2.0 Manufacturing -0.1 10.9 2.8 __ Core nonmanufacturing 9.5 -11.0 10.0 __ Public 2.7 -2.7 3.1 __ Foreign -53.9 46.2 11.4 __ 1. Domestic private sector, ex for ships and from utilities We project core domestic machinery orders fell 2.0%m/m in June. Core machinery orders has been on a recovering trend, after plunging in the first two months of the year. However, as May indicators posted a 7.8% jump in May, we expect some payback in June. We expect core machin- ery orders to remain solid for months ahead, led by manufacturers, as indicated by the June BoJ Tankan which signaled firms' strong capex plans. Wed Aug 18 8:50am Customs-cleared international trade Balance (¥bn sa) Exports %m/m Imports %m/m Balance (¥bn nsa) Exports %oya Imports %oya BoJ real export index BoJ real import index Apr May Jun Jul 82 20 -90 99 2.4 0.1 2.4 3.0 6.5 1.0 4.0 0.3 249 -189 383 77 38.0 49.6 48.6 37.6 12.9 27.9 32.7 35.8 2.5 -0.2 0.5 2.5 9.1 -3.5 1.9 -1.7 We expect the nominal trade balance turned positive in July. Based on the first-20-days’ customs trade data, despite the supply constraint issue, we project that exports rose firmly in July with the inventory drawdown reflecting firm external demand. On the other hand, we look for imports to fall as a negative payback from the June increase. We estimate that BoJ real exports, the proxy for GDP-based real trade, rose 2.5%m/m, sa, while imports fell 1.7% in July. Thu Aug 19 8:00am Reuters Tankan survey Diffusion index May Jun Jul Aug Manufacturing 21 22 25 26 Nonmanufacturing 2 0 -3 -5 In the July Reuters Tankan, we expect the manufacturing DI to notch down form a high level, while the nonmanufacturing DI to continue to rise, albeit modestly. Although global goods demand remains strong, we expect tightening supply constraints to modestly drag manufacturing DI. Meanwhile, we expect the nonmanufacturing DI to im- prove modestly, as economic activity continues to normal- ize despite the extension of the quasi-emergency measures. Fri Aug 20 8:30am Nationwide consumer prices 2020-based Apr May Jun Jul %oya Overall -1.1 -0.8 -0.5 -0.3 Core (ex fresh food) -0.9 -0.6 -0.5 -0.3 Ex fresh food and energy -0.9 -0.9 -0.9 -0.8 %m/m, sa Overall -0.9 0.3 0.3 0.2 Core (ex fresh food) -1.1 0.3 0.1 0.2 Ex fresh food and energy -1.3 0.2 0.1 0.1 From this July nationwide report, the Statistics Bureau will rebase the CPI to use 2020 as base year. The figure through June 2021 was already released last week, and June data were revised down significantly (please see this week’s Japan Focus). We forecast that the core CPI (ex. fresh food & energy), which gauges the underlying infla- tion trend, rose 0.1%m/m, sa in July, but to fall 0.8%oya after a 0.9% decline in June. We expect a sharp reduction in mobile phone charges starting from April will continue to drag on core CPI by 1.2%-pt, and excluding this factor, the underlying inflation will likely remain positive and rise modestly. Reflecting the rise in energy prices, we expect the core CPI (ex. fresh food) to rise 0.2%m/m, sa, leaving the oya rate at -0.3%oya after a -0.5% in June. Review of past week’s data Bank lending (Aug 10) %oya May Jun Bank lending 2.2 0.7 %m/m, sa by J.P.Morgan -0.2 -0.3 See main essay. Jul ___ 0.5 ___ -0.3 41 JPMorgan Securities Japan Co., Ltd. Ayako Fujita (81-3) 6736-1172 ayako.fujita@jpmorgan.com Yuka Mera (81-3) 6736-1167 yuka.mera@jpmorgan.com Economic Research Japan August 13, 2021 Balance of payments (Aug 10) ¥bn sa Apr May Jun Current account 1553 1866 1502 1779 Trade balance 328 418 ___ 231 Exports 6830 6925 ___ 7085 Imports 6502 6507 ___ 6854 Services -493 -341 ___ -319 Primary income 1932 1971 ___ 2064 Secondary income -215 -182 ___ -197 Current account 1322 1980 194 905 The June current account surplus narrowed to ¥1,779 billion (3.9% of GDP, annualized) from ¥1,867 billion (4.1%) in May. This was mainly due to the smaller trade balance surplus. Both exports and imports rose firmly in June, but the increase in imports were larger in response to the surge in import volume and prices. Meanwhile, primary income surplus expanded slightly in June due to the increase in both direct and portfolio investment income. Economy Watchers survey (Aug 10) DI May Jun Jul Current conditions (sa) 38.1 47.6 46.0 48.4 Households (sa) 33.5 44.6 ___ 47.2 Business (sa) 46.9 53.1 ___ 49.4 Employment (sa) 49.6 56.1 ___ 53.7 See main essay. Producer prices index (Aug 12) %oya, nsa, 2015-based May Jun Jul Domestic PPI 5.1 5.0 4.5 5.6 Export prices 11.1 11.3 11.3 11.5 __ 11.2 Import prices 25.9 28.0 28.4 __ 27.9 See main essay. Source: BoJ, CAO, EJCS, JADA, JCSA, JDSA, JFA, JLM, VMA, Markit, METI, MHLW, MILT, MoF, Reuters, Statistics Bureau, J.P. Morgan forecast 42 JPMorgan Chase Bank NA Silvana Dimino (1-212) 834-5684 silvana.dimino@jpmorgan.com Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Economic Research Global Data Watch August 13, 2021 Canada  Canada lifted its prohibition on Americans crossing the border  New cases of COVID-19, deaths, and hospitalizations continue to increase modestly  High rate of vaccination limits downside risks This was a very quiet week for data. Early this week Canada lifted its prohibition on Americans crossing the border. U.S. citizens and legal residents must be fully vaccinated and have a negative test for COVID-19 within three days of a land crossing. While U.S. citizens are allowed to cross into Canada again, the United States has yet to reciprocate. The United States is maintaining its restrictions on Canadians crossing the northern border. In late July the U.S. government extended its closure of the land border with Canada to non-essential travel through Aug. 21. An uptick in new cases of COVID-19 is being seen across the large provinces and the Delta variant accounts for the majority of recently reported cases (Figure 1). Deaths and hospitalizations have also increased slightly. The high rate of vaccination nationally limits downside risks in 2H21 in our view. Over 80% of the eligible population has received the first dose of a COVID-19 vaccine. Figure 1: New confirmed COVID-19 cases and deaths, 7-day average thousands 10 New cases 200 8 150 6 100 4 2 50 deaths 0 0 Mar 1, 20 Jun 21, 20 Oct 11, 20 Feb 1, 21 May 24, 21 Source: PHA, J.P. Morgan In an early preview of the outcome of the Bank of Canada’s next meeting, we don’t anticipate any change in policy on September 8 and we expect the announcement to be largely uneventful. There will be no post-announcement press conference or forecast revisions. Real GDP growth for 2Q21 will be released on August 31 but the Bank will not have an update on the labor market in August until after the meeting. In its July Monetary Policy Report, the Bank estimated that real GDP grew 2.0%, saar in 2Q21. That forecast seems to be tracking light as Statistics Canada’s advance estimate points to an approximate 0.6%q/q 2Q21 increase in real GDP or about 2.5% at an annualizes rate. We expect the final print will be closer to 2.7%,ar. Any growth outturn with a 2-handle would be welcome at the Bank considering the very damaging economic effects of the spring-time third wave, a notable slowdown in crude oil production, and supply chain constraints in the auto sector. The Bank has consistently highlighted the resilience of the Canadian economy through 1H21 challenges. Inflation concerns have effectively taken a back seat and the Bank has clearly signaled that it will not “overreact” to the transitory strength in the CPI. Base effects and the sharp rebound in energy prices have largely pushed up the monthly readings. And the strength in some of the shelter categories is expected to abate by year-end. Building supply prices have eased and the hot housing market is already showing signs of moderating. Positive sentiment on the real estate sector has come off notably (Figure 2). We expect most of the strength in headline and core goods CPI inflation to fade in the back half of the year. Figure 2: Economic mood: real estate, positive outlook diffusion index 70 60 50 40 30 20 10 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source:Bloomberg Finance L.P./Nanos Research Corporation The Bank has turned its focus to the recovery in the labor market. The employment gain over June and July which more than recouped the decline over the previous two months is strong evidence that the labor market is healing. Going forward there are a few indicators that the Bank has suggested it will watch for, including a continued recovery in the female participation rate (Figure 3). Figure 3: Participation rates %, both scales 62 female 72 70 60 male 68 58 66 56 2017 2018 2019 Source:Statistics Canada, J.P. Morgan 2020 2021 64 2022 43 JPMorgan Chase Bank NA Silvana Dimino (1-212) 834-5684 silvana.dimino@jpmorgan.com Jesse Edgerton (1-212) 834-9543 jesse.edgerton@jpmchase.com Economic Research Canada August 13, 2021 Data releases and forecasts Week of August 16 – 20 Mon Aug 16 8:30am Manufacturing report %m/m, sa, unless noted Sales New orders Unfilled orders Inventories Inventory-shipments ratio Mar Apr May Jun 4.6 -1.7 -0.6 1.9 8.6 -6.7 -4.0 9.7 1.3 -2.0 -4.1 2.0 0.1 1.1 0.7 -0.8 1.50 1.54 1.56 1.52 Mon Aug 16 8:30am Wholesale sales sa Total,%m/m %oya Mar Apr May Jun 3.5 0.6 0.5 -2.0 13.7 46.6 38.2 13.5 Mon Existing home unit sales Aug 16 Sa 8:30am Apr May Jun Jul Total, %m/m -11.4 -7.4 -8.4 %oya 255.6 103.8 13.6 Tue Aug 17 8:15am Housing starts Saar Total (000) (%m/m) (%oya) Apr 275.9 -17.2 67.6 May 286.3 3.8 46.8 Jun 282.1 -1.5 33.1 Jul 290.0 2.8 18.3 Wed Aug 18 8:30am Consumer price index %m/m nsa, unless noted Total CPI %oya CPI-common (%oya) CPI-median (%oya)* CPI-trim (%oya)* Ex food & energy %oya *seasonally adjusted Apr May Jun Jul 0.5 0.5 0.3 0.3 3.4 3.6 3.1 3.3 1.7 1.8 1.7 2.2 2.3 2.4 2.3 2.6 2.6 0.6 0.3 0.3 0.1 1.8 2.4 2.2 2.5 Fri Aug 20 8:30am Retail sales %m/m sa, unless noted Total %oya Ex autos %oya Ex autos & gasoline %oya Real retail sales %oya Mar Apr May Jun 5.1 -5.6 -2.1 4.4 29.2 60.0 22.0 6.1 6.2 -7.3 -2.0 4.4 14.7 33.9 15.1 5.2 6.6 -8.0 -2.4 3.8 14.5 29.5 11.6 2.9 4.6 -5.7 -2.7 4.2 20.3 50.1 19.2 2.1 Fri Aug 20 8:30am New house prices Nsa Total,%m/m %oya Apr May Jun Jul 1.9 1.4 0.6 0.4 9.9 11.3 11.9 11.9 Review of past week’s data No releases this week Source: Statistics Canada, Ivey Business School, CMHC, Markit, Teranet/National Bank of Canada, CREA, CFIB, Bank of Canada, J.P. Morgan forecasts 44 Banco J.P.Morgan, S.A., Institución de Banca Múltiple, J.P.Morgan Grupo Financiero Gabriel Lozano (52-55) 5540-9558 gabriel.lozano@jpmorgan.com Steven Palacio (52 55) 5382-9651 steven.palacio@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Mexico  Banxico hiked 25bps in a split decision and upgraded its communication toolkit  The Board sees inflation at 5.7% this year, and 3.4% in 2022, below our forecasts  Inflation stickiness and tapering risks validate two more hikes to 5% this year  June IP disappointed this week, we now see downside risks to our 6.9% GDP growth projection for 2021 As expected, Banxico hiked 25bp in another 3-2 split decision that not only confirms how uncertain the economic environment is, but also that forthcoming decisions won’t be straightforward. While we continue to expect 25bp hikes in September and November, a lot rests on whether any surprises to consumer inflation and whether the Fed’s tapering has a major effect in local assets—which could be the wakeup call for the two dovish dissenters. The Bank, as communicated early this month, introduced a timely update of its quarterly inflation forecasts in the policy statement (Table 1). The revisions were important, particularly for short-term inflation, but less so for quarters further out. Banxico still sees core inflation slowing markedly by end2022, and only expects convergence to the target in 1Q23 for both headline and core. We think that its 2022 forecasts understate inflation pressures and we continue to see a rise in inflation expectations. Monthly core inflation has printed between 0.5% and 0.6%m/m, sa over the past three months. It would have to drop to 0.35%m/m, sa through the remainder of the year and to 0.26% in 2022 to meet the Bank’s forecast. Hence our view that the bar to reach them is high and risks denting the credibility of the forecast targets. Table 1: Inflation forecasts %3m/3m, oya JPM 21Q3 5.7 Banxico 5.6 21Q4 5.8 5.7 22Q1 5.3 5.2 22Q2 3.9 3.9 22Q3 3.4 3.2 22Q4 3.6 3.4 Source: J.P. Morgan and Banxico forecasts. Banxico forecasts updated Aug 2021 That said, despite the upward revisions to inflation, Banxico did not convey a strong sense of urgency, continuing to view the current inflation spike as driven by transitory factors. The board noted that while short-term inflation expectations have risen, medium- and longer-term expectations remain fairly stable. Also, the Bank has seemingly turned more cautious on growth amid rising COVID-19 cases. On global financial conditions, the board acknowledged the move toward less accommodation that is either expected (DM) or has already materialized (EM), but did not seem overly concerned, stressing only modest changes in domestic market conditions. Overall, the above factors made for a rather neutral statement, in which the Bank is not pre-committing to a particular course of action. In our view, a lot will depend on the evolution of inflation through year-end, particularly core inflation, which the Board sees at 5% by year-end. July inflation keeps upside risks alive The CPI rose 0.59%m/m in July, in line with our expectations, leaving annual inflation at 5.81%oya, just marginally below the June print. Core prices, in turn, rose 0.48%m/m, slightly below our expectations (0.52%). Annual core inflation edged up again, to 4.7%. On the non-core side, food and energy prices remain under pressure, particularly the former. It will be important to see over the coming months whether price controls on liquefied gas manage to arrest the rapid increase in this inflation component seen over the past several months. As of 2H July, prices continued to move higher. On the core front, however, there are also lingering pressures on processed food, which is stabilizing at above 6% levels; but also the 'other services’ and 'other goods’ categories are showing important knock-on effects that cannot be characterized as transitory anymore (Figure 1). Figure 1: Inflation components in July %oya 15 2021 Energy Meat & Egg 10 Other Services 5 Other goods Processed Food Fruits & vegetables 0 Housing Govt Regulated School Fares 2020 -5 -5 0 5 10 15 Source: INEGI and J.P. Morgan. *Dotted lines: Banxico's 3% target. Size of circle: CPI weight. We have pointed out that annual rates of inflation are subject to significant base effects, and hence the signal from this metric is somewhat blurred. Focusing also on sequential changes in prices provides a broader and clearer view on underlying inflation dynamics. By this metric, core prices increased just below 0.5%m/m sa in July. While this implies some moderation with respect to the past couple of months, it remains well above its historical norm of 0.3%m/m. 45 Banco J.P.Morgan, S.A., Institución de Banca Múltiple, J.P.Morgan Grupo Financiero Gabriel Lozano (52-55) 5540-9558 gabriel.lozano@jpmorgan.com Steven Palacio (52 55) 5382-9651 steven.palacio@jpmorgan.com Economic Research Mexico August 13, 2021 Against this backdrop, we continue to think there are upside risks to core inflation, which could further nudge higher our year-end headline forecast, which we just recently revised to 6%. It appears that the combination of surging gas prices and rising raw food prices are exerting pressure on core food (processed food), with grain prices rising roughly 0.8%m/m sa, about double the historical norm. Non-food goods, by contrast, slowed to 0.46% in July from 0.62% a month earlier. This component had been under pressure from both demand shifting toward goods and input shortages in the manufacturing sector. Finally, services also cooled from the rapid pace seen in the past several months, with services prices exhousing and education, slowing from 0.7%m/m, sa in June to 0.4%m/m in July. While we expect some moderation in services prices on the back of the recently-announced price controls on liquefied gas, all eyes are on school fares and housing, which have been relatively well-behaved so far. Growth disappointment in IP in June Industrial production undershot our expectations for a modest uptick in June, instead falling 0.5%m/m (Figure 2). Weakness was widespread across industries, with manufacturing still seemingly dragged down by input shortages and construction surprising strongly to the downside. Manufacturing contracted less than we expected (-0.1% vs. -0.7%) but transportationrelated output stumbled again, falling 1%m/m on top of a 3.2%m/m average decline in each of the prior two months. Other sectors likely to be affected by input shortages have also been weak lately, with electronic appliances and electricity generation equipment, in particular, down 5.5%m/m. The outlook for manufacturing is blurred going forward. On the one hand, new orders (as reported in the IMEF’s PMI) are seemingly holding up, and business confidence and capex plans are near two-year highs. However, by contrast, the output PMI has declined markedly, even if it still holds comfortably above the expansion threshold (50). Our view remains that underlying demand is solid, but output is likely to be constrained, at least in the very short term, by input shortages. On the aggregate level, manufacturing output was down for the third consecutive month. The 2%m/m drop reported in construction was more surprising given the very strong construction put in place reported by firms—a proxy for construction output. higher from the initial 6.3% ar, albeit less than we originally expected, probably to around 7.2%. Our tracking points to around 13.5% ar services output growth, five percentage points above the rate reported in the GDP advance—a large gap even after acknowledging possible deviations between monthly and quarterly data. The extent to which services maintain solid, but slowing, gains going forward, and to which shortages continue to weigh down manufacturing will be key to 3Q GDP. The risks, as of now, are skewed to the downside relative to our 3.2% ar forecast and our 6.9%y/y full-year forecast. Figure 2: Industrial production and manufacturing %m/m, sa 4 IP Manufacturing 3 2 1 0 -1 -2 -3 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Source: INEGI Data releases and forecasts Week of August 16 – 20 No data releases. Review of past week’s data Consumer prices All items (%m/m) %oya Core (%m/m) %oya May Jun 0.20 0.53 5.89 5.88 0.53 0.57 4.37 4.58 Industrial production %oya, unless noted %oya nsa Manufacturing %m/m sa Manufacturing Apr May 36.5 36.4 52.0 48.0 -0.4 0.0 -0.9 -0.7 Source: INEGI and J.P. Morgan forecasts. Jul ___ 0.59 ___ 5.81 ___ 0.48 ___ 4.66 Jun 16.1 13.5 16.9 16.3 0.2 -0.5 -0.7 -0.1 That being said, the overall drop in IP and some downward revisions to prior months’ data left IP down 0.4% ar in 2Q21, well below the +1.8% reported in the flash GDP reading. This partially offsets upside risks from stronger services output, but we still think that 2Q GDP growth is likely to be revised 46 Banco J.P. Morgan S.A. Cassiana Fernandez (55-11) 4950-3369 cassiana.fernandez@jpmorgan.com Cristiano Souza (55-11) 4950-3913 cristiano.souza@jpm