Introduction

Headlined by a third quarter dip in annual GDP to an unexpectedly low 6.0 percent, Chinese data were heavy in the week but not always downbeat. Yet the general slowing underway in China is being mirrored in other countries where a host of measurements across regions, especially for production and cross-border trade, continue to slump to multi-year lows. Yet the slowing in production is not the cause of the slowing in cross-border trade, rather it's the other way around which is where we'll start the week's rundown.

The economy

Quarterly data may have slipped in China but industrial production didn't slow at all at the close of the third quarter. Chinese industrial production advanced 5.8 percent on the year in September, picking up strongly from 4.4 percent in August and well above the consensus forecast of 5.0 percent. Industrial production rose 0.72 percent on the month in September after increasing 0.34 percent in August. September's rebound was driven by strong activity in manufacturing and mining. Manufacturing output increased 5.6 percent on the year after rising 4.3 percent previously, with stronger growth reported in the output of textiles, chemicals, electrical machinery, general equipment, and communication equipment, offset by a bigger drop in auto production and weaker growth in steel output. Mining output also strengthened, up 8.1 percent on the year after increasing 3.7 percent previously, while year-on-year growth in utilities output was steady at 5.9 percent. If Chinese production can extend September's improvement into October and not fall back, efforts by Chinese authorities to stimulate demand would appear to be finding at least some success.

US GDP won't be released until just before Halloween (no scare intended) but industrial production in the United States, in contrast to China, ended the third quarter on a down note. After a strong August, production fell back more sharply than expected in September with year-on-year rates especially betraying what are generally weakening trends. Pulled down by manufacturing, industrial production fell a monthly 0.4 percent in September to double the expected contraction. As tracked in the accompanying graph, year-on-year production came in at minus 0.1 percent for the first negative showing in nearly three years. Manufacturing volumes were especially weak in September, down 0.5 percent on the month and down 0.9 percent on the year and reflecting wide declines across components especially a 4.2 percent monthly drop for motor vehicles that, to a significant but unquantified degree, reflected the strike at General Motors (a strike where a tentative agreement has since been reached). Business equipment was another negative for September, falling a very sharp 0.7 percent in the month and 0.8 percent on the year which won't be boosting arguments against further Federal Reserve rate cuts. Weakness in business equipment, the result of falling business expectations, is a central concern, if not the central concern, for monetary policy makers. Outside of manufacturing, the report's two smaller components were mixed with utilities rising 1.4 percent in September but mining falling 1.3 percent. Mining had been enjoying two years of exceptional strength but has since faded. Year-on-year, mining volumes were up a moderate 2.6 percent with utilities up 1.2 percent.

The reason that output is slowing is because global demand for goods is slowing, and at a more severe rate. Headlines for trade data often mask contraction underneath, as is the case with China whose trade surplus in US dollar terms widened from $34.83 billion in August to $39.65 billion in September, above the consensus forecast for $34.00 billion. Exports fell 3.2 percent on the year in September after falling 1.0 percent in August, close to the consensus forecast for a fall of 3.0 percent, while imports fell 8.5 percent on the year, after falling 5.6 percent previously, bigger than the consensus forecast for a 5.0 percent drop. The drop in exports was largely driven by a further slowdown in demand from the United States as US-China trade tensions continued to have their effects. Exports to the US fell 21.9 percent on the year in September after dropping 16.0 percent in August. Imports from the US also remained weaken in September, down 15.7 percent on the year after August's 22.4 percent fall. Growth in China's exports to Japan and the European Union also weakened in September.

One smaller economy showing greater rates of trade contraction than China is Singapore. Singapore's non-oil domestic exports fell 8.1 percent on the year in September after falling 9.0 percent in August. These exports have now fallen on the year for six months in a row and for nine out of the last ten months, broadly in line with other regional data showing weakness in trade flows associated with global trade disputes. Electronics exports fell 24.8 percent on the year in September after dropping 25.9 percent previously, while non-electronics exports fell 2.3 percent on the year, as they did previously. Total imports fell 4.7 percent on the year after falling a 6.4 percent. Demand across Singapore's top ten trading partners did in some cases show improvement but was generally weak. Exports to China posted a solid year-on-year increase for the second month in a row but the 20.8 percent increase was down from 38.4 percent in August. Exports to the United States fell to a lesser extent but were still lower on the year, down 10.9 percent after falling 15.0 percent previously, with a similar pattern seen for exports to Japan, down 19.2 percent after falling 29.7 percent. Exports to the European Union fell 17.3 percent after dropping 10.8 percent.