organ.com Vinicius Moreira (1-212) 834-4144 vinicius.moreira@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Brazil  The government presented its proposals for the new cash transfer program and to postpone the payment of court orders  COPOM minutes justify SELIC rate above 7%  We continue to see inflation pressure in the coming months  Economic activity grew more than expected in June, but our 2Q GDP forecast remains at 0.4%q/q saar The fiscal policy debate remained in the spotlight this week as the government sent to Congress two bills, and continued discussing other proposals. As we have mentioned, the fiscal policy debate has taken a turn for the worse. In our view, the willingness to increase public spending during the election year could jeopardize policy credibility and financial stability and could require BCB to raise interest rates further. One of the proposals submitted to Congress creates a new cash transfer program, dubbed “Auxílio Brasil,” to replace the current Bolsa Família. This bill did not contain parameters and it remains uncertain how large the new cash transfers will be and how the program will be funded. The other proposal sent to Congress allows the postponement of part of the courtordered the payments scheduled for 2022. The current version of the court-ordered payments bill fills the objective of creating fiscal space under the spending cap for a new cash transfer program. Last week there was discussion of this bill creating space under the cap beyond the amount necessary for the new cash transfers, but the government’s initial proposal brings the spending on court-ordered payments back to the expected budget guidelines (BRL 56 billion). However, this bill will need to be negotiated with Congress, risking further actions to open more space under the cap. In our view, the bill only postpones payments, which will not solve the issue of rising court-ordered payments, while increasing risks of Brazil losing its fiscal anchor. Also, the bill creates a fund that can be used to anticipate the court-ordered payments outside the limits of the spending cap in the future. Another project that could result in future fiscal expansion is the income tax bill. However, the current version continues to lack support, in particular, due to the hurried discussions and lack of understanding of its potential impact. As a result, the vote in the Lower House was delayed until next week and the Senate could start to discuss a different proposal for tax changes, increasing uncertainty for the private sector about if and when taxes will change and what the nature of those changes would be. Separately, the political environment remained turbulent with a discussion about printed vote receipts, a proposal by president Bolsonaro, who has been criticizing the electronic ballot. To try to reduce tension about next year’s election, the speaker of the Lower House submitted to the floor a project to create printed vote receipts, and the proposal was rejected. Balance of risks justifies SELIC rate above 7% at the end of the cycle The minutes of the last COPOM meeting convey a hawkish tone overall, in line with the message of the last post-meeting statement. The Committee seemed uncomfortable with recent inflation prints and their potential effect on inflation expectations, and affirmed that fiscal risks continue to imply an upward bias in the BCB’s projections, which incorporate a 7% SELIC rate of at the end of this year. In this sense, we judge that the COPOM currently sees 7% as the floor of the range for the end-of-the-cycle SELIC rate. We believe their communication is in line with our baseline scenario of another 100bp hike in September, followed by 75bp and 50bp hikes in the last meetings of the year to end the cycle at 7.5%. It is important to keep in mind that at the October meeting the BCB should put equal weight on the 2022 and 2023 objectives, gradually increasing the weight of 2023 after that. However, the recent shift in the fiscal debate adds upside risk to that scenario, in our view, and may require a higher terminal rate. In that case, the BCB may prefer to maintain the 100bp pace after September. The Committee reinforced its reaction function by highlighting its commitment to the inflation target, which is guided by its baseline scenario as well as the assessment of the balance of risks. Without mentioning any specific condition to change the pace of tightening at the next meetings, the Committee concluded that a quicker adjustment of monetary policy is the most appropriate strategy at this time to assure the convergence of inflation to its targets for 2022 and 2023. This could justify the 100bp move of the last meeting and the expected pace for September, as signaled by the COPOM. July IPCA broadly as expected, but upward risks remain After a significant upside surprise in the IPCA-15, the July IPCA was broadly in line with expectations. The IPCA increased 0.96%m/m, only 1bp above market consensus and 3bps above our forecast, with core prices matching our call for a 0.58%m/m rise. Headline and core IPCA inflation moved up to 9.0%oya and 5.5%, respectively (Figure 1), with core inflation now at the highest level of the last five years on the 3m/3m saar reading. In fact, our recently created core COVID-19 metric also accelerated and our decomposition 47 Banco J.P. Morgan S.A. Cassiana Fernandez (55-11) 4950-3369 cassiana.fernandez@jpmorgan.com Cristiano Souza (55-11) 4950-3913 cristiano.souza@jpm organ.com Vinicius Moreira (1-212) 834-4144 vinicius.moreira@jpmorgan.com Economic Research Brazil August 13, 2021 shows that supply-related shocks still dominate the upward pressure on the core IPCA. Not only has recent inflation data revealed significant inflation pressures, particularly in services prices, but our highfrequency price surveys show renewed sources of upward surprises, especially in fresh food prices. Due to that trend, we raised our forecasts for the August and September IPCA increases from 0.53% and 0.43%m/m to 0.70% and 0.52%, respectively. However, the effect of the unusual weather should be temporary, and we see signs of easing supply bottlenecks in recent surveys. We thus revise down our monthly IPCA forecasts for 4Q, but raising our year-end IPCA inflation forecast from 7%oya to 7.1%. Figure 1: Headline and core CPI (IPCA) %oya 9 8 7 6 5 4 3 2 1 Jan-17 Target Jan-18 Jan-19 IPCA Jan-20 Source: IBGE and J.P. Morgan forecasts Core Jan-21 forecast and our call for a 0.4% gain. Despite the solid expansion in June, the IBC-Br rose only 0.5%q/q, saar in 2Q, down from a 6.7% gain in 1Q. We have highlighted that our nowcaster was running above our GDP forecast for 2Q. The services output and IBC-Br releases reinforced this trend with the 2Q nowcaster above 4%q/q, saar. However, based on the IBC-Br, our traditional growth models suggest 2Q GDP growth close to our 0.4% forecast (Figure 2). The nowcaster for 3Q accelerated to above 5%, higher than our call for a 3.3% expansion this quarter. Data releases and forecasts Week of August 16 - 20 Tue Aug 17 7:00am Wholesale prices (IGP-10) May Jun %m/m 3.24 2.32 %oya 35.91 36.94 Jul 0.18 34.61 Aug 1.54 33.32 Review of past week’s data Wholesale prices (IGP-DI) May Jun Jul %m/m 3.40 0.11 1.91 1.45 %oya 36.53 34.53 33.96 33.35 IBC-Br grew 1.1% in June and 0.5%q/q saar Consumer prices (IPCA) in 2Q May Jun Jul %m/m Despite the weaker than expected retail sales, which declined %oya 2.3%m/m, sa in June, services output grew a strong 1.7%m/m, 0.8 0.5 0.93 0.96 8.1 8.4 8.96 8.99 sa. For the first time since the COVID-19 pandemic hit Brazil, services output is now above the pre-COVID-19 level as most restrictions were lifted and different types of services came back online. Retail sales Core %m/m, sa Apr May Jun 2.5 2.7 0.5 -1.7 Core %oya, nsa 23.6 16.0 8.5 6.2 Figure 2: GDP and monthly activity index (IBC-Br) growth %oya, both scales Broad %m/m, sa Broad %oya, nsa 4.0 3.2 0.6 -2.3 40.9 26.2 14.3 11.5 16 12 IBC-Br 8 4 0 Services sector report Apr May Jun %m/m, sa 1.0 1.7 0.7 1.7 %oya, nsa 20.1 23.3 19.3 21.2 -4 -8 -12 19 20 Source: IBGE, BCB and J.P. Morgan GDP (with 2Q forecast) 21 Economic activity %m/m, sa %oya, nsa Apr May Jun 0.9 -0.6 0.4 1.1 16.5 14.2 8.5 9.1 As a result, the June IBC-Br (monthly economic activity Source: BCB, FGV, IBGE, and J.P. Morgan forecasts proxy) expanded 1.1%m/m sa, above the 0.55% consensus 48 J.P. Morgan Securities LLC Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Argentina  Headline CPI ‘decelerated’ to 3.0%m/m in July, roughly in line with expectations…  …driving annual inflation to 51.8%oya  But the ex.-food core CPI increased 3.4%m/m, suggesting the headline deceleration is transitory  We expect inflation to reach 49%oya in December 2021 The headline CPI rose 3.0%m/m in July, roughly in line with expectations, driving annual inflation to 51.8%oya (Figure 1). The monthly print marked further deceleration from the 3.2%m/m and 3.5% 3mma increase in June. Thus, YTD headline inflation stood at 29.1%, reaching the 29% full-year estimate penciled in the 2021 Budget Law in seven months. Figure 1: Headline and core National-CPI %m/m 8.0 Headline 7.0 6.0 Core 5.0 4.0 3.1 3.0 3.0 2.0 1.0 0.0 Jan-17 Sep-17 May-18 Jan-19 Sep-19 May-20 Jan-21 Source: Indec and JPMorgan The food CPI offered no respite, rising 3.4%m/m and 56.4%oya, marking the eighth consecutive month of above3% gains, and contributing 1.0%-pt to the headline increase. The sticky food CPI together with an acceleration in household equipment and restaurant prices explains still-high sequential core inflation CPI, contributing 2.2%-pts. Meanwhile, the gas tariffs hikes, rents and domestic services price increases account for the 0.3%-pt contribution from regulated prices. Figure 2: National-CPI %-pt, contribution to headline CPI 6.0 Seasonal prices Regulated prices Core prices 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Source: Indec and JPMorgan Regulated prices drove the deceleration in headline inflation, rising 1.4%m/m and 37.1%oya, as price controls on utility tariffs linger (Figure 2). Core inflation decelerated from the 3.6%m/m print in June to a still high 3.1%, evidencing strong underlying inflation pressures despite the slowing of headline inflation amid the tightening of price and FX controls. The fact the INDEC includes non-seasonal food prices in the core CPI, makes the core more volatile than in other countries. This adds noise when thinking about core pries as the best gauge of the relationship between inflation and the economic cycle. We thus adjust core inflation for non-seasonal food prices, so to have a clearer metric of underlying inflation pressures, as illustrated in Figure 3. The ex-food CPI rose 3.4%m/m, down from the 3.6% average for the prior three months. Again, a marginal slowdown that looks transitory. Figure 3: Core, Ex. Food Core and Ex. Beef Core %m/m 5.2 Core Ex. Food Core Ex. Beef Core 4.7 4.2 3.7 3.2 2.7 2.2 1.7 1.2 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Source: INDEC and CABA statistics. We use CABA CPI until May 2016, INDEC GBA CPI until Dec-16 and National CPI since then We expect inflation to reach 48.6%oya in December 2021. The strong deceleration of the official FX crawling peg (currently depreciating 1.0%m/m) coupled with the cobweb of price controls, supports our call for a temporary slowing of inflation to a 2.7% monthly average in 3Q from 3.8% in 1H21. But inflation is poised to accelerate again absent a rethinking of the policy framework. We expect a return to 3.5%-4% monthly gains by end-4Q21/1Q22 amid stronger FX passthrough pressures, upcoming salary re-negotiations and as the government resumes utilities tariff increases and partially unwinds price control programs. Against the backdrop of higher cumulative repressed inflation, we also expect inflation to stay high in 2022 and forecast 44% for December 2022. We highlight risks of Argentina experiencing a more abrupt inflation surge next year if the government fails to agree on a consistent and comprehensive macroeconomic program with the IMF. 49 J.P. Morgan Securities LLC Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Economic Research Argentina August 13, 2021 Data releases and forecasts Week of August 16 – 20 Thu Aug 19 Economic activity Mar Apr %oya 11.9 29.4 Thu Aug 19 Exports $bn Apr May 6.1 6.8 Thu Aug 19 Imports $bn Apr May 4.7 5.1 Thu Aug 19 Trade balance Apr May $bn 1.4 1.7 Fri Aug 20 Budget balance Apr May ARS$bn -11.5 -25.0 May Jun 13.6 10.4 Jun Jul 7.0 5.5 Jun Jul 5.9 4.5 Jun Jul 1.1 1.0 Jun -153.2 Jul -215.0 Review of past week’s data Wages %m/m Apr May Jun 3.6 3.3 2.5 CPI %m/m May Jun Jul 3.3 3.2 2.9 3.0 Source: INDEC, BCRA, and J.P. Morgan estimates 50 J.P. Morgan Securities LLC Ben Ramsey (1-212) 834-4308 benjamin.h.ramsey@jpmorgan.com Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Lucila Barbeito (54-11) 4348-7229 lucila.barbeito@jpmorgan.com Katherine Marney (1-212) 834-2285 katherine.v.marney@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Colombia  Colombia: Activity data bounced back more strongly in June than expected  This confirms the significant upside risk we’ve been flagging for 2Q GDP, out next week  BanRep may feel the heat to deliver more on its forthcoming tightening cycle June activity data in Colombia portrays a stronger-thanexpected bounce-back from May’s strike- and protest-induced tumble. Headline retail sales grew 24.7%oya, versus our 19.3% forecast and the 20.6%oya consensus call. Likewise, industrial production expanded 20.8%oya, besting J.P. Morgan and consensus forecasts. More telling than the vigorous annual growth are the monthly figures: Retail sales surged 13.9%m/m, sa, more than recovering May’s 6.6 contraction. Likewise, IP spiked 29.5%m/m, ripping back from the 22.2% plunge the prior month (Figure 1). Figure 1: Retail sales and industrial production Index, sa 120 Retail sales (ex fuel) 110 100 90 80 IP 70 60 19 20 21 Source: DANE and JP Morgan Figure 2: Retail Sales and industrial production %3m/3m %3m/3m, saar 170 120 Industrial production 70 20 -30 -80 19 20 Source: DANE and J.P.Morgan Retail sales 21 While the 1H21 challenges of new COVID-19 waves and especially the prolonged social tension in May have led to choppy activity data so far this year, the general trend is one of recovery, with some slowing on the margin in the 3m/3m reading (Figure 2). That said, the strong June rebound and evidence that July has seen relevant carry-through in high frequency indicators and mobility data imply solid momentum in 3Q. The June data come ahead of next week’s release of the monthly activity proxy ISE, and the full 2Q GDP release, both out on Tuesday. With the IP and retail data in hand, we are now looking for an 8.5%m/m sa rebound in the June ISE, bouncing back from -5.8% in May (Figure 3). If we are on the mark, ISE growth would print at 16.9%oya in June, up from 13.4%oya in May. Moreover, this moves ISE into expansion territory on the 3m/3m reading, implying significant upside risk to our forecast for a 6.5%q/q, saar GDP contraction in 2Q, and validating the +0.9% reading in J.P. Morgan’s nowcaster. On an oya basis, our forecast for 17.5% GDP growth would hence also have significant upside risk. Combined with what looks like firm momentum at the start of 3Q, our aboveconsensus 7.5% y/y forecast for 2021 could end up approaching double digits. We will await the official print of the June ISE and 2Q GDP to parse the details and reassess our call. Figure 3: Economic Activity Tracker (ISE) Index, sa 120 110 100 90 80 19 20 21 Source: DANE and JP Morgan BanRep cited its own recently revised 7.5% growth call in its July meeting as part of the rationale for a more hawkish stance. If upside risks to growth are validated, an output gap projected to be nearly closed by the end of 2022 would now be closing even sooner. This should nearly assure BanRep follows through on its signal that it will start a hiking cycle at its next voting meeting in September. Moreover, alongside upside risks to inflation, an underperforming currency vs. peers, may push the monetary authority to deliver more up front compared to our call for a very gradual tightening path from the current 1.75% to a still sub-neutral 3.5% by end2022. The authors wish to thank Juan Goldin, of the Latin America Economics Research team, J.P.Morgan Chase Bank Sucursal Buenos Aires, for his contribution to this report. 51 J.P. Morgan Securities LLC Ben Ramsey (1-212) 834-4308 benjamin.h.ramsey@jpmorgan.com Diego W. Pereira (1-212) 834-4321 diego.w.pereira@jpmorgan.com Lucila Barbeito (54-11) 4348-7229 lucila.barbeito@jpmorgan.com Katherine Marney (1-212) 834-2285 katherine.v.marney@jpmorgan.com Economic Research Colombia August 13, 2021 Colombia Data releases and forecasts Week of August 16 - 20 Tue Aug 17 GDP growth 3Q20 4Q20 1Q21 2Q21 %oya -8.2 -3.4 2.0 17.5 %q/q 9.5 6.1 2.9 -6.5 Tue Aug 17 Economic activity ISE Mar Apr May Jun %oya 11.9 28.7 13.6 16.9 Review of past week’s data Industrial production Apr May Jun %oya 20.8 8.6 17.0 20.8 Retail sales %oya Apr May Jun 75.0 22.8 19.3 24.7 Trade balance $bn Apr May Jun -1.5 -1.2 -1.5 -1.6 Imports $bn Apr May Jun 4.7 4.4 4.8 4.9 Source: DANE and J.P. Morgan estimates Peru Data releases and forecasts Week of August 16 – 20 Mon Aug 16 Lima unemployment Apr May Jun Jul % 15.1 12.0 10.3 9.8 Mon Aug 16 Economic activity Mar Apr May Jun %oya 18.2 58.5 47.8 23.0 Thu Aug 19 GDP %oya 3Q20 -9.0 4Q20 -1.7 1Q21 3.8 2Q21 40.6 Review of past week’s data Monetary policy % May Jun Jul 0.25 0.25 0.25 0.5 Source: INEI, BCRP, and J.P. Morgan estimates Chile Data releases and forecasts Week of August 16 – 20 GDP Wed Aug 18 %oya 3Q20 -9.0 4Q20 0.01 1Q21 0.34 2Q21 17.4 Wed Aug 18 Current account 3Q20 4Q20 1Q21 2Q21 $bn 0.6 0.5 -1.5 -2.5 Review of past week’s data No data releases. Source: INE, CBC, and J.P. Morgan estimates 52 J.P. Morgan Securities plc Allan Monks (44-20) 7134-8309 allan.j.monks@jpm organ.com Economic Research Global Data Watch August 13, 2021 United Kingdom  GDP grew 4.8%q/q in 2Q  Growth to slow in 3Q but remain strong  Housing market loses momentum as taxes rise  Next week’s labor report to offer some early hints on the impact of the winding down of the furlough scheme GDP rose 1.0%m/m in June (JPMorgan 1.1%; Consensus 0.8%) despite the delay of the final stage of easing that month. With broadly offsetting revisions to the prior two months, GDP grew 4.8%q/q in 2Q, in line with our forecast (20.7% annualized). This left GDP in 2Q still 4.4% below the 4Q19 level, implying plenty of scope for the ongoing strong recovery. For now we have left our 2H21 outlook unchanged and look for another solid 2.3%q/q (9.6% annualized) GDP gain this quarter. The risks around that forecast appear to have shifted a little to the upside due to the unexpected fall in Delta cases into August. However, that downtrend has paused at a high level over the past week, and we have little activity or sentiment data available for this month as yet. Figure 1: Monthly GDP % change versus February 0 Retail, motor and wholesale trades GDP -20 Arts entertainment -40 and recreation -60 Accomodation and -80 food services -100 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Source: ONS In the details of the monthly GDP report, services surprised a little to the upside with a solid 1.5%m/m output gain that helped to offset declines in both IP (-0.7%) and construction (-1.3%). The outturn in services owed partly to a strong 4.5% gain in health-related output from a pickup in GP visits. But hospitality also posted a very strong 14%m/m gain following the easing of restrictions that occurred in the second half of May. Overall, the ONS estimates that consumer-facing services grew 1% in June. The drop in IP was explained by temporary oil field closures with manufacturing recording a small 0.2%m/m gain. This masked a 7.4% jump in production of transport equipment, reversing the large decline in May related to microchip shortages which delayed car production. The monthly data for June show GDP 2.2% below its prepandemic level. The first estimate of the quarterly national accounts for 2Q showed strong gains across several demand components. Consumption grew 7.3% and contributed 4.1%-pts to the overall GDP gain in the quarter. But this still left consumption 7% below the 4Q19 reading. Government consumption rose a further 6.1%q/q, which included not just COVID-related spending but also a normalization in the use of other health services. Government consumption is now 8% above its prepandemic level. Overall gross fixed investment declined in 2Q owing to a drop in government investment. Business capital spending began a soft recovery with a 2.4%q/q gain, but remains 15% below its pre-pandemic level. Data start to reveal fading fiscal supports With the government starting to phase out tax incentives for property purchases from July, it comes as no surprise that housing market indicators for the month are reporting a slowdown. Readings in the July RICS survey on new buyer enquiries and agreed sales both fell and indicate a pullback in purchase activity. The sales-to-stocks ratio remains high, with a still-tight market pointing to further gains in house prices. But the cooling in the market is a demonstration of the impact that expiring emergency fiscal stimulus measures is having on activity. Timely growth indicators for July have been more mixed but positive overall: the PMI fell in July to signal slower but still strong growth, retail mobility moved higher and consumer confidence rose. But we now enter the period where the impact of fading supports is revealing itself in the data. The crucial test will be how the labor market responds to the phasing out of the furlough scheme. This week a survey by the ONS reported a drop in the proportion of furloughed workers to 3.7% in late July, equivalent to around one million workers. That compares to 1.8 million at the end of June and indicates a downtrend is still underway. Next week’s labor market report will help to reveal how employment fared in July, providing an indication about how many workers on support had been reintegrated into the active labor force versus made redundant. Figure 2: RICS sales balances % balance, sa 80 60 40 20 0 -20 -40 -60 18 19 20 Source: RICS Expected Agreed 21 22 53 J.P. Morgan Securities plc Allan Monks (44-20) 7134-8309 allan.j.monks@jpm organ.com Economic Research United Kingdom August 13, 2021 Data releases and forecasts Week of August 16 – 20 Tue Labor market statistics Aug 17 Average weekly earnings (3mma %oya sa) 9:30am Mar Apr May Jun Headline 4.3 5.7 7.3 8.5 Ex bonuses 4.6 5.7 6.6 6.9 Private sector ex bonuses 4.2 5.7 7.2 8.2 Labor force survey (all percentage rates, sa) Three months to: Mar Apr May Jun Activity rate 63.2 63.1 63.1 Employment rate 60.1 60.1 60.1 Unemployment rate 4.9 4.8 4.8 4.8 - single month 4.8 4.9 4.8 4.7 Change over three months to: Mar Apr May Jun Employment (000s) 32 61 25 Wed Aug 18 9:30am Retail prices %oya Apr May Jun Jul CPI 1.5 2.1 2.5 2.1 Core CPI1 1.3 2.0 2.3 1.9 RPI (1987=100) 301.1 301.9 304.0 304.4 RPI 2.9 3.3 3.9 3.5 1. CPI ex food, energy, alcohol, and tobacco. Goods inflation contributed to two large upside surprises in the last two inflation prints. We assume some further mo- mentum in m/m prices, although at a slower pace than May/Jun. Uncertainty is high around this as the usual rela- tionship with import prices has broken down. Nevertheless, as we do not expect goods pricing to repeat the magnitude of increases reported last July – which were driven by unu- sual seasonal patterns in clothing – we expect a large drop in the annual rate of goods inflation which drags core low- er in July. Mon Aug 16 9:30am House price index %oya, nsa All dwellings Mar Apr May Jun 10.0 9.6 10.0 Fri GFK consumer confidence Aug 20 Nsa 12:01am May Jun % balance -9 -9 Jul Aug -7 Fri Public sector finance Aug 20 £ bn, nsa 9:30am Apr May Jun Jul PSNCR -33.5 -21.7 -11.3 PSNB 25.4 19.9 22.0 - ex. pub. banks 26.1 20.6 22.8 Current budget (ex. pub. banks) -27.2 -19.1 -18.5 Net debt to GDP (%) 112.7 113.3 113.8 - ex. pub. banks 98.4 99.1 99.7 Fri Aug 20 9:30am Retail sales Volumes, sa Including auto fuel (%m/m) Ex auto fuel (%m/m) (%oya) (%3m/3m saar) Apr May Jun Jul 9.3 -1.3 0.5 9.2 -2.0 0.4 -0.5 37.5 21.6 7.4 8.5 36.3 55.0 Review of past week’s data BRC retail sales monitor %oya Like for like sales Total May Jun 23.7 17.0 10.0 13.1 Jul 4.7 6.4 GDP %m/m, sa (unless stated otherwise) Monthly GDP %m/m, sa %3m/3m, sa %3m/3m, saar Breakdown (%m/m, sa): Industrial production Manufacturing Construction Services Quarterly GDP (1st estimate): %q/q, sa %oya, sa %q/q, saar Breakdown (%q/q, sa): Private consumption Public consumption Fixed investment Business investment Exports Imports Apr May Jun 2.0 2.2 0.8 0.6 1.1 1.0 1.5 3.6 4.8 6.1 15.2 20.8 20.6 -1.0 -0.9 0.8 0.6 0.6 -0.7 0.0 0.2 -0.1 0.1 0.9 0.2 -0.7 -0.2 -0.8 -0.7 0.4 -1.3 2.8 2.9 0.9 0.7 1.2 1.5 4Q20 1Q21 2Q21 1.3 -1.6 4.8 -7.3 -6.1 22.2 5.2 -6.2 20.8 20.7 -1.7 -4.6 6.7 1.5 4.4 -1.7 5.9 -10.7 5.5 -5.9 11.2 -13.5 5.0 7.3 3.5 6.1 2.5 -0.5 3.5 2.4 10.0 4.0 3.5 6.5 RICS housing market survey % balance, sa Prices in last 3mnths Stocks on books Sales in last 3mnths Sales: stocks ratio (%) New buyer inquiries May Jun 82.5 81.5 82.9 81.8 39.8 39.8 22.9 22.7 23.6 23.3 57.5 57.1 59.1 58.7 29 28 14 10 Jul 79.1 38.3 21.2 55.4 -9 Source: Rightmove, CBI, BBA, BCC, GFK, BRC Markit, SMMT, RICS, Land Registry, ONS, BoE, and J.P. Morgan forecast 54 J.P. Morgan Securities plc Lisa Alexandersson (44-20) 7134-3680 lisa.alexandersson@jpmorgan.com Morten Lund morten.lund@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Sweden and Norway  Sweden’s private sector production, and household consumption both increased in June  Meanwhile, the PMIs rose further in July, hinting at a continued pick-up in growth in 3Q  We expect Norges Bank to confirm its intentions to raise the policy rate in September at next week’s meeting  Core inflation fell again in July, but it will not prevent the Bank from hiking Sweden: PMI point to a further growth pickup The monthly GDP indicator for June was published at the end of July; it increased by 2.5%m/m, pointing to a strong end of 2Q. Data on private sector production, and household consumption published earlier in the week, suggest somewhat lower growth in June, with increases of 0.8%m/m (10.5%oya) and 0.5%m/m (7.3%oya), respectively. The increase in production was broad-based, with services output growing by 0.7%m/m. Meanwhile, industrial production increased a healthy 1.9%m/m. New orders also posted a strong 1.1%m/m gain, and as this metric tends to lead industrial production by roughly three months, indicating that the solid industrial production recovery should continue in the fall. The data are a bit backward-looking, as the 2Q flash GDP estimate has already been released, pointing to firm 3.6%q/q, saar growth. Meanwhile, sentiment indicators point to a continued pickup in economic activity in 3Q. The Swedish composite PMI increased by 0.8pt to 68 in July, with gains for both the services and manufacturing sectors (Figure 1). In recent months the PMIs have signaled a rotation in activity from manufacturing towards the services sector, with the business activity reading of the services PMI jumping by 12.4-pts since the start of the year, whereas the output index for the manufacturing sector has moved sideways at its current high level. This is in line with our forecast, as we expect a rebound in services consumption following the easing of containment measures to be the main driver of the 8.5%q/q, saar, GDP bounce in 3Q that we expect. Headline CPIF inflation rose by 0.1%-ps to 1.7%oya in July, thereby partly reversing the large 0.5%-pt decline in June. The outcome was slightly higher than expected, and well above the Riksbank’s 1.2% forecast. The increase in headline inflation, and the large deviation from the Bank’s forecast, mainly reflect energy prices, and in particular electricity prices which contributed 0.8%-pt to the annual inflation. Core inflation (CPIF ex. energy) declined 0.4%-pt to 0.5%oya, which was also slightly higher than the Riksbank’s projection (0.3%oya). While the figures in isolation are positive for the Riksbank, this should not lead to it becoming more hawkish, although it should reduce the risk of further easing measures. Figure 1: Swedish manufacturing and services PMI DI, sa (dotted lines are long term averages) 75 70 Services 65 60 55 50 45 40 Manufacturing 35 30 25 20 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Swedbank, Silf, J.P. Morgan Norway: September hike to be confirmed In the interim meeting next week, Norges Bank will most likely confirm a first rate hike in September. Norges Bank has been re-priced dovishly by markets since the meeting in June. Among other things, this shift was driven by a low July core inflation print and risks stemming from the Delta variant. However, with the NOK’s significant depreciation in recent months as well as the domestic economy performing well and in line with the Bank’s June projections, we consider a rate hike in September as close to a done deal. Besides reiterating its intentions to hike the policy rate in September, we also expect Norges Bank to indicate that a prolonged tightening cycle is on its way. This is based on our expectation that economic conditions are normalising and with capacity utilisation rapidly increasing, the need to counteract financial imbalances has increased. Core inflation (CPI-ATE) fell another 0.3%-pts to 1.1%oya in July, marking the fourth consecutive month of declines. Meanwhile, headline CPI inflation rose by 0.2%pts to 3.0%oya driven by a 14%-pts rise in electricity price inflation (to 82.7%oya). Looking at the breakdown of core inflation, services price inflation declined by 0.1%-pt to 1.5%oya, while goods price inflation dropped by 0.2%-pts to 0.9%oya. The latter was the biggest drag on core inflation, and besides base effects once again reflected low imported goods price inflation arising from the stronger currency. Although the free fall in core inflation since the spring is quite dramatic, it will not in our view prevent Norges Bank from hiking in both September and December, as 1) Norges Bank is currently more focused on growth than inflation (in contrast to e.g. the Riksbank), and 2) low core inflation prints are already incorporated in the Bank’s June projections. The next Sweden and Norway data watch will be released on August 27, 2021 55 J.P. Morgan Securities plc Lisa Alexandersson (44-20) 7134-3680 lisa.alexandersson@jpmorgan.com Morten Lund morten.lund@jpmorgan.com Economic Research Sweden and Norway August 13, 2021 Sweden Data releases and forecasts Weeks of August 16 – 27 Thu Unemployment rate (SCB) Aug 26 %, sa 9.30am Apr May Jun Jul Total 15-74 years 9.1 9.1 9.5 Fri Aug 27 9:30am Real GDP Cal. adj. and sa GDP (%q/q saar) GDP (%oya) 3Q20 33.3 -1.8 4Q20 0.0 -1.8 1Q21 3.4 -0.1 2Q21 3.6 9.3 Fri Aug 27 9:30am Retail sales Sa %m/m (ex. fuel) %oya (ex. fuel) Apr May Jun Jul -0.5 2.4 -0.3 7.3 10.4 8.2 Fri Aug 27 9:30am Trade balance SEK bn, nsa Exports Imports Trade balance Apr 131.5 129.0 2.5 May 133.6 130.0 3.6 Review of past weeks’ data Weeks of August 2 – 13 Purchasing managers' index (manufacturing) % bal, sa May Jun Total manufacturing 66.1 65.4 Jun Jul 144.2 133.9 10.3 Jul 65.3 Purchasing managers' index (services) % bal, sa May Jun Total services 71.6 67.9 Jul 69.1 Production value index %m/m, sa Total index Industrial production Services production Apr May Jun 0.3 0.1 1.9 0.8 0.0 1.9 -1.0 0.4 0.7 Unemployment rate (Swedish Public Employment Service) % May Jun Jul Statistics Sweden (sa) 7.9 8.1 7.9 7.8 Consumer prices Nsa CPI (%m/m) CPI (%oya) May Jun 0.2 0.1 1.8 1.3 Jul 0.3 1.4 Source: SCB, Swedbank, Silf, AMS, and J.P. Morgan forecasts Norway Data releases and forecasts Weeks of August 16 – 27 Mon Trade balance Aug 16 NOK bn, nsa 08:00am Apr May Jun Jul Exports 82.3 86.9 97.9 Imports 65.5 72.6 72.9 Trade balance (incl. oil) 16.7 14.4 25.0 Trade balance (ex. oil) 16.5 14.3 23.7 Thu Aug 20 8:00am Real GDP GDP (%q/q, sa) GDP (%q/q, saar) Mainland GDP (%q/q, sa) GDP (%q/q, saar) 3Q20 4.3 18.4 4Q20 0.8 3.4 1Q21 -0.6 -2.5 2Q21 4.9 2.0 -1.0 1.5 21.0 8.3 -4.1 6.0 Fri Aug 27 8:00am Retail sales Sa %m/m (ex. petrol) %oya (ex. petrol) Apr May 0.2 6.2 2.4 6.2 Review of past weeks’ data Weeks of August 2 – 13 Manufacturing PMI % bal, sa May Jun Jun Jul -0.3 0.4 Jul Total 58.5 61.3 63.3 Norwegian industrial production Sa Apr May Jun %m/m -0.1 -0.2 0.9 %oya 1.1 2.1 4.4 Consumer prices Nsa CPI (%m/m) CPI (%oya) CPI - ATE (%oya) May Jun -0.1 0.3 2.7 2.9 1.5 1.4 Jul 0.9 3.0 1.1 Source: Statistics Norway, LFS and NAV, and J.P. Morgan forecasts 56 J.P. Morgan Bank International LLC Anatoliy A Shal (7-495) 937-7321 anatoliy.a.shal@jpmorgan.com José Cerveira (44-20) 7742-3556 jose.a.cerveira@jpm organ.com Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Emerging Europe  Turkey: CBRT left its policy rate and messaging unchanged  Czech Republic: Upside surprise to July inflation  Romania: Headline CPI inflation jumped as expected but core remains benign for now  Poland: 2Q GDP marked return to pre-pandemic level Turkey: No surprises from CBRT As widely expected, the CBRT left its key policy rate unchanged at 19.0% this week. Perhaps more importantly, there was no meaningful change in the wording of the interest rate announcement. This was also in line with our expectations though some analysts and market players were concerned about the risk of some dovishness which would hint at an imminent easing cycle. Hence the statement resulted in some market relief. In fact, the statement was almost a carbon copy of last month’s. There was only one extra sentence which explained the factors behind the upside inflation surprise in July, putting the blame on supply-side factors in food prices and the easing of COVID-19-related restrictions. The main policy guidance sentence also remained unchanged with the CBRT stating that “the current tight monetary policy stance will be maintained decisively until the significant fall in the Inflation Report’s forecast path is achieved.” Like the Inflation Report, we see this decline only in the last two months of the year when we also expect two 50bp cuts. Looking at the details of the announcement, we do not see any change in the way price dynamics are described. The CBRT again states that “in addition to the recent increases in import prices and administered prices, demand conditions, supply constraints in some sectors, possible volatility in inflation during the summer due to the reopening, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook.” After mentioning these risks, the CBRT again states its confidence in the efficacy of its policies by noting that “the decelerating impact of the monetary tightening on credit and domestic demand is being observed.” Finally, the CBRT maintains its optimism on external balances and states that “the current account is expected to post a surplus in the rest of the year due to the strong upward trend in exports, and the strong progress in the vaccination program stimulating tourism activities.” The CBRT believes that this improvement in the current account balance will support the price stability objective. Czech Republic: Core CPI inflation soared in July Headline CPI inflation jumped to 3.4%oya in July, from 2.8%, a full 0.5%-pt above market expectations. Food inflation picked up to 0.8%oya (from -1%) a bit stronger than suggested by the mid-month surveys. Fuel prices also rose slightly more than suggested by weekly prices collected at the pump, but given the high base, annual fuel inflation still dropped to 18.5%oya from 20.1%. Administered prices were flat and there were no major tax changes. This all means that non-core items explain only a residual portion of the upside surprise in CPI. The real driver was core inflation. Core prices increased 1.5%m/m (1.1%m/m sa), which raised annual inflation to 3.8%oya from 3.5%, nearly twice the central bank’s target, and the highest reading ever recorded for this series (since 2007). We estimated that core inflation would slow to 3.2%oya, so in effect the upside surprise on core was 0.6%-pts. The basic breakdown shows strength in pricing across goods and services. Within goods, clothing prices declined just 0.1%m/m, significantly less than the usual seasonal drop. This could reflect a lockdown-related delay in the sales season, which would suggest some payback down the line. Within services, a 5.5%m/m jump in recreation and culture prices reflects the regular seasonal pricing of package holidays, which always soar in July and collapse in September. A big increase came in restaurants and hotels (1.1%m/m), and another 1.4%m/m gain in inputted rents, a sub-category of housing. Figure 1: Czech CPI forecast %oya 4.5 4.0 Headline Core 3.5 3.0 2.5 2.0 1.5 Target: 2% 1.0 0.5 0.0 17 18 19 20 21 Source: CSU, CNB, J.P. Morgan JPMf 22 After July’s surprise, CPI inflation is likely to accelerate even further to average 4.1%oya in the last quarter of 2021. This is the result of rising food prices, marginal deceleration in fuel prices and a sideways move in core CPI. We assume core CPI will run at a 3%annualized pace for the remainder of the year, which would leave CNB core inflation fluctuating around 4%oya until the end of the year. In 2022, we expect a big decline in fuel inflation, while food inflation should drop from 3.5%oya at the end of 2021 to 1.8% at end-2022. Core inflation is more uncertain—we expect that services inflation will 57 J.P. Morgan Bank International LLC Anatoliy A Shal (7-495) 937-7321 anatoliy.a.shal@jpmorgan.com José Cerveira (44-20) 7742-3556 jose.a.cerveira@jpm organ.com Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com Economic Research Emerging Europe August 13, 2021 remain strong, rising to just below 4% at the end of 2022, while we expect a sizable correction in imported goods prices due to the combination of a strong currency and the easing of supply-side disruptions, causing a drop in core inflation to 2.6% at end-2022 (Figure 1). With headline and core inflation already clearly above the CNB’s recently refreshed macro projections, we gain confidence in our call for 25bp hikes at every subsequent meeting this year (policy rate at 1.5% at year-end). In 2022 we see another 75bps in hikes, but the risks are skewed for more. Indeed, we expect the debate on 50bp moves to stay on the table, and the chances of such a move are on the rise. From a macroeconomic standpoint we think it would make sense, the economy would likely handle it well and there should be no market backlash. Yet there is a long-lasting tradition of tightening in 25bp moves (no hikes exceeded 25bp since 1997) which for now prevails. We will monitor any public interventions, especially from the Governor, to see whether tradition is about to break. Romania: Utilities drive prices higher Headline inflation jumped significantly above the consensus forecast in July but not as high as we expected: to 5%oya from 3.9% in June (consensus 4.4%, JP Morgan 5.5%). The move was driven almost exclusively by utilities prices. A lower than expected rise in electricity prices accounts for the bulk of the error; natural gas prices jumped over 20%m/m, as expected. Fuel prices were also sharply inflationary but close to our forecast, rising 2.1%m/m vs. 2% expected. Food and tobacco prices also came in lower than expected, contributing to the downside surprise. Figure 2: Core CPI in Romania vs. CE3 %oya 5 CZ HU PL 4 4 3 3 2 2 1 1 0 Jan-17 Jan-18 Jan-19 Source: J.P. Morgan RO Jan-20 Jan-21 Importantly, core inflation was in line with our forecast, rising to 3%oya from 2.9% in June, with the monthly increase in core prices remaining at 0.3%m/m. The move higher in core inflation was driven exclusively by the processed food component, while goods and services inflation dropped marginally in July. Despite the mild pickup in July, core inflation in Romania remains significantly below CE3 norms (Figure 2). In addition, the increase in Romania appears lower than the gains in Czechia or Hungary. Towards the end of this year we expect core inflation to accelerate and push up headline inflation, driven by both processed food and goods/services. We see core inflation at 3.4%oya at year-end and sharply higher at the end of 2022, at 4.5%oya. This acceleration is largely the result of goods/services inflation which we expect to reach 5%oya at the end of 2022. Headline inflation likely will reach 5.8%oya over November-December 2021 with a 6% or higher print a clear risk. However, as shocks from electricity, fuel and gas prices fade in 2022, headline inflation is likely to decline sharply in 2022 but still remain elevated at 4.5% at end-2022. Earlier this month the NBR has published a forecast which again foresees sharply higher inflation over the near term, with headline inflation more than double the November forecast and core more than 1%-pt higher. We think the current forecast of core inflation in 2H21is realistic, but the flat forecast during 2022 remains very hard to understand, especially as the NBR projects a widening output gap. We therefore believe that there is ample space for the NBR to be surprised to the upside during 2022 and thus be forced to react with larger rate hikes. We continue to expect the first policy rate hike in 1Q22. The risk is that the November forecast update takes on board more of the inflationary risks and the NBR decides to hike. Poland: 2Q GDP in line with forecast According to the flash release, Poland’s GDP expanded by 1.9%q/q in 2Q21, roughly in line with expectations (Consensus: 2.0%, J.P. Morgan: 1.8%). This is equivalent to an annualized pace of 7.8%q/q saar, and 10.9%oya annual growth. The print marks the return of Poland GDP to its pre-pandemic level (Figure 3), the second to do so in the region after Romania, which reached its prepandemic GDP in 1Q. Figure 3: Poland Real GDP Bn PLN, 2015 = 100 550 Pre-Covid level = 4Q19 530 510 490 470 450 16 17 18 19 20 21 Source: GUS We don’t have detail yet, but from the monthly activity data we infer that consumption and investment likely were the key drivers of growth in 2Q21. Retail sales grew 1.4%q/q and construction output surged a spectacular 7.3%q/q, which suggests a strong investment momentum. For now, this is particularly strong for building construction (9.5%q/q), but also with 58 J.P. Morgan Bank International LLC Anatoliy A Shal (7-495) 937-7321 anatoliy.a.shal@jpmorgan.com José Cerveira (44-20) 7742-3556 jose.a.cerveira@jpm organ.com Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com Economic Research Global Data Watch August 13, 2021 an important rise in civil engineering (3.8%q/q), reflecting a rise in government and corporate capex. The statistical office also revised the GDP history, and now estimates slightly deeper contraction in 2Q20 and a sharper recovery in 2H20, by roughly +0.2%-pts per quarter. This adjustment lifts the profile of the series in 1H21, and consequently pushes full-year GDP growth to 5.3% from 4.9%. We expect that, investment will be an increasing part of the growth story in the second half of the year, as the new EU fund cycle kicks in, and should remain a support in 2022 and 2023. Tax changes being planned by the government for 2022 will redistribute income from higher-income households to lower-income ones with a higher spending propensity, which should be supportive of consumption. We expect GDP to expand by 5.6% in 2022. Data releases and forecasts Wed Aug 18 10:00am Thu Aug 19 10:00am CPI-ex food and energy CPI-ex admin. prices CPI-15% trimmed mean Avg of 4 NBP measures 3.9 4.0 3.5 3.7 4.0 4.4 4.0 __ 3.3 3.3 3.1 __ 3.5 3.7 3.4 __ Gross wages and employment %oya Apr May Jun Jul Gross wages, nominal 9.9 10.1 9.8 __ Real (CPI adj.) 5.4 5.1 5.3 __ Employment, 000s, nsa 6317 6338 6359 __ Employment, %oya 0.9 2.7 2.8 __ Industrial output %oya Industry %oya, swda by GUS %m/m, swda by GUS Manufacturing Construction Apr May Jun Jul 44.2 29.6 18.4 __ 44.5 29.5 18.6 __ -0.6 0.7 0.2 __ 50.2 32.2 19.4 __ -4.2 4.7 4.5 __ Week of August 16 – 20 Hungary: Tue Aug 17 9:00am Real GDP, preliminary %oya, unless otherwise stated Real GDP %q/q saar 3Q20 4Q20 1Q21 2Q21 -4.6 -3.5 -2.1 15.8 44.6 11.8 8.3 2.8 Thu NBH 1-week deposit facility rate decision Aug 19 % On hold: 1.20% Thu Aug 19 10:00am Fri Aug 20 10:00am Producer prices %oya Producer prices %m/m nsa Retail sales %oya, unless otherwise stated Retail sales (nominal) Real, CPI-adjusted %m/m, sa Apr May Jun Jul 5.5 6.6 7.0 __ 0.7 0.9 0.7 __ Apr May Jun Jul 25.7 19.1 13.0 __ 21.1 13.9 8.6 __ -4.2 7.8 -0.9 __ Source: NBH, National Statistics, Eurostat, J.P. Morgan forecasts Source: NBP, National Statistics, Eurostat, Markit, J.P. Morgan forecasts Israel: Sun Aug 15 9:00am Consumer prices %oya %oya %m/m nsa Mon Aug 16 9:00am Real GDP, flash %oya, unless otherwise stated Real GDP, nsa %q/q saar Source: BOI, National Statistics, J.P. Morgan forecasts Romania: Tue Aug 17 Apr May Jun Jul 9:00am 0.8 1.5 1.7 1.6 0.3 0.4 0.1 __ Real GDP, flash %oya, unless otherwise stated Real GDP, nsa %q/q saar 3Q20 4Q20 1Q21 2Q21 -5.6 -1.4 -0.2 14.8 23.7 19.7 11.9 4.9 Source: National Statistics, Eurostat, J.P. Morgan forecasts 3Q20 4Q20 1Q21 2Q21 -1.5 -1.5 -1.0 12.0 42.4 6.3 -5.8 10.4 Russia: Wed Aug 18 4:00pm Industrial producer prices %m/m, nsa %oya Apr May Jun Jul 2.7 2.3 2.9 __ 27.6 35.3 31.1 __ Source: Rosstat, MinFin, AEB Russia, Markit, J.P. Morgan forecasts Poland: Mon Aug 16 2:00pm Core inflation %oya Review of past week’s data Czech Republic: Apr May Jun Jul 59 J.P. Morgan Bank International LLC Anatoliy A Shal (7-495) 937-7321 anatoliy.a.shal@jpmorgan.com José Cerveira (44-20) 7742-3556 jose.a.cerveira@jpm organ.com Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com Economic Research Emerging Europe August 13, 2021 Consumer prices %oya May Jun %oya 2.9 2.8 %m/m nsa 0.2 0.5 Food -1.3 -1.0 Housing 1.3 1.8 Transport 9.6 8.7 See main text for details. Balance of payments CZK bn Current account YTD YTD-a year ago Trade balance Service balance Primary income Secondary income Financial account FDI, net Portfolio investments Other investments Apr 37.3 117.5 82.3 29.4 8.0 -2.4 2.4 30.9 -7.6 175.4 -129.0 May 7.2 124.7 92.2 15.9 6.6 -9.0 -6.4 -8.8 -15.9 21.5 -24.6 Source: CNB, National Statistics, Eurostat, J.P. Morgan forecasts Jul 2.9 3.4 __ 1.0 __ 0.8 __ 2.5 __ 8.2 Jun __ __ 100.9 __ __ __ __ __ __ __ __ -12.8 111.9 3.9 6.8 -28.9 5.3 3.6 -12.7 -145.2 150.5 Hungary: Consumer prices %oya May Jun Jul All items (KSH) 5.1 5.3 4.6 %m/m nsa 0.5 0.6 __ 0.5 Food 2.6 3.2 __ 3.1 Consumer durables 3.5 3.7 __ 3.8 Fuel 36.2 24.2 __ 19.7 Services 2.1 3.8 __ 2.9 Core inflation 3.6 3.4 3.9 3.6 __ 3.3 %m/m, sa 0.4 0.5 0.4 __ 0.2 Regulated g&s (NBH) 0.0 2.1 __ 0.7 Market g&s (NBH) 6.0 5.8 __ 5.3 Headline CPI fell 0.7%-pts in July to 4.6%oya, in line with our forecast. The decline was driven by lower fuel inflation and a goods-led drop in core CPI. Food prices moved roughly side- ways, as expected. Core inflation fell 0.3%-pts to 3.5%, mar- ginally stronger than anticipated. Within core CPI, the bulk of the drop is explained by core goods, but the drop was related to base effects as the sequential increase was still a very solid 0.5%m/m sa. Services lost a bit of momentum, rising 0.3%m/m sa, which is slower than the average pace of 1H21 (0.45%m/m sa). We expect that inflation will reaccelerate in what’s left of the year to average 5.7%oya in 4Q21, on the back of higher food and core inflation. Inflation’s elevated profile gives NBH no room to breathe, and we expect another 30bps increase to both the policy rate and the 2-week depo (to 1.5%) later this month. NBH 1-week deposit facility rate decision % NBH held the 1-week deposit rate at 1.20%, as expected. Source: NBH, National Statistics, Eurostat, J.P. Morgan forecasts Poland: Consumer prices, final %oya, unless otherwise stated May Jun Jul %oya 4.7 4.4 5.0 %m/m, nsa 0.3 0.1 0.4 Food 1.7 2.0 3.1 Fuel 33.0 27.3 30.0 Real GDP, preliminary %oya, unless otherwise stated 4Q20 1Q21 2Q21 Real GDP, nsa -2.7 -2.8 -0.9 -1.2 10.0 10.9 %q/q saar -2.0 4.5 7.3 7.8 See main text for details. Balance of payments EUR mn CA balance YTD (bn) YTD-a year ago (bn) Trade balance Exports %oya Imports %oya Service balance Primary income Secondary income Fin + cap balance FDI, net Apr 1631 4.6 5.7 1300 69.2 59.7 2029 -1650 -48 4001 -977 May Jun 60 129 __ 4.6 __ 7.3 10.6 185 __ 41.7 __ 53.7 __ 1829 __ -1726 -1657 __ -228 __ 1533 1006 __ 679 -151 __ Source: NBP, National Statistics, Eurostat, Markit, J.P. Morgan forecasts Romania: External trade EUR bn Trade balance Ytd Ytd a year ago Exports, %oya Imports, %oya Apr May Jun -1.7 -1.8 __ -7.1 -8.8 __ -6.1 -7.4 -8.7 113.2 58.5 __ 74.6 54.2 __ Consumer prices %oya May Jun Jul %oya 3.7 3.8 3.9 5.5 %m/m nsa 0.5 0.3 __ See main text for details. Industrial output %oya Industrial output, nsa Industrial output, sa %m/m sa Apr May Jun 67.8 28.8 __ 64.7 30.4 __ 3.7 -8.5 __ 281 5.0 761 23.9 36.3 2036 -2158 -358 2337 480 -1.8 -10.7 28.9 31.1 5.0 1.0 11.6 12.6 0.3 60 J.P. Morgan Bank International LLC Anatoliy A Shal (7-495) 937-7321 anatoliy.a.shal@jpmorgan.com José Cerveira (44-20) 7742-3556 jose.a.cerveira@jpm organ.com Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466 nicolaie.alexandru@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Current account balance EUR bn Apr May Jun Current account -1.3 -1.1 -1.6 -1.3 __ -1.6 Ytd -4.3 -4.2 -5.9 -5.5 __ -7.0 Ytd a year ago -2.3 -3.2 __ -4.1 Source: National Statistics, Eurostat, J.P. Morgan forecasts Russia: Merchandise trade US$ bn, nsa Trade balance Exports Imports Apr May Jun 10.6 10.2 12.0 18.3 36.9 34.8 36.5 43.9 26.3 24.6 24.5 25.6 Real GDP %oya, unless otherwise stated Real GDP %q/q saar 4Q20 -1.8 9.6 1Q21 -0.7 5.4 2Q21 10.0 10.3 5.0 Source: Rosstat, MinFin, AEB Russia, Markit, J.P. Morgan forecasts Turkey Industrial production %oya Total Manufacturing Mining Energy and utilities Apr May Jun 66.3 40.7 40.9 __ 23.9 72.5 42.8 43.0 __ 24.8 25.9 33.4 33.7 __ 24.3 27.9 20.9 __ 13.9 CBRT rate decision % Jun Jul Aug CBRT 1-week repo rate 19.00 19.00 19.00 See main text for details. Balance of payments US$ bn Current account Trade balance Exports Imports Net invisibles/transfers Capital account Overall balance Apr May Jun -1.7 -3.1 -1.0 -1.1 -1.5 -2.9 -1.4 -1.6 18.6 16.6 20.1 19.6 20.2 19.4 21.5 21.2 -0.1 -0.2 -0.4 2.9 -0.7 -4.5 __ -7.0 1.2 -1.3 __ -8.8 Source: Turkstat, CBRT, Ministry of Treasury and Finance, J.P. Morgan forecasts 61 JPMorgan Chase Bank, N.A., Johannesburg Branch Sthembiso E Nkalanga (27-11) 507-0422 sthembiso.nkalanga@jpmorgan.com Sonja Keller (27-11) 507-0376 sonja.c.keller@jpm organ.com Economic Research South Africa & SSA August 13, 2021 South Africa & SSA  South Africa: July inflation likely soft despite hikes in administered price  Risk to the inflation outlook are skewed to the upside, with SARB to hike in November  Zambia: Election too close to call, but outcome will be critical for medium-term prospects  We upgrade our macroeconomic forecast on an improved external backdrop and weather conditions SA: July inflation likely soft despite administered price hikes The July inflation data in South Africa should reflect contained core and headline inflation, notwithstanding administered price hikes. For July, we project that core inflation remained steady at 3.1%oya, with lower prices for alcoholic beverages (also helped by a ban on alcohol sales) and miscellaneous goods and services accounting for much of the slowdown. A relatively small petrol prices hike should offset upward adjustments in utilities, underpinning a drop in headline inflation to 4.7%oya from 4.9% in June (Figure 1). Overall demand-pull pressures remain muted, but the pickup in food inflation over the last three months and the slight ZAR weakening since mid-June risk an upward drift in inflation in coming months. Figure 1: South Africa inflation outlook %oya 7.0 Repo rate % Forecast 6.0 5.0 Core 4.0 Headline inflation 3.0 Lower end of band 2.0 2016 2017 2018 2019 2020 2021 2022 Source: StatsSA, J.P.Morgan forecast We had already incorporated some upward adjustment for petrol prices in our inflation forecast, but the ZAR depreciation led to a bigger rise in early August than we had anticipated. This marginally lifts our near-term inflation profile. Risks to the inflation outlook are broadly skewed to the upside, with developments in food prices likely to dictate the outlook. Although SARB commentary was considerably less hawkish at the July MPC meeting, we maintain our call for a 25bp rate hike to 3.75% in November. Zambia: Election too close to call, but outcome critical for medium-term prospects The outcome of this week’s election could meaningfully shape Zambia’s medium-term economic outlook, as the new president will need to deal with issues such as delivering an economic reform package that is both acceptable to the IMF and politically expedient. Also, resolving the debt restructuring and improving governance institutions will not be easy tasks for the next president. In any event, the election may be inconclusive in the first round given the opposition’s improved performance in recent elections and split polling (see here). We revise our macroeconomic projections amid a supportive commodity price environment. The 2021 budget deficit (cash basis) is set to be narrower than the authorities originally anticipated. Total revenues are 46% ahead of budget expectations for the first 5 months of the year. The increase in revenues was driven in part by a significant 110% increase in copper royalties, which made up 12% of total revenues, during the period. Expenditures undershot the budget run rate by 13% during the first 5 months, but we believe election-related spending are likely to drive expenditures above the target. We lower our 2021 fiscal deficit forecast to 7.8% of GDP (from 9.4% previously). But, the deficit remains elevated and would not lower the debt-to-GDP ratio quickly enough. We expect the ratio to decline to 95% this year, from an estimated 106% in 2020 (Figure 2). Figure 2: Debt-to-GDP ratio % 120 100 80 60 40 20 0 2018 2019 Source: Minsitry of Finance, JP Morgan 2020 2021F 2022F With a fading drought impact and increased mining activity, we now forecast 2.3%y/y growth this year, up from 1.5% previously, and 2.8% in 2022 (from 2.0%). However, we note that downside risks to growth could come from more mobility restrictions that may become necessary in the face of rising COVID-19 infections. Meanwhile, the central bank of Zambia should start its policy normalization with a 150bp rate hike to 10.0% by end-2021 (Figure 3). Lastly, the relatively strong copper prices and increased foreign inflows should support the balance of payments, with the current account surplus likely to widen to 15.2% of GDP this year, from 11.6% in 2020. 62 JPMorgan Chase Bank, N.A., Johannesburg Branch Sthembiso E Nkalanga (27-11) 507-0422 sthembiso.nkalanga@jpmorgan.com Sonja Keller (27-11) 507-0376 sonja.c.keller@jpm organ.com Economic Research Global Data Watch August 13, 2021 Figure 3: Zambia inflation and policy rate %oya 25 Headline inflation 20 Forecast 15 Policy rate 10 5 14 15 16 17 18 19 20 21 22 Source: Bank of Zambia, Central Statistics Office, J.P. Morgan forecast South Africa Data releases and forecasts Week of August 16 – 20 Wed Aug 18 10:00am Consumer prices %oya, except as noted Apr May Jun Jul CPI 4.4 5.2 4.9 4.7 %m/m, sa 0.7 0.1 0.2 1.2 Core 3.0 3.1 3.2 3.1 Wed Aug 18 1:00pm Retail sales %oya Real Nominal Mar Apr May Jun -2.3 95.7 15.8 __ 0.0 92.5 19.4 __ Review of past week’s data Manufacturing production Volume output Apr May Manufacturing (%oya) 88.1 36.3 %m/m, sa -1.4 -2.0 Source: StatsSA, National Treasury, J.P. Morgan forecasts Jun __ 12.5 __ -0.7 Review of past week’s data Ghana : CPI %oya May Jun 7.5 7.8 Source: Haver, J.P. Morgan forecasts SSA Data releases and forecasts Week of August 16 – 20 Nigeria Consumer prices Aug 16 %oya Apr May Jun Jul 18.1 17.9 17.8 15.5 Jul __ 9.0 63 J.P. Morgan Securities plc Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Francesco Arcangeli francesco.arcangeli@jpmorgan.com Economic Research MENA August 13, 2021 MENA  Saudi Arabia: 2021 fiscal deficit is expected to be much narrower than is envisaged in the budget  Egypt: Inflation accelerated in July entering the CBE inflation target band for the first time since December Saudi Arabia: Very narrow fiscal deficit in 1H In Saudi Arabia, the fiscal deficit dropped to SAR 4.6bn (USD 1.23bn) in 2Q21, a steep fall from 2Q20. A mix of higher oil and non-oil revenues pushed the fiscal balance close to zero, resulting in a very narrow SAR 12bn deficit in 1H21, down from SAR 143bn deficit in the same period of 2020 (Figure 1). On the back of higher international prices, and despite still subdued production due to OPEC+ curbs in the first months of 2021, oil revenues were the strongest since 2Q19 and we expect them to increase further in 2H on the back of higher production and still-profitable international oil prices. Non-oil receipts picked-up as well with VAT continuing to be the major source of revenue in this category, and large increases also from taxes on companies enjoying growth in non-hydrocarbon activities. On the expenditure side, despite the boon of higher oil revenues, government spending remained contained with the authorities committed to fiscal consolidation. Figure 1: Saudi Arabia fiscal balance and revenues SAR bn 300 Oil rev Non-oil rev Fiscal balance rhs 250 200 150 100 50 0 % of GDP 2 1 0 -1 -2 -3 -4 -5 Source: MoF,J.P. Morgan We expect the fiscal deficit to be much narrower than was envisaged in the budget. The Saudi budget targeted a 4.9% of GDP deficit for 2021, down from 11.2% in 2020. Looking at the current figures for 2H21, the tracking clearly points to a result much closer to balance. The Saudi authorities did not provide their oil price assumption, however, there is no doubt that it was much lower than current oil prices. The budget projected a conservative SAR 849bn figure for total receipts. In the first half of the year, receipts reached SAR 453bn and the higher oil production in 2H, paired with growth in non-oil revenues sustained by the economy re-opening, are very likely to boost revenues further and easily exceed the target. Expenditures in the first half of the year appear to have been in line with the budget. Despite expenditures being at their highest in the last quarter of the year due to seasonality, the deficit should be very narrow if authorities keep spending in line with the budget. At the moment, we see the deficit reaching 2.3% of GDP, however there are clear risks of an even narrower shortfall. Despite a the low deficit, financing reached SAR 51bn in 1H, with over-financing to be used to cover fiscal needs in the rest of the year. Financing was about four times the size of the deficit, with 47% coming from domestic borrowing and the rest from external borrowing which slowed down materially to SAR 3.9bn in 2Q21. As expected, no financing from government reserves happened in 2021, after SAR 99.5bn was accessed in 2020. The budget anticipated the use of SAR 66bn in government reserves financing, but as things stand, this appears unlikely. Saudi GDP grew 1.5%oya in 2Q21 according to the flash report. Despite the hydrocarbon sector contracting 7.0%oya, the bounce-back of non-hydrocarbon activity continued to push overall GDP higher. The private non-oil sector reported 10.1% growth in 2Q21, whereas the public sector reported marginal 0.7% growth. In the coming months, we expect GDP to grow very fast, as higher oil production boosts headline growth into 2022. While we wait for final 2Q figures, the expenditure breakdown, and any potential revisions to the data, our forecast for GDP growth remains unchanged at 2.9% for 2021 and 5.0% in 2022. Egypt: CPI returning to the CBE inflation target band In July, urban headline CPI inflation jumped to 5.5%oya from 4.9% in June. The upward move in headline CPI was in line with our forecast trajectory, but we anticipated an above-6% reading. Regulated prices pushed up headline inflation, but the impact of the electricity tariff hike (between 8% and 26% depending on consumption) was smaller than we expected. In addition, usual early-fiscal-year increases in other regulated prices such as health, and alcohol & tobacco were small. Still within regulated prices, the roughly 3% hike in pump prices across different petrol products occurred in the last 10 days of July, implying that its impact mostly will be felt in August. On the core goods side, the index moved higher but the hospitality sector prevented further acceleration. As economic activity continued to recover with mobility moving higher above pre-pandemic levels, annual core CPI inflation accelerated to 4.6%oya from 3.8% in June, the highest reading since August 2019. Our expectations were for a 5.0%oya reading and the downside surprise was mostly due to hotel and restaurant prices, which did not increase in line with their usual seasonal pattern. The reason for this softer increase is likely weak de- 64 J.P. Morgan Securities plc Yarkin Cebeci (44-20) 7134-7547 yarkin.cebeci@jpm organ.com Francesco Arcangeli francesco.arcangeli@jpmorgan.com Economic Research Global Data Watch August 13, 2021 mand on account of fewer tourists. Despite a clear increase in arrivals, tourism figures are still far below historical highs. However, among tourism-related sectors, the recreation and culture sector, which has a smaller weight than hospitality, saw a large price pick-up in the last two months. The upward move appears to be related to re-pricing of package holidays, with prices jumping 5.7%m/m in June (July detail will be available with August release). Saudi Arabia: Sun Aug 15 9:00am Consumer prices %oya %oya %m/m nsa Food Housing Transport Apr May Jun Jul 5.3 5.7 6.2 0.6 0.2 0.2 0.2 __ 8.4 7.4 8.0 __ -2.6 -2.5 -2.3 __ 14.9 19.3 22.6 __ Higher international prices, recovering economic activity, and base effects should continue to raise the inflation profile, however the lower-than expected utility price increases lower our forecast for FY22. Food prices remain volatile, but likely will continue to move higher as a reflection of higher international prices and due to the very low base of last two fiscal years when the food CPI increased by just 0.2%y/y in FY21 and 0.7% in FY20, far below longer term averages. We also expect fuel prices to be raised again later in the year with another potential increase in 4Q in line with high oil prices and the stable pound. However, mostly due to the aforementioned lower increase in utility prices, we shift down our CPI profile with the CPI now expected to increase 8.0%y/y in FY22, from 8.4%. Despite the change, as the shift is due to regulated prices, our monetary policy call remains unchanged; we expect the CBE to remain on hold for the rest of the year with a first 50bp hike in 1Q22 (Figure 2). Figure 2: Egypt CPI headline and CBE O/N deposit rate % CBE deposit rate Headline CPI (rhs) 20 %oya 35 Review of past week’s data Egypt: PMI Index PMI, Composite May Jun 48.6 49.9 CBE rate decision % See main text Consumer prices %oya %oya %m/m nsa Core Food Housing Transport May Jun 4.8 4.9 0.7 0.2 3.4 3.8 1.7 3.4 4.6 3.8 6.9 6.6 Jul __ 49.1 Jul __ 5.4 __ 0.9 __ 4.6 __ 4.9 __ 4.1 __ 6.5 30 Industrial output 15 25 %oya 20 Apr May Jun 15 Production 19.2 22.9 23.3 __ 20.0 10 Production, m/m -7.7 0.7 1.1 __ 5.8 10 Inflation target band (rhs) 5 5 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: CBE, J.P. Morgan - Shaded area indicates JPM forecast Data releases and forecasts Saudi Arabia: PMI Index PMI, Composite May Jun 56.4 56.4 Jul __ 55.8 Weeks of August 16 – 27 Egypt: Wed Aug 18 9:00am External trade USD bn Trade balance Ytd Ytd a year ago Exports Imports Real GDP, final %oya, unless otherwise stated 4Q20 1Q21 Real GDP, nsa -3.9 -3.0 %q/q saar 7.4 -2.1 Mar Apr May Jun -2.7 -3.1 -3.3 -9.2 -12.3 -15.6 __ Source: CBE, MoPE, GASTAT, SAMA, Markit, J.P. Morgan forecasts __ -10.8 -14.4 -17.0 -20.3 3.4 2.8 3.1 __ 6.1 5.9 6.5 __ 2Q21 __ 1.5 __ 4.6 65 J.P. Morgan Securities Australia Limited Ben K Jarman (61-2) 9003-7982 ben.k.jarman@jpmorgan.com Tom Kennedy (61-2) 9003-7981 tom.kennedy@jpmorgan.com Economic Research Australia and New Zealand August 13, 2021 Australia and New Zealand  Australia’s unemployment rate is forecast to have ticked one-tenth higher in July, while underemployment spiked  We look for a large decline in the participation rate as businesses are forced to close and furlough employees  The RBNZ is expected to hike 25bp next week, although a 50bp hike is also possible Australia’s July labor force survey, released this coming Thursday, will provide the first look at how the lockdown in Greater Sydney (and to a lesser extent other parts of the country) have influenced labor supply/demand dynamics. Given the current breadth of lockdowns and government policy supports, we expect most of the deterioration in the labor market to be reflected in a sharp decline in hours worked as firms rein in labor demand (resulting in higher underemployment), as well as a drop in labor supply as some firms are forced to close and furlough workers. Using the impact from the 2020 lockdowns as a guide and scaling the data by the share of the population in lockdown through July (~20%) we find that the participation rate is likely to fall 0.4%-pts, materially less than last year’s drop (Figure 1). Assuming hiring activity stalled across Greater Sydney, the drop in labor supply implies employment contracted by 70K last month. Importantly, given these individuals are unlikely to be seeking work actively, the impact on the unemployment rate should be relatively minor, so we look for only a modest one-tenth uptick in the jobless rate to 5%. Figure 1:Australia labour force participation rate % of WAP 67 66 65 64 63 62 05 07 09 11 13 15 17 19 21 Source: ABS, J.P. Morgan Of course there is a high degree of uncertainty heading into the July print, given the timing of the survey (July 11 – 25) means that only half of the ban on construction activity in Greater Sydney will be captured. In addition, it’s not clear whether last years’ experience is still a precise point of comparison as WFH is now common practice which makes the transition less disruptive. Australia’s wage price index for the June quarter is also released in the week ahead. We look for 0.6%q/q quarterly wage growth, which if realized would see the annual rate increase to 1.9%oya. The fall in the unemployment rate has occurred faster than we had expected and at 4.9% the rate is now at the lowest level in a decade. The reaction function of wages to the current level of joblessness is therefore somewhat of an unknown so we highlight that risks are skewed toward slightly stronger wage gains. That said, Australia's Phillips curve has shifted down after the mining investment boom era (since 2014) and the current relationship implies material wage pressure is unlikely until the unemployment rate approaches 4%. Figure 2: Australian unemployment and wage growth WCI, %oya 4.5 4.0 2000-2013 2014-present 3.5 3.0 2.5 2.0 1.5 1Q21 1.0 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Source: ABS, J.P. Morgan Unemployment % RBA minutes to hold the line At the RBA’s August decision, the board chose not to backpedal on July’s quasi-tightening. In particular the decision to reduce the QE purchase pace from September seems quite locked-in, as official commentary at the meeting, and in the Governor’s parliamentary testimony since, have argued that for QE, it is stock not flow that matters. In other words, the announcement that purchases are continuing beyond the conclusion of QEII should matter more than the fact that the flow is reduced marginally. QE is therefore still offering stimulus and Governor Lowe also argued effectively that balance sheet policy is less well-equipped to manage shorter-term, geographically narrower lockdowns, compared to fiscal policy. This owes to lags in the transmission of QE into the real economy, which would become active after the interruption had passed. Officials have argued that policy will respond to the recent drag on activity only if it begins to infect the outlook for 2022. As usual, this assessment probably will be made in terms of the labor market. At the time of the RBA’s August meeting, the most recent data at hand showed another decline in the unemployment rate to a decade low. We expect next week’s minutes to similarly put more emphasis on the positives of accumulated improvement in the labor market so far, than on short-term lockdown interruptions. Relative to the 66 J.P. Morgan Securities Australia Limited Ben K Jarman (61-2) 9003-7982 ben.k.jarman@jpmorgan.com Tom Kennedy (61-2) 9003-7981 tom.kennedy@jpmorgan.com Economic Research Global Data Watch August 13, 2021 expansive commentary offered at the parliamentary testimony, this shouldn’t break much new ground. RBNZ preview Next week’s August RBNZ rate decision approaches as a fairly uniform lottery. We expect a 25bp hike, and two more at the following two meetings. The August decision is priced at a little over one full 25bp tightening. This seems fair as a 50bp move is possible, as is a no-change scenario if the RBNZ’s intent with recent communications was to jawbone mortgage pricing and rein in the housing market, without yet wanting to follow through with policy tightening. Still, there has probably been enough communication over the last eighteen months that the committee probably needs to act on recent signaling, and we think 25bp is the most reasonable option. The messaging that comes with next week’s decision will also be important. In the event of a no-change decision, there will be some explaining to do but the guidance will likely suggest that tightening is coming soon. The local market has been worked into a sufficiently frenzied state that delaying action would see a higher terminal rate priced into 2023. The latest communications accompanying guidance on LVR restrictions suggested rate hikes will initially move forward as a complement to additional macro-prudential tightening. But history and economics say that moving on both the price and quantity of credit has a greater effect than either alone. So starting a hiking cycle would probably see the staff’s OCR path dragged forward, but without adding much to the previous OCR highwater-mark of about 2% at the terminal point. above the target in 2023/4 (despite hikes), and presumably will be even firmer in this round. We see the inflation data as having more flame than heat since the rise vs. pre-COVID rates comes entirely from tradeables prices, which is inflated by supply disruptions and has a long-run stationary trend of around zero. The Governor’s commentary will likely acknowledge that some of the recent inflation pickup has been temporary, but also highlight underlying strength from reduced capacity which requires getting closer to neutral soon. Australia Data releases and forecasts Week of August 16 – 20 Wed Aug 18 11:30am Private wages ex. overtime %q/q Sep Dec 0.4 0.6 Mar Jun 0.6 0.6 Thu Aug 19 11:30am Labor force survey Unemployment rate (%) Employment (ch. 000s) Participation rate (%) Apr May Jun Jul 5.5 5.1 4.9 5.0 -30 115 29 -70 65.9 66.2 66.2 65.9 Review of prior week’s data NAB business confidence May Jun Jul Index 15.0 11.0 -8.0 This would balance recent positive news on the labor market against the many headwinds from tighter prudential settings, New Zealand and moving early on rates. On a 50bp hike, the message will likely be quite mixed. As discussed in last week’s strategy publication, Governor Orr has done ‘recalibration’ moves Data releases and forecasts Week of August 16th – 20th before, and the commentary that policy needs to be “continu- Wed RBNZ OCR decision ously” consistent with the objectives suggests an abrupt move Aug 18 Apr May Jul Aug might be deemed necessary from a housing perspective. The 11:30am % 0.25 0.25 0.25 0.5 motivation would be to fill the timing gap until macro- prudential tightening gains traction, and so could feasibly remove some pressure to act again in the next twelve months, Review of prior week’s data in terms of the RBNZ’s own rate guidance. The rates market would however likely push more tightening into 2022/3 on No data releases of note. such a sharp hike-then-pause message. Source: ABS, Stats NZ, J.P. Morgan forecast. Returning to the fundamentals, the RBNZ is in the same scenario as the RBA in that the unemployment rate has just regained pre-COVID levels. The underperformance on inflation was not as pronounced leading into COVID-19 however, which allows more scope to normalize than the RBA has, and this gap is compounded by differences in staff inflation forecasts. The RBNZ’ inflation forecasts already showed inflation 67 JPMorgan Chase Bank, N.A., Hong Kong Haibin Zhu (852) 2800-7039 haibin.zhu@jpm organ.com Tingting Ge (852) 2800-0143 tingting.ge@jpm organ.com Grace Ng (852) 2800-7002 grace.h.ng@jpmorgan.com Economic Research Greater China August 13, 2021 Greater China  China: July credit growth disappointed, reinforcing downside pressure on near-term growth  CPI inflation eased further while PPI picked up again unexpectedly  Export activity moderated, slowing commodity imports hints at modest investment growth  FX reserves rose to $3.236 trillion; stable 2H CNY outlook with near-term bias to weakness  Downward revision of GDP forecasts  Taiwan: July trade report marked steady nominal exports growth; volume growth has moderated  GDP grew 7.43%oya in 2Q; virus drag to fade in 2H  Next week: China FAI, IP and retail sales, Hong Kong CPI and unemployment, Taiwan export orders July TSF growth came in below expectations, slowing to 10.7%oya (Figure 1). The major drag arose from a notable slowing in net issuance of government bonds, in particular central government bonds, a modest easing in corporate bond issuance and a continued contraction in shadow credit. Bank loans grew a solid 12.3%oya in July, with modest easing in medium and long-term loans to both households and corporations. M2 money supply growth slowed to 8.3%oya in July on a 0.3%m/m sa decline. Figure 1: China TSF growth %oya 24 20 16 12 8 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: PBOC; J.P. Morgan The disappointing July credit report reinforces our concern about near term macroeconomic policy drag. The sharp slowing in net government bond issuance, especially the contraction of central government issuance, suggests relatively tight fiscal conditions. The moderate easing in medium and longterm loans to the household sector (largely related to mortgage loans), suggests property sector drag from the credit tightening. Medium- and long-term loans to the corporate sector also slowed despite ongoing policy emphasis on credit 68 support for the manufacturing sector. This suggests easing corporate loan demand, probably reflecting concerns among downstream industrial enterprises amid rising input costs and limited downstream pricing power. Finally, the further contraction in shadow credit is consistent with the CBIRC’s latest comment that adjustments of non-standard financial products should largely been done by end-2021. China: CPI inflation eased further in July; PPI picked up again unexpectedly The July inflation report marked further modest easing in CPI inflation, while PPI inflation ticked up again. Headline CPI inflation eased to 1.0%oya in July from 1.1%o in June on a 0.1%m/m, sa gain (Figure 2). Pork prices declined a further 1.9%m/m nsa, while energy prices rose. Core CPI inflation ticked up to 1.3%oya in July. After easing a bit in June, PPI inflation turned up again in July, to 9.0%oya on a 0.6%m/m sa increase (Figure 3). But consumer goods PPI inflation stayed modest at 0.3%oya, suggesting limited feedthrough from PPI to CPI inflation. Figure 2: China Headline CPI, food and non-food CPI %oya, both scales 8 Headline CPI Food CPI 25 6 20 Nonfood CPI 15 4 10 2 5 0 0 -2 -5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: NBS, J.P. Morgan Figure 3: China PPI vs. global commodity price index %oya, both scales 70 China PPI 10 J.P.Morgan commodity 50 price index 5 30 10 0 -10 -5 -30 -50 -10 2008 2010 2012 2014 2016 2018 2020 Source: NBS, J.P. Morgan We expect pork prices to stabilize gradually, but a high base in 2H20 suggests pork prices will remain a notable drag on annual headline CPI inflation in the coming months. Consumption and service-sector activity also likely will slow in the near term, considering the latest outbreak of the Deltavariant and regulatory changes, dragging down core CPI infla- JPMorgan Chase Bank, N.A., Hong Kong Haibin Zhu (852) 2800-7039 haibin.zhu@jpm organ.com Tingting Ge (852) 2800-0143 tingting.ge@jpm organ.com Grace Ng (852) 2800-7002 grace.h.ng@jpmorgan.com Economic Research Global Data Watch August 13, 2021 tion over the next 1-2 months. Overall, we expect headline CPI inflation to average around 1.1%oya in 3Q, and to tick up to slightly above 2% in 4Q on base effects. Our forecast for 2021 full-year CPI inflation stands at 1.1%y/y, well below the government’s target of “around 3%.” Recent government policies to contain commodity prices appear to have helped ease increases in the PPI prices of a range of industrial materials. Nonetheless, coal prices rose further upon seasonal demand, and oil prices increased with the global trend. We expect China’s annual PPI inflation to peak and to moderate gradually in the coming months. Exports declined in July, commodity imports slowed, signaling slow investment China’s trade activity came in below expectations in July, following the solid performance in June. Merchandise exports grew 19.3%oya on 1.3% m/m sa decline, partly reversing June’s 3.4% gain, with sequential trend growth falling to -0.6% 3m/3m saar (Figure 4). Shipments to the US grew 1.9% m/m, sa in July, but exports to Europe and Japan declined 1.4% and 1.6%, respectively. Exports of lower-end consumer goods fell 3.2% m/m, sa, while exports of tech products held up well, rising 1.3%. Imports fell notably by 3.2% m/m sa in July, after a modest 0.3% gain in June. It is worth noting that import volumes of major industrial metals (iron ore and copper) has slowed steadily over the past four months, suggesting moderating domestic investment growth. Figure 4: China merchandise trade growth %3m/3m saar 120 Exports Imports 90 60 30 0 -30 -60 2010 2012 2014 2016 2018 2020 2022 Source: China Customs, J.P. Morgan Despite near-term uncertainty around the spread of the Delta variant, we believe the global growth outlook in 2H21 remains constructive, which should support the demand for China’s exports. Supply bottlenecks, including container shortages, higher transport costs and longer delivery times, have caused operating difficulties for Chinese exporters in recent months. Regarding the latest outbreak of the Delta variant, the likelihood of a significant drag on the manufacturing and export sectors seems low. Overall, we expect China’s export growth will comfortably exceed 20% in 2021, and China’s share in global exports will stay within the high range of 15-16%. FX reserves rose to $3.236 trillion in July; stable 2H CNY outlook China’s July FX reserves came in line with our expectations, rising US$21.9 billion to US$ 3.236 trillion. Our forecast of a $45.2 billion current account surplus implies that capital outflows picked up to $27.1 billion as recent tightening of regulations sparked market turmoil (Figure 5). Figure 5: China's capital outflow (monthly estimate) USD bn 50 0 -50 -100 -150 -200 Mar 15 Mar 16 Mar 17 Source: SAFE, J.P. Morgan Mar 18 Mar 19 Mar 20 Mar 21 Despite recent equity market weakness, the CCDC reported US$11.6 billion inflows to the bond market in July, with 67% of the inflows into CGBs. Amid the sharp price correction and selloffs following the education regulation policy announcement, both the Southbound and Northbound Connect schemes recorded net inflows. We continue to expect solid portfolio inflows against the backdrop of China’s continued efforts to open up markets and the structural under-representation of foreign investors in China’s bonds and equities. However, we will watch regulatory policy developments in China and the possible US response. Overall, we maintain our call of a stable USD/CNY in 2H with a year-end target at 6.45, but retain a near-term weakness bias on a current-quarter real GDP growth slowdown and the headwinds of recent regulatory policy tightening. Downward revision of GDP forecasts In response to latest developments, we have revised down our current-quarter growth forecast from 4.3%q/q saar to 2.0%. We also lift the 4Q GDP growth forecast to 6.6%q/q saar from 6.1%. As a result, the full-year growth forecast in 2021 now stands at 8.9%y/y (Table 1). Table.1: GDP forecast revision 2021 2022 3Q21 4Q21 1Q22 GDP Previous 9.1 5.6 7.4 5.4 6.2 %oya New 8.9 5.7 6.7 5.2 6.1 GDP Previous 4.3 6.1 5.5 %q/q saar New 2.0 6.6 6.1 Source: NBS; J.P. Morgan estimates 69 JPMorgan Chase Bank, N.A., Hong Kong Haibin Zhu (852) 2800-7039 haibin.zhu@jpm organ.com Tingting Ge (852) 2800-0143 tingting.ge@jpm organ.com Grace Ng (852) 2800-7002 grace.h.ng@jpmorgan.com Economic Research Greater China August 13, 2021 The additional downward revision reflects the following factors. First, the latest outbreak of the Delta-variant has spread to a number of provinces. As the Delta-variant is more contagious, under China’s “zero tolerance policy” it has triggered strict individual mobility restrictions in affected areas (with reported local cases and traced close contacts). We expect the situation can be brought under control in the next several weeks, but the epidemic control procedure is expected to dent consumption and services. Second, the ban on K9 academic tutoring, along with a number of regulatory changes in neweconomy sectors to protect the rights of consumers and workers could not only disrupt the tutoring business, but also lead to rising unemployment and drag on the recovery in income growth. Third, recent market turbulence and negative sentiment in equity and bond markets may spill over and weigh on private investment. Downside macroeconomic risk likely will trigger a macroeconomic policy adjustment. Fiscal policy will likely be growth supportive using under-utilized fiscal space. On the monetary policy front, we now add two 50bp RRR cuts in October and January 2022, respectively, to our forecast, and a 5bp policy rate cut (7-day reverse repo rate, 1-year MLF rate and by extension 1-year LPR) in 4Q. The more important indicator to assess the credit policy stance is TSF growth, which we expect to come in at 11.3% by year-end, up from 11.0% in June. Taiwan: Steady nominal export trend; volume growth has moderated Taiwan’s exports beat expectations in July, growing 34.7%oya on a 2.2% m/m sa expansion, leaving sequential trend growth at 21.7% 3m/3m saar in July. It appears that the price increase supported Taiwan’s nominal exports growth in recent months. Adjusted for export prices, the sequential trend in real exports moderated notably to 3.5%3m/3m saar in July (Figure 6). Nominal imports grew 41.0%oya in July on a 0.8%m/m sa decline. The trade surplus came in at US$ 5.9 billion, compared to $5.1 billion in June. Figure 6: Taiwan nominal and real exports Nominal export, %3m/3m saar 50 Export volume, US$ terms adjusted by export 40 price index 30 20 10 0 -10 -20 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: MoF, DGBAS, Markit, J.P. Morgan Solid global economic growth should continue to support Taiwan’s export sector. The upcoming new smartphone launches in 3Q also should boost Taiwan’s tech export performance in the near term. Besides, the latest increase in Taiwan’s capital goods imports hints at solid corporate capex, especially in the tech-oriented export sector, reinforcing Taiwan manufacturers’ optimistic outlook on the external demand outlook. Taiwan: GDP grew 7.43%oya in 2Q; virus drag to fade going into 2H Taiwan’s GDP grew 7.43%oya in 2Q (vs. 7.47% in the advance report), following an upwardly revised 9.27% gain in 1Q. Seasonally adjusted, GDP contracted 4.2% q/q saar in 2Q (vs -7.9% in the advanced report), in payback after the 12.1% surge in 1Q (Figure 7). The details highlight solid export growth and further expansion in fixed investment, while private consumption nose-dived 14.4% q/q saar on the resurgence of COVID-19 infections. Industry-level data suggest industrial activity expanded a solid 9.4% q/q saar in 2Q (vs. 23.3% in 1Q), while service sector-activity contracted 8.7% (vs +6.7% in 1Q). Figure 7: Taiwan real GDP growth % change 10 8 %oya 6 4 2 0 -2 2013 2015 2017 Source: DGBAS, J.P. Morgan 25 %q/q saar 20 15 10 5 0 -5 2019 2021 The domestic COVID-19 outbreak dragged on domestic economic activity, including retail sales, tourism and entertainment and related service-sector activity in May-June amid, tightening social-distancing measures and the hit to private sector confidence. But, the good news is that domestic virus cases have eased notably lately, allowing for modest easing of social-distancing measures since late July and a rise in mobility. Our baseline forecast looks for the Taiwan economy to recover going ahead, expanding 5.2% q/q saar in 3Q and 8.0% in 4Q, considering supportive external demand conditions and a gradual normalization of domestic activity. Our forecast for full-year 2021 GDP growth stands at 6.4%y/y. 70 JPMorgan Chase Bank, N.A., Hong Kong Haibin Zhu (852) 2800-7039 haibin.zhu@jpm organ.com Tingting Ge (852) 2800-0143 tingting.ge@jpm organ.com Grace Ng (852) 2800-7002 grace.h.ng@jpmorgan.com Economic Research Global Data Watch August 13, 2021 China: Data releases and forecasts Week of August 16 – 20 Mon Aug 16 10:00am Fixed investment % change %oya %oya, ytd Apr May Jun Jul 10.9 5.5 6.0 4.3 19.9 15.4 12.6 11.1 Mon Aug 16 10:00am Industrial production % %oya %m/m sa Apr May Jun Jul 9.8 8.8 8.3 8.0 0.1 0.6 0.6 0.6 Mon Aug 16 10:00am Retail sales % change %oya %m/m sa Apr May Jun Jul 17.7 12.4 12.1 11.1 -7.0 0.7 0.9 0.8 Review of past week’s data Merchandise trade (7 Aug) US$ bn May Balance 45.4 Exports 263.8 %oya 27.8 Imports 218.4 %oya 50.8 45.4 263.8 27.8 218.4 50.8 Jun 51.5 281.4 32.2 229.9 36.7 51.5 281.4 32.2 229.9 36.7 Jul 51.8 289.3 22.2 237.5 34.7 56.6 282.7 19.3 226.1 28.1 FX reserves (7 Aug) US $tr Foreign reserves May Jun Jul 3.22 0.9 3.21 1.3 3.24 Producer prices (NBS) (9 Aug) % change May Jun Jul %oya 9.0 9.0 8.8 8.8 8.4 9.0 %m/m sa 1.3 1.3 0.5 0.5 0.3 0.6 Consumer prices (9 Aug) % change May Jun Jul %oya 1.3 1.3 1.1 1.1 1.0 1.0 %m/m sa 0.0 0.0 0.2 0.2 0.1 Monetary aggregates (11 Aug) %oya, bn yuan May Jun Jul M2 8.3 8.3 8.6 8.6 8.9 8.3 TSF flow 1926 3669 2146 1060 New loan creation 1500 1500 2120 2120 1256 1080 Hong Kong SAR: Data releases and forecasts Week of August 16 – 20 Wed Aug 18 4:30pm Labor market survey Sa, 3mma Unemployment rate Apr May Jun Jul 6.4 6.0 5.5 5.2 Thu Aug 19 4:30pm Consumer prices % change %oya %m/m sa Apr May Jun Jul 0.8 1.0 0.7 3.7 0.2 0.1 -0.2 0.2 Review of past week’s data Real GDP (13 Aug) % change %oya %q/q saar 20Q4 21Q1 21Q2 -2.8 -2.8 8.0 7.9 7.5 7.6 2.0 2.0 23.9 23.5 -3.9 -3.7 Taiwan: Data releases and forecasts Week of August 9 – 13 Fri Aug 20 4:00pm Export orders % change %oya %m/m, sa Apr May Jun Jul 42.6 34.5 31.1 22.3 5.6 -4.6 1.4 -0.7 Review of past week’s data Merchandise trade (9 Aug) US$bn May Jun Jul Balance 6.2 6.2 5.1 5.1 4.9 5.9 Exports 37.4 37.4 36.7 36.7 37.6 38.0 %oya 38.6 38.6 35.1 35.1 33.4 34.7 Imports 31.2 31.2 31.5 31.5 32.7 32.1 %oya 40.8 40.8 42.3 42.3 43.8 41.0 Real GDP (13 Aug) % change %oya %q/q saar 20Q4 5.1 5.8 21Q1 21Q2 5.1 9.3 8.9 7.5 7.4 5.8 12.1 12.8 -7.9 -4.2 Source: NBS, China Customs, Hong Kong Census and Statistics Department, Taiwan Ministry of Economic Affairs, DGBAS, MoF, J.P. Morgan forecasts 71 JPMorgan Chase Bank, N.A., Seoul Branch Seok Gil Park (82-2) 758-5509 seok.g.park@jpmchase.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Economic Research Korea August 13, 2021 Korea  Employment held up in July despite the COVID-19 resurgence  August 10-day trade was strong in nominal terms, likely buoyed by price increases  Trade prices rose further strongly by July COVID-19 cases rose further in recent days with the spread of the more contagious Delta variant, raising the odds of the government tightening social distancing rules further. The July employment survey period overlapped with the earlier part of the Delta surge in mid-July, yet employment growth should reflect more meaningful drag from the resurgence in August. That said, we continue to expect that the COVID-19 resurgence’s drag on domestic demand and employment will be more benign than in previous waves, and high-frequency indicators such as mobility and credit card usage data broadly confirming our expectation (Figure 1). In terms of highfrequency trade data, the first 10-day trade report suggest a solid rebound in monthly exports growth, likely boosted by price increases on top of a recovery in volume growth. To be sure, trade prices data through July confirm strong broadbased price gains. Figure 1: Sales of services and mobility trends % change from baseline, both axes Google mobility 10 5 0 0 -10 -5 -20 -10 -30 Shading is lunar-calendar holidays -40 Feb-20 May-20 Aug-20 Nov-20 Feb-21 Source: A local credit card company, Google, and J.P. Morgan Card spending -15 on services -20 May-21 Aug-21 Employment resilient in early part of Delta surge in July The labor market was stronger in July than we expected: the unemployment rate unexpectedly dropped to 3.3% sa from 3.7% in June. Part of this drop in unemployment rate was due to a drop in the labor force, yet employment rose a modest 0.1%m/m sa despite the latest surge in COVID-19 cases. Employment stood 0.6% below the Feb-2020 pre-COVID level in July, up from 3.7% below at the start of the year (Figure 2). The continued recovery of the labor market is consistent with our long-standing view that the negative impact of the ongoing outbreak should be smaller than previous waves. Although there is a downside risk to the August number (given that distancing rules will likely remain strict for the full month of August after being tightened mid-July, and with a risk of further tightening), we maintain our view based on observations that consumer behavior has become less sensitive to outbreaks. Figure 2: Employment sa, million 28.0 27.5 Pre-covid level 27.0 26.5 26.0 2017 2018 2019 2020 2021 Source: NSO While overall employment held up amid the latest outbreak, sectoral details suggest the outbreak did have an impact on consumer-facing services. Hospitality suffered the most, and employment in domestic trade also fell. In contrast, employment in the transportation and storage sector rose strongly in July and has been one of major drivers of post-COVID-19 job growth, likely boosted by rising e-commerce demand for delivery services, etc. Policy-supported sectors also provided a buffer, particularly healthcare and social welfare and public administration. First 10-day trade strong in August Customs exports surged 46.4%oya during the first 10 days of August after 29.6% growth in July. We estimate August fullmonth exports growth at 42.9%oya, adjusted for trading-day differences. As a result, we estimate that exports will rise 5.9%m/m sa in August after a 1.1% decline in July (Figure 3), to continue a strong sequential trend growth (30-35% 3m/3m ar). Meanwhile, we estimate customs imports growth to rise an even stronger 6.5%m/m sa. Figure 3: Exports - actual and estimate based on flash reports %m/m sa 15 10 5 0 -5 -10 -15 Actual full month -20 Estimate based on 10-day reports -25 2019 2020 Source: Customs Office, J.P. Morgan estimates 2021 72 JPMorgan Chase Bank, N.A., Seoul Branch Seok Gil Park (82-2) 758-5509 seok.g.park@jpmchase.com Jisun Yang (822) 758-5512 jisun.yang@jpmorgan.com Economic Research Global Data Watch August 13, 2021 In all, the strong rise in customs exports and imports suggests that price increases continue to boost trade flows in August, on top of the recovery in volumes. To be sure, exports price inflation (in US$ term) was a strong 32.2%3m/3m saar in June amid a sequential contraction in export volumes (-1.7%3m/3m saar, Figure 4). We expect that exports volume growth will recover in 3Q supported by robust global demand, yet strong price gains likely will continue to boost nominal exports growth. Figure 4: Exports volume and price %3m/3m saar 60 Exports price index (US$ term) 40 Volume 20 0 -20 -40 2016 2017 2018 2019 2020 2021 Source: BoK, and J.P.Morgan Broad-based trade price gains in July Korea’s trade prices rose strongly and broadly across most products in July. In local currency terms, and seasonally adjusted by J.P. Morgan, export prices rose 2.3%m/m sa, the ninth consecutive monthly increase, and import prices rose 1.7%, marking the eighth monthly gain in the past nine months. Three-month sequential price gains moderated after peaking in April-May, but remain strong. Figure 5: Export prices in contract currency terms %3m/3m sa 25 Petroleum 20 Basic metal 15 Chemical 10 5 0 -5 -10 -15 -20 Tech -25 2017 2018 2019 2020 2021 Source: BoK and J.P. Morgan In the details, the increase in export prices was notable in core goods excluding food and energy: IT product prices jumped 5.4%, and non-IT core prices rose relatively modestly with monthly gains in chemicals, basic metals and machinery. In contract currency terms and on a three-month trend (Figure 5), refined petroleum export prices swung in a volatile manner with the pass-through of crude oil import prices and rising in recent months, yet other products’ prices rose strongly as well. This likely reflects supply bottlenecks. Data releases and forecasts Week of August 16 – 20 Fri Aug 20 6:00am Producer prices % change %oya Apr May Jun Jul 6.0 6.6 6.4 6.8 Fri Stage of processing price index Aug 20 % change 6:00am Apr May Jun Jul %oya 6.6 8.5 8.6 8.5 Review of past week’s data Unemployment rate (Aug 11) % of labor force May Jun Jul Seasonally adjusted 3.8 3.8 3.7 3.7 4.0 3.3 Not seasonally adj. 4.0 4.0 3.8 3.8 4.1 3.2 Monetary aggregates (Aug 12) %oya, monthly average Apr May Jun M2 11.4 11.4 11.0 11.0 11.0 10.9 Lf 9.5 9.5 9.2 9.2 9.3 9.2 Import and export prices (Aug 13) %oya, in local currency terms May Jun Jul Export prices 12.6 12.6 12.7 13.0 14.3 16.9 Import prices 14.2 14.2 14.0 14.4 16.6 19.2 Source: BoK, NSO, and J.P. Morgan forecasts 73 JPMorgan Chase Bank, N.A., Singapore Branch Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research ASEAN August 13, 2021 ASEAN  In the Philippines, domestic demand supported 2Q21 GDP growth despite mobility restrictions  Trend widening in the trade deficit persisted in June, driven mainly by a broad-based pickup in imports  We expecting a material narrowing of the goods deficit, current account likely to be in deficit this year  Credit growth could pick up alongside activity normalization, resulting in tighter banking system liquidity GDP contracted in the Philippines last quarter due to the rise in COVID-19 cases, which led to the imposition of mobility restrictions across parts of the country. That said, domestic demand remained resilient in part due to strong fixed investment across both construction activity and durable equipment. Relatedly, the widening of the trade deficit, due mainly to unexpectedly strong imports, continued on a trend last quarter, taking the trade balance to levels last seen in 2H19. What sets this episode of import expansion apart from that during 2015/16 is that while capital goods imports have indeed recovered, the global commodity price upswing has raised energy-related expenditures which translates into a higher import bill. Against a backdrop of firm global commodity prices and a pickup in the pace of vaccination, we now expect the current account to be in small deficit this year from a previous forecast of a surplus. The Bangko Sentral ng Pilipinas (BSP) held its policy rate steady this week, as expected, citing the need to maintain its accommodative stance to support the growth recovery. Despite the upturn of imports since last year, credit growth remained anemic, which in turn has led to flush banking system liquidity. However, as activity normalizes in the coming quarters, credit growth could pick up more materially, tightening excess banking system liquidity. With greater fiscal financing needs, the BSP could preemptively reduce the reserve requirement ratio (RRR). The timing of such a move would depend on the pace of credit growth and fiscal financing needs. 2Q21 GDP growth supported by domestic demand despite mobility restrictions The Philippine economy contracted 5.1%q/q, saar in 2Q21 leaving annual GDP growth at 11.7%oya. Despite the GDP fall last quarter due to the rise in COVID-19 cases and the corresponding mobility restrictions, domestic demand rebounded, adding 15.6%-pt. to annual GDP growth, which more than offset the 4.9%-pt. drag from net exports (Figure 1). The domestic demand strength came from fixed asset investment and private consumption, which contributed an overall 12.7%-pt. to annual GDP growth last quarter (Figure 2). Figure 1: Philippines contribution to GDP growth %-point contribution to %oya headline growth 20 15 Domestic demand 10 5 0 -5 Net exports -10 -15 -20 -25 12 14 16 18 20 22 Source: PSA, J.P. Morgan Figure 2: Philippines composition of final domestic demand %-point contribution to %oya headline growth 8 Private consumption 4 Fixed investment 0 -4 Government consumption -8 -12 12 14 16 18 20 22 Source: PSA, J.P. Morgan Government consumption subtracted 1%-pt oya from GDP growth last quarter. Fixed investment strength reflects from the resumption of construction activity, which added 4.7%-pts to GDP growth last quarter, following five consecutive quarters of drag (Figure 3). Figure 3: Philippines fixed investment %-pt. contribution to %oya headline growth 6 4 Construction 2 0 -2 -4 Others Durable equipment -6 -8 12 14 16 18 20 22 Source: PSA, J.P. Morgan Despite the slightly lower-than-expected GDP growth outturn last quarter, we maintain our growth forecast at 5.3%y/y, below the 2014-19 average of 6.5%, implying an undershoot of the government’s 6.0-7.0% GDP growth target this year. This forecast incorporates the ongoing Enhanced Community Quarantine (ECQ) in Metro Manila and some other parts of the country this quarter. 74 JPMorgan Chase Bank, N.A., Singapore Branch Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research Global Data Watch August 13, 2021 A broadly-based imports upturn, expecting a CAD this year The trade deficit has widened in recent quarters, following the inflection in 3Q20 and has now returned to level in 2H19. This outcome is consistent with a material decline in the current account balance. The widening of the trade deficit owes to a steady recovery in imports that began in 3Q20 even amid relatively severe mobility restrictions. Capital goods imports have recovered, but have remained steady since the start of the year (Figure 4). Meanwhile, despite the gradual tightening of mobility restrictions, there has been a material rise in both raw materials and mineral fuels imports in recent months, which in part could reflect the upturn in global commodity prices. Given the unexpectedly strong imports in 2Q21, we now expect a US$0.8 billion (0.8% of GDP) current account deficit in the second quarter (Figure 5). Figure 4: Philippines imports US$ bn, 3mma, ar 50 Raw materials 40 30 Capital goods 20 10 Mineral fuels 0 12 14 16 18 20 22 Source: PSA, J.P. Morgan Figure 5: Philippines trade balance and current account US$ bn, 3-mo. rolling sum of chgs. over year ago 10 Trade balance, Overall current account customs basis 5 0 -5 -10 12 14 16 18 20 Source: PSA, BSP, J.P. Morgan 8 6 4 2 0 -2 -4 -6 22 As global commodity prices look likely to remain firm and with the pace of vaccinations picking up more discernibly in the Philippines, we expect the recent widening of the trade deficit due to a broad-based imports upturn to continue through the rest of the year. As a result, we now expect stronger US$ demand and a small US$0.3 billion (0.1% of GDP) current account deficit this year from a previous forecast of a US$4.3 billion surplus. The risk to our forecast in our view comes mainly from a stronger invisibles balance which in our view hinges on the speed of normalization in mobility. This leaves our forecast of the overall BoP surplus for the year at US$2.1 billion, down from US$6.6 billion previously. Looking ahead, we also now expect a wider US$3.8 billion (0.9% of GDP) current account deficit in 2022 from a previous forecast of US$1.2 billion. Banking system liquidity could tighten, triggering pre-emptive RRR cuts BSP left rates unchanged at this week’s monetary board meeting, as expected, highlighting that risks around the growth outlook remain tilted to the downside due to the re-imposition of mobility restrictions this quarter. Thus, sustained monetary policy support for demand remains key to the acceleration of the growth recovery, particularly as risk aversion tempers credit growth in the Philippines. Indeed, since the start of the pandemic, banking system excess liquidity, measured as deposits less loans, has remained flush as credit growth contracted, evident in the rise in nonloan assets which reached US$9.3 trillion in May this year (Figure 6). Figure 6: Philippines Banking system liquidity %oya 50 Loans Deposits Excess liquidity 40 30 20 10 0 -10 12 14 16 18 20 Source: BSP, J.P. Morgan PHP bn 3000 2500 2000 1500 1000 500 0 22 Figure 7: Philippines imports and credit %oya, 3mma 100 Imports 80 60 40 20 0 -20 -40 -60 -80 12 14 16 18 Source: PSA, BSP, J.P. Morgan Credit 20 %oya 40 30 20 10 0 -10 22 Despite the strong imports upturn indicating some normalization of activity since 3Q20, credit growth has remained weak (Figure 7). One possible explanation is that corporations may be tapping their excess deposits for financing needs. However, along with the reopening of the economy, credit growth 75 JPMorgan Chase Bank, N.A., Singapore Branch Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research ASEAN August 13, 2021 could start to pick up which may imply a tightening of excess liquidity in the banking system. Against a backdrop of greater fiscal financing needs, the central bank could pre-emptively start easing the reserve requirement ratio (RRR), which currently stands at 12% for big banks, the timing of such easing would depend on the speed of the credit growth and the size of fiscal financing needs. Indonesia Data releases and forecasts Week of August 16 – 20 Mon Aug 16 11:00 am Merchandise trade US$ bn, nsa Trade balance Exports, %oya Imports, %oya Apr May Jun Jul 2.3 2.7 1.3 3.9 52.1 62.0 54.5 44.3 29.3 68.7 60.1 51.6 Thu BI monetary policy meeting Aug 19 % pa May Jun Jul Aug BI rate 3.50 3.50 3.50 3.50 Fri Balance of payments Aug 20 US$ bn Current account Capital account Overall balance 3Q20 1.0 0.9 2.1 4Q20 0.8 -0.9 -0.2 1Q21 -1.0 5.6 4.1 2Q21 -1.9 1.0 -0.9 Review of past week’s data No data released. Malaysia Data releases and forecasts Week of August 16 – 20 No data releases. Review of past week’s data Real GDP (Aug 13) % change %oya 4Q20 -3.4 1Q21 -0.5 2Q22 14.1 16.1 %q/q, saar -5.9 11.3 -14.5 -7.7 Double-digit sequential contractions were recorded across all domestic demand categories in 2Q21 due mainly to the imposition of containment measures in May and June. Private consumption and fixed investment were down 36.3%q/q, saar and 16.6%q/q, saar, respectively last quarter. However, the strength in external demand provided some offset to the domestic slowdown last quarter, with exports up 21.6%q/q, saar, which points to the resilience of the manufacturing sector despite mobility restrictions. Balance of payments (Aug 13) US$ bn Current account 4Q20 4.5 1Q21 3.0 2Q21 4.4 3.5 Capital account -2.5 3.9 -1.7 -1.7 Overall balance -0.6 4.2 2.7 1.1 The larger current account surplus comes from a higher goods balance due to strong exports last quarter. While we expect exports to remain strong in 2H21, as domestic activity continues to recover, the overall CAS could narrow slightly to US$12.9 billion (3.5% of GDP) this year from US$14.4 billion last year. Notably, the financial account deficit was driven by a net US$7.4 billion outflows in the other investment account, which Bank Negara noted was due to repayment of interbank borrowings. Meanwhile, the net portfolio account recorded US$4.8 billion inflows, which could in part reflect stronger foreign bond inflows in recent months. Philippines Data releases and forecasts Week of August 16 – 20 No data releases. Review of past week’s data Real GDP (Aug 10) % change %oya 4Q20 -8.3 1Q21 2Q21 -4.2 -3.9 13.6 11.8 %q/q, saar 16.0 1.1 2.8 3.6 -5.1 Despite the sequential GDP growth contraction last quarter owing to the rise in COVID-19 cases and corresponding mobility restrictions, domestic demand ex. inventories rebounded, adding 11.7%-pt. to overall GDP which more than offset the 4.9%-pt. deduction from net exports. Despite the slightly lower than expected GDP growth outturn last quarter, we maintain our GDP growth forecast at 5.3%y/y, still below the 2014-18 average of 6.6%. This also implies an undershooting of the government’s 6.0-7.0% GDP growth target this year. BSP monetary policy meeting (Aug 12) % pa Jun Jul Aug Reverse repo rate 2.00 2.00 2.00 BSP expectedly held rates at this week’s monetary board meeting, highlighting that risks around the growth outlook remain tilted to the downside due to the re-imposition of mobility restrictions this quarter. Thus, sustained monetary policy support for demand remains key to the acceleration in growth recovery particularly as risk aversion tempers credit growth in the Philippines. 76 JPMorgan Chase Bank, N.A., Singapore Branch Nur Raisah Rasid (65) 6882 7375 raisah.rasid@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Singapore Data releases and forecasts Week of August 16 – 20 Tue Aug 17 8:30am Merchandise trade US$ bn, nsa Trade balance Exports NODX %m/m, sa, US$ terms %oya, US$ terms Apr May Jun Jul 4.1 4.3 3.5 2.9 37.9 35.6 37.3 39.5 12.0 11.3 12.2 12.7 -8.2 0.1 5.2 0.0 13.1 15.8 21.2 19.2 Review of past week’s data Final real GDP (Aug 11) % change 4Q20 1Q21 2Q21 %oya -2.4 1.5 -15.1. 14.7 %q/q, saar 15.9 13.8 -5.0 -7.2 In the accompanying release, the MTI notes, and we concur, that recovery will remain uneven. Although cross-border travel restrictions might be eased towards the year end, demand is not expected to return rapidly, given the cautious pace of reopening and uncertainty around the more infectious strains of the COVID-19 virus. In addition, labor shortages, especially in construction, marine and offshore engineering industries, sectors that are reliant on foreign workers, are expected to constrain activity. Thus, the broader macro narrative of a variegated recovery remains in place. Aside from the macro trajectory, a key focal point for determining the path of core inflation and thus monetary policy remains the labor market, which remained lackluster in 2Q2. Thus, we continue to expect that the MAS will keep its policy setting of a flat NEER slope unchanged in October, though it may tolerate some drifting up of the NEER within the band. Vietnam Data releases and forecasts Week of August 16 – 20 No data releases. Review of past week’s data No data released. Source: Central Bureau of Statistics, Indonesia; Department of Statistics, Malaysia Coordination Board and National Statistics Office, Philippines, Singapore Statistics Department, Office for Industrial Economics, Thailand; Bank of Thailand; General Statistics Office of Vietnam; J.P. Morgan forecasts Thailand Data releases and forecasts Week of August 16 – 20 Mon Aug 16 9.30am Real GDP % change %oya %q/q, saar 3Q20 -6.4 27.9 4Q20 -4.2 4.3 1Q21 -2.6 0.7 2Q21 6.8 -3.0 Review of past week’s data No data released. 77 JPMorgan Chase Bank, N.A., Mumbai Branch Sajjid Z Chinoy (91-22) 6157-3386 sajjid.z.chinoy@jpmorgan.com Toshi Jain (91-22) 6157-3387 toshi.jain@jpm organ.com Economic Research India August 13, 2021 India  June IP reversed part of the May losses with activity now at 92% of the pre-pandemic level  We revise up 2Q21 GDP growth but annual GDP growth remains unchanged  Headline CPI gapped down in July, as expected, and core inflation softened  CPI inflation likely to fall further in coming months on favorable base effects Figure 2: Components of IP (June 21) Index, Jan-Feb 2020 avg= 100 105 Pre-pandemic level 98 91 84 77 70 IP Primary Source: MoSPI, J.P. Morgan Intermediate Capital Durables Non durables June IP disappoints but 2Q still tracking a smaller contraction June IP disappointed but, against the backdrop of its large and volatile swings, the undershoot was comparatively modest. IP clawed back 9.3%m/m, sa, as the economy re-opened in June on the back of the near-14% plunge in May amid the second wave. As a result, IP grew13.6%oya. Figure 1: Industrial production Index, sa 140 120 Redistributing annual growth We nevertheless have been flagging upside risks to the GDP pothole envisioned in 2Q as the second wave abated faster than expected, permitting a faster economic re-opening in June. Recent high-frequency data suggest some of these upside risks have been realized. We therefore believe 2Q21 (April to June) growth is now tracking -17% q/q, saar, versus our previous forecast of -25% q/q, saar. This corresponds to 23.2%oya growth 2Q, slightly higher than the 21.4% forecasted by the RBI. The upward revision in 2Q from the faster reopening, however, is offset in subsequent quarters such that full-year growth in FY22(year ending March 2022) remains at 9% oya, following the 7.3% contraction in FY21. 100 80 60 13 14 15 16 17 18 19 20 21 Source: MoSPI, J.P. Morgan Despite the June rebound, IP remains below its pre-pandemic level (Figure 1). Within IP, the slowest to recover by June have been capital goods (81% of the pre-pandemic level) and consumer durables (83%), consistent with our thesis that discretionary consumption and private investment will not lead the growth recovery, given income scarring from the pandemic and manufacturing utilization still below 70%. Meanwhile, consumer non-durables—a proxy for more non-discretionary consumption—was back above its pre-pandemic level (102.7%), a level it had reached just before the second wave (Figure 2). CPI inflation gapped down below 6% in July CPI inflation expectedly gapped down from 6.3% in May and June to 5.6% in July, helped by a large base effect and softening food price momentum (Figure 3). On a seasonallyadjusted basis, monthly food prices were flat after rising sharply over the last three months. This dynamic, in conjunction with favorable base effects from last year, meant annual food inflation dropped from 5.6% in June to 4.5% in July (Figure 4). Figure 3: Headline CPI inflation % oya 8 6 4 2 0 16 17 18 19 20 21 Source: MoSPI 78 JPMorgan Chase Bank, N.A., Mumbai Branch Sajjid Z Chinoy (91-22) 6157-3386 sajjid.z.chinoy@jpmorgan.com Toshi Jain (91-22) 6157-3387 toshi.jain@jpm organ.com Economic Research Global Data Watch August 13, 2021 Figure 4: Food and core-core inflation % oya, both axis 12 Core-core 10 inflation 8 Food inflation 7 6 6 5 4 2 4 0 -2 3 18 19 20 21 Source: MOSPI All eyes, however, were on core-core momentum, which had surged during the second wave in May (1.5% m/m, sa) but then remained flat (0.1 %) during the reopening in June. In July core-core prices rose 0.3% m/m, sa—below the 0.4% monthly average from January to April—and will therefore come as a source of relief to policymakers (Figure 5). That said, health, education and clothing continued to mark strong monthly increases but tempered by more muted momentum in housing. On a year-on-year basis, core-core inflation softened from 5.4% to 5.1%, also helped by a favorable base effect. Figure 5: Core-core prices % m/m, sa 1.6 1.2 0.8 0.4 0.0 Jul-20 Source: MoSPI Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Data releases and forecasts Week of Aug 16- 20 No data releases Review of past week’s data Consumers prices % oya Overall Core-core Apr May 4.2 6.3 4.7 5.9 June Jul 6.3 5.6 5.4 5.1 Industrial production Overall (% oya) % m/m, sa Manufacturing (% oya) % m/m, sa Mar Apr May Jun 24.2 134.6 28.6 13.6 0.9 -0.8 -13.8 9.3 28.4 197.9 33.5 13.0 0.8 -0.3 -15.7 11.0 Source: Central Statistical Organization, RBI, Ministry of Commerce, IHS-Markit and JP Morgan forecasts Looking ahead, favorable base effects should continue to weigh on inflation, pushing the headline print below 5% in the coming months—as we have previously discussed— allowing the RBI to normalize monetary conditions only gradually. 79 JPMorgan Chase Bank NA Daniel Silver (1-212) 622-6039 daniel.a.silver@jpmorgan.com Economic Research Global Data Watch August 13, 2021 US economic calendar Monday 16 Aug Empire State survey (8:30am) Aug 31.0 TIC data (4:00pm) Jun Tuesday Wednesday 17 Aug 18 Aug Retail sales (8:30am) Jul -1.5% Ex. autos -1.4% Business leaders survey (8:30am) Aug Industrial production (9:15am) Jul 0.5% Manufacturing 1.0% Capacity utilization 75.7% Business inventories (10:00am) Jun 0.8% NAHB survey (10:00am) Aug 79 Housing starts (8:30am) Jul 1,560,000 Auction 20-year bond $27bn FOMC minutes Fed Chair Powell speaks (1:30pm) Minneapolis Fed President Kashkari speaks (3:45pm) Thursday Friday 19 Aug 20 Aug Initial claims (8:30am) w/e Aug 14 365,000 Philadelphia Fed manufacturing (8:30am) Aug 21.0 Leading indicators (10:00am) Jul QSS (10:00am) 2Q advance Announce 2-year FRN (r) $26bn Announce 2-year note $60bn Announce 5-year note $61bn Announce 7-year note $62bn Auction 30-year TIPS (r) $8bn 23 Aug Manufacturing PMI (9:45am) Aug flash Services PMI (9:45am) Aug flash Existing home sales (10:00am) Jul 24 Aug 25 Aug Philadelphia Fed nonmanufacturing (8:30am) Aug New home sales (10:00am) Jul Richmond Fed survey (10:00am) Aug Durable goods (8:30am) Jul Auction 2-year FRN (r) $26bn Auction 5-year note $61bn Auction 2-year note $60bn 26 Aug Initial claims (8:30am) w/e Aug 21 Real GDP (8:30am) 2Q second KC Fed survey (11:00am) Aug Auction 7-year note $62bn 27 Aug Personal income (8:30am) Jul Advance economic indicators (8:30am) Jul Consumer sentiment (10:00am) Aug final 30 Aug Pending home sales (10:00am) Jul Dallas Fed manufacturing (10:30am) Aug 31 Aug 1 Sep FHFA HPI (9:00am) Jun, 2Q S&P/Case-Shiller HPI (9:00am) Jun, 2Q Chicago PMI (9:45am) Aug Consumer confidence (10:00am) Aug Dallas Fed services (10:30am) Aug ADP employment (8:15am) Aug Manufacturing PMI (9:45am) Aug final ISM manufacturing (10:00am) Aug Construction spending (10:00am) Jul Light vehicle sales Aug 2 Sep 3 Sep Initial claims (8:30am) w/e Aug 28 International trade (8:30am) Jul Productivity and costs (8:30am) 2Q rev Factory orders (10:00am) Jul Employment (8:30am) Aug Services PMI (9:45am) Aug final ISM services (10:00am) Aug Announce 10-year note (r) $38bn Announce 30-year bond (r) $24bn Announce 3-year note $58bn 6 Sep Labor Day, markets closed 7 Sep QFR (10:00am) 2Q Auction 3-year note $58bn 8 Sep JOLTS (10:00am) Jul Beige book (2:00pm) Consumer credit (3:00pm) Jul Auction 10-year note (r) $38bn 9 Sep Initial claims (8:30am) w/e Sep 4 QSS (10:00am) 2Q Auction 30-year bond (r) $24bn 10 Sep PPI (8:30am) Aug Wholesale trade (10:00am) Jul Source: Private and public agencies and J.P. Morgan. Further details available upon request. 80 J.P. Morgan Securities plc Greg Fuzesi (44-20) 7134-8310 greg.x.fuzesi@jpm organ.com Economic Research Global Data Watch August 13, 2021 Euro area economic calendar Monday Tuesday Wednesday Thursday 16 Aug 17 Aug 18 Aug 19 Aug Euro area: Employment prelim (11:00am) 2Q GDP prelim (11:00am) 2Q 2.0%q/q, sa 8.3%q/q, saar 13.7%oya Euro area: HICP final (11:00am) Jul -0.1%m/m, nsa 2.2%oya, nsa HICP core: 0.5%m/m, sa HICP core: 0.7%oya, nsa Construction output (11:00am) Jun Euro area: Balance of Payments (10:00am) Jun 23 Aug 24 Aug 25 Aug 26 Aug Euro area: PMI mfg prelim (10:00am) Aug PMI serv. & comp (10:00am) Aug EC cons. Conf. flash (4:00pm) Aug Germany: PMI mfg prelim (9:30am) Aug PMI serv. & comp (9:30am) Aug France: PMI mfg prelim (9:15am) Aug PMI serv. & comp (9:15am) Aug Germany: GDP final (8:00am) 2Q Germany: IFO bus. survey (10:00am) Aug Belgium: BNB bus. conf. (3:00pm) Aug Euro area: M3 money supply (10:00am) Jul Germany: GfK cons. conf. (8:00am) Aug France: INSEE bus. conf. (8:45am) Aug 30 Aug 31 Aug 1 Sep 2 Sep Euro area: EC cons. Conf. (11:00am) Aug Germany: CPI 6 states & prelim (2:00pm) Aug Spain: CPI flash (9:00am) Aug HICP flash (9:00am) Aug Belgium: CPI (8:00am) Aug GDP final (11:00am) 2Q Netherlands: CBS bus. conf. (6:30am) Aug Euro area: HICP flash (11:00am) Aug Germany: Employment (9:55am) Aug Unemployment (9:55am) Aug France: Cons. of mfg goods (8:45am) Jul CPI flash (8:45am) Aug GDP final (8:45am) 2Q PPI (8:45am) Jul Italy: GDP final (10:00am) 2Q CPI flash (11:00am) Aug PPI (12:00pm) Jul Euro area: PMI mfg final (10:00am) Aug Unemployment rate (11:00am) Jul MFI interest rates (10:00am) Jul Germany: PMI mfg final (9:55am) Aug Retail sales (8:00am) Jul France: PMI mfg final (9:50am) Aug Italy: PMI mfg final (9:45am) Aug Spain: PMI mfg final (9:15am) Aug Euro area: PPI (11:00am) Jul Friday 20 Aug Germany: PPI (8:00am) Jul Belgium: BNB cons. conf. (11:00am) Aug 27 Aug France: INSEE cons. conf. (8:45am) Aug Italy: ISAE bus. conf. (10:00am) Aug ISAE cons. conf. (10:00am) Aug 3 Sep Euro area: PMI serv. & comp final (10:00am) Aug Retail sales (11:00am) Jul Germany: PMI serv. & comp (9:55am) Aug France: Monthly budget situation (8:45am) PMI serv. & comp (9:50am) Aug Italy: PMI serv. & comp (9:45am) Aug Spain: PMI serv. & comp (9:15am) Aug 6 Sep 7 Sep 8 Sep 9 Sep 10 Sep Germany: Mfg orders (8:00am) Jul Euro area: Employment final (11:00am) 2Q GDP final (11:00am) 2Q Germany: Industrial production (8:00am) Jul ZEW bus. survey (11:00am) Aug Netherlands: CPI (6:30am) Aug France: Foreign trade (8:45am) Jul Euro area: ECB rate announcement (1:45pm) Sep Germany: Foreign trade (8:00am) Jul Germany: CPI final (8:00am) Aug France: Industrial production (8:45am) Jul Italy: Industrial production (10:00am) Jul Highlighted data are scheduled for release on or after the date shown. Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 81 JPMorgan Securities Japan Co., Ltd. Hiroshi Ugai (81-3) 6736-1173 Ayako Fujita (81-3) 6736-1172 Yuka Mera (81-3) 6736-1167 Japan economic calendar Economic Research Global Data Watch August 13, 2021 Monday 16 Aug GDP prelim (8:50am) 2Q 0.5 %q/q, saar IP final (1:30pm) Jun Tuesday 17 Aug Tertiary sector activity index (1:30pm) Jun Wednesday 18 Aug Private machinery orders (8:50am) Jun -2.0 %m/m, sa Trade balance (8:50am) Jul 99.2 billion yen Construction spending (2:00pm) Jun Thursday 19 Aug Reuters Tankan (8:30am) Aug Mfg DI 26, Non-mfg DI -5 Auction 1-year note During the week: CAO private consumption index Jun (16-20 Aug) 23 Aug 24 Aug 25 Aug PMI manufacturing prelim (9:30am) Aug PMI services prelim (9:30am) Aug Nationwide department store sales (2:30pm) Jul Auction 6--month bill Auction 5-year note Coincident CI (2:00pm) 26 Aug Corporate service prices (8:50am) Jul Auction 20-year note Friday 20 Aug Nationwide core CPI (8:30am) Jul Ex. fresh food and energy -0.8 %oya Ex. fresh food -0.3 %oya Auction 3--month bill 27 Aug Tokyo core CPI (8:30am) Aug Auction 3--month bill 30 Aug Total retail sales (8:50am) Jul 31 Aug Job offers to applicants ratio (8:30am) Jul Unemployment rate (8:30am) Jul IP prelim (8:50am) Jul Consumer sentiment (2:00pm) Aug Housing starts (2:00pm) Jul Auction 2-year note 1 Sep MoF corporate survey (8:50am) 2Q PMI manufacturing final (9:30am) Aug Auto registrations (2:00pm) Aug 2 Sep Auction 10-year note 3 Sep PMI services final (9:30am) Aug Auction 3--month bill 6 Sep 7 Sep All household spending (8:30am) Jul Employers’ survey (8:30am) Jul Coincident CI (2:00pm) Consumption activity index (2:00pm) Jul Auction 30-year note 8 Sep Bank lending (8:50am) Aug Current account (8:50am) Jul GDP 2nd (8:50am) 2Q Economy watchers survey (2:00pm) Aug 9 Sep Auction 6--month bill Auction 5-year note 10 Sep Auction 3--month bill Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 82 JPMorgan Chase Bank NA Silvana Dimino (1-212) 834-5684 Gopal Kumar (91-22) 6157-3080 Economic Research Global Data Watch August 13, 2021 Canada economic calendar Monday 16 Aug Manufacturing sales (8:30am) Jun 1.9% Wholesale sales (8:30am) Jun -2.0% New vehicle sales (8:30am) Jun Existing home sales (9:00am) Jul Tuesday Wednesday 17 Aug 18 Aug Housing starts (8:15am) Jul 290,000 (2.8%) International transactions in securities (8:30am) Jun BoC Senior Loan Officer Survey (10:30am) 2Q CPI (8:30am) Jul 0.3% (3.3%oya) Thursday Friday 19 Aug 20 Aug Teranet/National Bank HP Index (8:30am) Jul Retail sales (8:30am) Jun 4.4% Ex auto 4.4% New housing price index (8:30am) Jul 0.4% 23 Aug 24 Aug 25 Aug 26 Aug 27 Aug CFIB Business Barometer Index (6:00am) Aug Payroll employment (8:30am) Jun IPPI (8:30am) Jul 30 Aug Current account (8:30am) 2Q 31 Aug Quarterly GDP (8:30am) 2Q Monthly GDP (8:30am) Jun 1 Sep Markit manufacturing PMI (9:30am) Aug 2 Sep International trade (8:30am) Jul Building permits (8:30am) Jul 3 Sep Productivity & costs (8:30am) 2Q 6 Sep Labor Day Markets closed 7 Sep 8 Sep Bank of Canada Rate announcement (10:00am) Ivey PMI (10:00am) Aug 9 Sep 10 Sep Labor Force Survey (8:30am) Aug Capacity utilization (8:30am) 2Q National Balance Sheet (8:30am) 2Q Source: Private and public agencies and J.P. Morgan. Further details available upon request. All existing home sales are tentative. 83 Banco J.P.Morgan, S.A., Institución de Banca Múltiple, J.P.Morgan Grupo Financiero Steven Palacio (52 55) 5382-9651 steven.palacio@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Latin America economic calendar Monday Tuesday 16 Aug 17 Aug Peru: Economic Activity Jun 23.0%oya Lima Unemployment rate Jul 9.8% Brazil: IGP-10 Aug 1.54%m/m; 33.32%oya Colombia: Economic Activity Jun 16.9%oya GDP 2Q -6.5%q/q; 17.5%oya During the week: Brazil: Tax collections Jul (20-25 Aug) 23 Aug 24 Aug Mexico: Retail sales Jun Paraguay: Monetary Policy Rate Aug Mexico: Biweekly core CPI Biweekly CPI Wednesday 18 Aug Chile: Current Account Balance 2Q – US$2.5bn GDP 2Q 17.4%oya 25 Aug Brazil: FGV: consumer confidence Aug IPCA-15 Aug Current Account Jul FDI Jul Mexico: GDP monthly proxy Jun Thursday 19 Aug Argentina: Economic activity Jun 10.4%oya Trade balance Jul US$1.0bn Exports Jul US$5.5bn Imports Jul US$4.5bn Peru: GDP 2Q 40.6%oya 26 Aug Mexico: Unemployment Jul Banxico meeting minutes Friday 20 Aug Argentina: Budget balance Jul –ARS$215bn 27 Aug Mexico: Trade balance Jul During the week: Uruguay: National Unemployment rate Jun (27-31 Aug) 30 Aug 31 Aug 1 Sep 2 Sep Brazil: IGP-M Aug Colombia: Exports Jul Mexico: PS budget balance Jul Brazil: Primary budget balance Jul Chile: Industrial production Jun Retail sales Jun Unemployment Jun Overnight Rate target Aug Colombia: Unemployment Jul Argentina: Tax Collections Aug Brazil: PMI Manufacturing Aug Trade balance Aug Mexico: Remittances Jul IMEF manufacturing index Aug IMEF nonmanufacturing index Aug Peru: CPI Aug Brazil: FIPE CPI Aug IP Jul Paraguay: CPI Aug 3 Sep Argentina: Vehicle production Aug Vehicle sales Aug Uruguay: CPI Aug 6 Sep Mexico: Auto report Aug GFI Jun 7 Sep Chile: Trade balance Aug Nominal Wage Jul 8 Sep Brazil: IGP-DI Aug 9 Sep Mexico: Biweekly core CPI Biweekly CPI Core CPI Aug CPI Aug Brazil: IPCA Aug Peru: Reference rate Sep 10 Sep Mexico: IP Jul Brazil: Retail sales Jul During the week: Brazil: Vehicle sales Aug (6-8 Sep) Brazil: Auto production Aug (6-8 Sep) Chile: Vehicle Sales Total Aug (8-13 Sep) Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 84 J.P. Morgan Securities plc Allan Monks (44-20) 7134-8309 Lisa Alexandersson (44-20) 7134-3680 Morten Lund Economic Research Global Data Watch August 13, 2021 UK and Scandinavia economic calendar Monday 16 Aug United Kingdom: Rightmove HPI (8:00am) Aug Norway: Trade balance (8:00am) Jul Tuesday Wednesday 17 Aug 18 Aug United Kingdom: Labor market report (7:00am) Jul Headline: 8.5 Ex bonuses: 6.9 Private sector ex bonuses: 8.2 Unemployment rate: 4.8%, sa -single month: 4.7 United Kingdom: CPI (7:00am) Jul 2.1%oya Core CPI: 1.9%oya RPI (1987=100): 304.4 RPI: 3.5%oya ONS HPI (9:30am) Jun Thursday Friday 19 Aug 20 Aug Norway: Consumer confidence (8:30am) 3Q Norges Bank rate announcement (10:00am) Aug Building statistics (10:00am) Jul Regional Network survey (10:00am) 3Q United Kingdom: Gfk cons. conf. (12:01am) Aug Public sector finances (7:00am) Jul Retail sales (7:00am) Jul Ex auto fuel: -0.5%m/m Norway: GDP (8:00am) 2Q During the week: CBI industrial trends Aug (18-24 Aug) Wage stats Jun (20-31 Aug) 23 Aug 24 Aug 25 Aug 26 Aug 27 Aug United Kingdom: PMI Mfg prelim (9:30am) Aug PMI Services prelim (9:30am) Aug CBI industrial trends (11:00am) Aug Sweden: Valueguard house price data (6:00am) Jul United Kingdom: CBI distributive trades (11:00am) 3Q United Kingdom: Car manufacturing (12:01am) Jul CBI services sector survey (12:01am) 2Q Sweden: Household lending (9:30am) Jul PPI (9:30am) Jul Financial market statistics (9:00am) Jul Sweden: Household lending (9:30am) Jul PPI (9:30am) Jul Sweden: Consumer confidence (9:00am) Aug Economic Tendency survey (9:00am) Aug GDP final (9:30am) 2Q Retail sales (9:30am) Jul Trade balance (9:30am) Jul Norway: Retail sales (9:30am) Jul During the week: Nationwide HPI Aug (28-3 Sep) 30 Aug 31 Aug 1 Sep 2 Sep United Kingdom: M4 & M4 lending final (9:30am) Jul Net lending to individuals (9:30am) Jul Norway: Credit indicator growth (8:00am) Jul United Kingdom: PMI Mfg prelim (9:30am) Aug CBI growth indicator (12:01am) Jul Sweden: PMI (8:30am) Aug Norway: PMI Mfg (10:00am) Aug United Kingdom: Decision Maker Panel survey (9:30am) 3 Sep United Kingdom: PMI Services prelim (9:30am) Aug Sweden: Services PMI (8:30am) Aug Norway: Labor directorate unemployment (10:00am) Aug Housing statistics (11:00am) Aug During the week: PES unemployment (4 Sep) BoE/NOP Inflation attitudes survey Aug (5-15 Sep) 6 Sep 7 Sep 8 Sep 9 Sep 10 Sep United Kingdom: New car regs (9:00am) Aug PMI Construction (9:30am) Aug United Kingdom: BRC retail sales monitor (12:01am) Aug Sweden: Budget Balance (9:30am) Aug Norway: IP Mfg (8:00am) Jul Sweden: GDP indicator (9:00am) Jul Production value index (9:30am) Jul Industrial production & orders (9:30am) Jul Household consumption (9:30am) Jul United Kingdom: RICS HPI (12:01am) Aug Markit jobs report (12:01am) Aug United Kingdom: Monthly GDP (7:00am) Jul Index of services (7:00am) Jul Industrial production (7:00am) Jul Trade balance (7:00am) Jul Norway: CPI (8:00am) Aug PPI (8:00am) Aug Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 85 J.P. Morgan Securities plc Jessica Murray (44-20) 7742 6325 jessica.x.murray@jpmorgan.com Economic Research Global Data Watch August 13, 2021 Emerging Europe/Middle East/Africa economic calendar Monday Tuesday 16 Aug 17 Aug Czech Republic: PPI (9:00am) Jul Poland: Core inflation (2:00pm) Jul 3.7%oya Israel: GDP flash (1:00pm) 2Q 10.4%q/q,saar Ukraine: GDP prelim (3:30pm) 2Q Nigeria: CPI Jul 15.5%oya Hungary: GDP prelim (9:00am) 2Q 2.8%q/q,saar Romania: GDP flash (9:00am) 2Q 4.9%q/q,saar During the week: Poland: Budget balance Jul (17-31 Aug) 23 Aug 24 Aug Israel: BoI rate decision (4:00pm) Aug Hungary: NBH rate decision (2:00pm) Aug Poland: Unemployment (10:00am) Jul South Africa: Quarterly Labour Force Survey (11:30am) 2Q Wednesday 18 Aug Poland: Average gross wages and Employment (10:00am) Jul Russia: PPI (7:00pm) Jul South Africa: CPI (10:00am) Jul 4.7%oya Retail sales (1:00pm) Jun Thursday 19 Aug Poland: Industrial output (10:00am) Jul PPI (10:00am) Jul 25 Aug 26 Aug Russia: Industrial output (7:00pm) Jul Turkey: Capacity utilization (10:00am) Aug Zambia: CPI Jul Friday 20 Aug Poland: Retail sales (10:00am) Jul 27 Aug Hungary: Unemployment (9:00am) Jun 30 Aug 31 Aug 1 Sep 2 Sep South Africa: Budget (2:00pm) Jul Czech Republic: GDP prelim (9:00am) 2Q Poland: CPI (10:00am) Jul GDP (10:00am) 2Q Russia: Retail sales, Unemployment & Investment (7:00pm) Jul Turkey: Foreign trade (10:00am) Jul South Africa: Private sector credit (8:00am) Jul Trade balance (2:00pm) Jul Kenya: CPI Jul Hungary: GDP (9:00am) 2Q Trade balance final (9:00am) Jul Poland: PMI (9:00am) Aug Russia: Manufacturing PMI (9:00am) Aug Turkey: GDP (10:00am) 2Q South Africa: Barclays PMI (11:00am) Aug Nigeria: PMI (8:45am) Jul Zambia: BOZ rate decision Sep Hungary: PPI (9:00am) Jul During the week: Kazakhstan: CPI Aug (1-2 Sep) 3 Sep Czech Republic: Average real wage (9:00am) 2Q Hungary: Retail sales (9:00am) Jul Romania: Retail sales (9:00am) Jul Turkey: CPI (10:00am) Aug 6 Sep 7 Sep 8 Sep 9 Sep Czech Republic: Industrial output (9:00am) Jul Trade balance (9:00am) Jul Czech Republic: Retail sales (9:00am) Jul Hungary: Industrial output (9:00am) Jul Romania: GDP (9:00am) 2Q South Africa: Gross reserves (8:00am) Aug GDP (11:30am) 2Q Hungary: CPI (9:00am) Aug Trade balance (9:00am) Jul Poland: NBP rate decision Sep Russia: CPI (7:00pm) Aug Ghana: CPI Aug Romania: Trade balance (9:00am) Jul South Africa: Current account and Quarterly Bulletin (11:00am) 2Q Ukraine: CPI (3:30pm) Aug NBU rate decision (2:00pm) Sep Serbia: NBS rate decision (12:00pm) During the week: South Africa: BER business confidence 2Q (10-1 Oct) South Africa: BER consumer confidence 2Q (10-1 Oct) 10 Sep Czech Republic: CPI (9:00am) Aug Romania: CPI (9:00am) Aug Russia: CBR rate decision (1:30pm) Sep Foreign trade (4:00pm) Jul GDP (7:00pm) 2Q Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 86 JPMorgan Chase Bank, N.A., Hong Kong Tingting Ge (852) 2800-0143 tingting.ge@jpm organ.com Economic Research Global Data Watch August 13, 2021 Non-Japan Asia economic calendar Monday 16 Aug China: FAI (10:00am) Jul 11.1%oya ytd IP (10:00am) Jul 8.0%oya Retail sales (10:00am) Jul 11.1%oya India: WPI (12:00pm) Jul Thailand: GDP (9:30am) 2Q 6.8%oya Tuesday 17 Aug Singapore: NODX (8:30am) Jul 19.2%oya Holiday: Indonesia Wednesday Thursday 18 Aug New Zealand: RBNZ official rate announcement (2:00pm) Aug 25bp hike Hong Kong: Unemployment rate (4:30pm) Jul 5.2% SA Indonesia: Trade balance (11:00am) Jul US$3.9bn 19 Aug Australia: Unemployment rate (11:30am) Jul 5.0% Hong Kong: CPI (4:30pm) Jul 3.7%oya Indonesia: BI monetary policy meeting No change Friday 20 Aug Indonesia: Current acct. Balance (10:00am) 2Q US$-1.9bn Korea: PPI (6:00am) Jul 6.8%oya Taiwan: Export orders (4:00pm) Jul 22.3%oya 23 Aug Singapore: CPI (1:00pm) Jul Taiwan: IP (4:00pm) Jul Unemployment rate (4:00pm) Jul 24 Aug New Zealand: Retail sales (10:45am) 2Q Korea: Consumer survey (6:00am) Aug 25 Aug New Zealand: Trade balance (10:45am) Jul Korea: FKI Business Survey (6:00am) Jul Malaysia: CPI (12:00pm) Jul 26 Aug Hong Kong: Trade balance (4:30pm) Jul Korea: BOK monetary policy meeting Aug Singapore: IP (1:00pm) Jul 27 Aug Australia: Retail sales (11:30am) Jun Malaysia: Trade balance (12:00pm) Jun During the week: Vietnam: CPI Aug (25-31 Aug) Thailand: Mfg. Production Jul (26-30 Aug) 30 Aug Australia: Company operating profit (11:30am) 2Q Inventories (11:30am) 1Q 31 Aug Australia: Building approvals (11:30am) Jun Current account balance (11:30am) 2Q Pvt. sector credit (11:30am) Jul New Zealand: Building permits (10:45am) Jul NBNZ business confidence (1:00pm) Aug China: PMI mfg. (NBS) (9:00am) Jul Hong Kong: Retail sales (4:30pm) Jun Korea: IP (8:00am) Jul Thailand: PCI (2:30pm) Jul PII (2:30pm) Jul Trade balance (2:30pm) Jul 1 Sep Australia: GDP (11:30am) 2Q China: PMI Mfg. (9:45am) Sep India: PMI mfg. (10:30am) Sep Indonesia: CPI (11:00am) Aug Korea: Trade balance (9:00am) Aug PMI mfg. (9:30am) Aug Taiwan: PMI mfg. (8:30am) Aug 2 Sep Australia: Trade balance (11:30am) Jul New Zealand: Terms of trade (10:45am) 2Q Korea: CPI (8:00am) Aug GDP final (8:00am) 2Q Singapore: PMI (9:00pm) Aug 3 Sep Singapore: Retail sales (1:00pm) Jul 6 Sep Australia: ANZ job advertisements (11:30am) Aug New Zealand: ANZ commodity price (1:00pm) Aug Thailand: CPI (10:30am) Aug 7 Sep Australia: RBA official rate announcement China: Foreign Exchange Reserves Aug Trade balance Aug Korea: Current account balance (8:00am) Aug Philippines: CPI (9:00am) Aug Taiwan: CPI (4:00pm) Aug Trade balance (4:00pm) Aug 8 Sep During the week: China: Money supply/TSF Aug (9-15 Sep) 9 Sep New Zealand: Manufacturing output (10:45am) 2Q China: CPI (9:30am) Aug PPI (9:30am) Aug Malaysia: BNM monetary policy meeting Philippines: Exports (9:00am) Jul Imports (9:00am) Jul Times shown are local. Source: Private and public agencies and J.P. Morgan. Further details available upon request. 10 Sep India: IP (5:30pm) Jul 87 JPMorgan Chase Bank NA Olya Borichevska (1-212) 834-5398 olya.e.borichevska@jpmorgan.com Bennett Parrish bennett.parrish@jpmchase.com Economic Research Global Data Diary August 13, 2021 Global Data Diary Week / Weekend Monday 14 - 20 August 16 August Japan China  CAO priv cons indx (Jun)  FAI (Jul  IP (Jul)  Retail sales (Jul) Israel  GDP (2Q) Japan  GDP (2Q, prlm) Thailand  GDP (2Q) United States  Empire St srvy (Aug) Tuesday 17 August Colombia  GDP (2Q) Hungary  GDP (2Q) Euro area  Employment (2Q)  GDP (2Q, prlm) Romania  GDP (2Q) Singapore  NODX (Jul) United Kingdom  Labor mrkt report (Jul) United States  Retail sales (Jul)  IP (Jul)  NAHB srvy (Aug) Wednesday 18 August Chile  GDP (2Q) Japan  Priv mchnry ords (Jun)  Trade balance (Jul) New Zealand  RBNZ mtg: +25bp South Africa  CPI (Jul) United Kingdom  CPI (Jul) United States  Housing starts (Jul)  FOMC minutes Thursday Friday 19 August 20 August Indonesia  BI mtg: no chg Japan Japan  CPI (Jul) Norway  Reuters Tankan (Aug)  GDP (2Q) Norway Taiwan  Norges Bank mtg: no chg  Export orders (Jul) Peru  GDP (2Q) United States  Philly Fed mfg srvy (Aug)  Leading indicators (Jul) United Kingdom  Retail sales (Jul) 23 - 20 August 23 August Euro area  Flash PMI (Aug)  EC con conf (Aug) Israel  BoI mtg: no chg Japan  Flash PMI (Aug) Taiwan  IP (Jul) United Kingdom  Flash PMI (Aug) United States  Flash PMI (Aug)  Existing hm sls (Jul) 24 August Germany  GDP (2Q, final) Hungary  NBH mtg: no chg United States  New hm sls (Jul) 25 August Germany  IFO srvy (Aug) Mexico  GDP (Jun) United States  Durable goods (Jul) 26 August Korea  BOK mtg: +25bp Mexico  Banxico minutes United States  GDP (2Q, 2nd est) 27 August Japan  Tokyo CPI (Aug) United States  Personal income (Jul)  Adv econ indicators (Jul)  UMich cons snt (Aug, fnl) Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Other Disclosures J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. Any long form nomenclature for references to China; Hong Kong; Taiwan; and Macau within this research material are Mainland China; Hong Kong SAR (China); Taiwan (China); and Macau SAR (China). JPMorgan research may, from time to time, write on issuers or securities targeted by economic or financial sanctions imposed or administered by the governmental authorities of the U.S., EU, UK or other relevant jurisdictions (Sanctioned Securities). Nothing in this report is intended to 88 JPMorgan Chase Bank NA Economic Research Olya Borichevska (1-212) 834-5398 Global Data Watch olya.e.borichevska@jpmorgan.com August 13, 2021 Bennett Parrish bbeenrneeatdt.poarrrcioshn@strjpumedchaasseen.ccoomuraging, facilitating, promoting or otherwise approving investment or dealing in such Sanctioned Securities. 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