Declines in cross-border demand for goods have been, at least so far, much deeper than declines in domestic demand for goods, though retail sales data have also generally been slowing. And though the US consumer did cool in September, it wasn't enough to not knock back a still rising trend for retail sales which in September fell an unexpected 0.3 percent. All the breakdowns also came in well below expectations including a 0.1 percent dip when autos are excluded and no change when also excluding gasoline. Perhaps the best gauge to this report is the control group which is part of the GDP mix and which, like ex-autos ex-gas, also came in unchanged. And limiting the unwelcome message from September was an upward revision to August, up an additional 2 tenths to 0.6 percent, as well as a solid showing for the total year-on-year rate which, as tracked on the graph, did ease 3 tenths in September to 4.1 percent that, next to August's 4.4 percent, is still the second best rate since October last year.

Auto sales fell a monthly 0.9 percent though this does follow a 1.9 percent jump in August. Year-on-year growth for autos did slow, down 1.4 percentage points yet to a still favorable 5.6 percent. Gasoline sales, held down by low prices, once again pulled down total sales, falling 0.7 percent in the month after August's 1.3 percent drop. Nonstore retailers (dominated by e-commerce) were also in the negative column in September, down a monthly 0.3 percent though year-on-year growth continues to easily top all categories at 12.9 percent. One of the positive monthly showings was by apparel stores at 1.3 percent and furniture stores at 0.6 percent. Restaurants posted a 0.2 percent monthly gain for very respectable yearly growth of 4.9 percent that, like yearly growth in auto sales, underscores the fundamental strength of the consumer. Yet for the Federal Reserve, slowing for the consumer could make the economy more vulnerable to the slowdown underway in global demand and domestic manufacturing, a risk that strengthens arguments for more rate cuts.

Unlike like the US, there's more good news than bad news in Chinese retail sales. Retail sales grew 7.8 percent on the year in September, up moderately from 7.5 percent in August and matching the consensus forecast. Retail sales rose 0.70 percent on the month after August's 0.67 percent rise. Improved headline growth reflected offsetting moves across key categories. Auto sales dropped 2.2 percent on the year, improving somewhat from a decline of 8.1 percent previously, while year-on-year growth also picked up for sales of home appliances, communications equipment, furniture, and cosmetics. Sales growth fell, however, for clothing, grain and food oil, building and decoration materials, and household non-durables. Year-on-year growth in urban retail sales picked up from 7.2 percent to 7.5 percent, while rural retail sales growth rose slightly from 8.9 percent to 9.0 percent.

As production and retail sales slow, inflation data are also slowing whether for producer prices or consumer prices or, as we shall see, expected prices. The combined producer and import price index for Switzerland continued to weaken in September. A steeper than expected 0.3 percent monthly fall reduced annual inflation by a tick to minus 2.0 percent, its lowest reading in more than three years. The monthly decline reflected a 0.2 percent decrease in domestic producer prices and a 0.6 percent drop in import prices. This put the yearly rate of the former at minus 1.0 percent, actually up a tick from August, and of the latter at minus 4.0 percent, down 0.6 percentage points. The PPI was depressed mainly by a 10.4 percent monthly slump in charges for waste and recycling which alone accounted for more than half of the drop. Most other categories saw only small rises or falls with, however, the largest negative impact on import costs coming from petrol, at minus 5.2 percent and subtracting nearly 0.3 percentage points from the headline. As a result, the core headline index matched August's readings with a 0.1 percent monthly dip and minus 1.0 percent annual change. Pipeline inflation pressures in industry remain very weak.

Low pressure at the producer level spells low pressure at the consumer level which is where inflation goals are targeted. New Zealand's consumer prices rose 1.5 percent on the year in the September quarter, down from 1.7 percent in the June quarter and further below the mid-point of the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent. On the quarter, the index rose 0.7 percent after increasing 0.6 percent previously. RBNZ officials, at their most recent policy meeting late last month, expressed confidence that inflation would increase gradually to around 2.0 percent. Rates were left on hold at that meeting after cuts in August and May, consistent with the recent pattern for policy adjustments to follow quarterly inflation and employment data. Yet officials also stressed last month that there was scope for further policy easing, and the fall in headline inflation likely boosts the chances that rates will be cut again at the next meeting in mid-November.

This week's highlight graph tracks possible cracks developing at the very base of the inflation picture, one that could well have an even greater dovish effect on monetary policy than slowing in either production or trade. US inflation expectations at the business level as tracked by the Atlanta Federal Reserve are down a sharp 2 tenths this month to 1.8 percent for the lowest showing since October 2017. On its own, this indicator would have no more than an incremental effect on the policy debate were it not combined with the prior week's 3 tenths drop in consumer expectations to 2.5 percent as measured by the University of Michigan. The tandem moves in these reports, likely reflecting the general sinking in global demand and specific trouble for US manufacturing, are certain to be pointed to with emphasis by those at the Fed who, routinely citing the primary importance of expectations for inflation policy, see the need for further rate cuts.

MARKETS: October's Nearly Gone and No Meltdown?

Economic data not to mention news were up and down and very heavy but most stock markets did well in the week. The Nikkei, boosted on Tuesday by reports of progress in US-China trade talks, led Asia with a 3.2 percent weekly gain that puts its year-to-date performance at plus 12.4 percent. Perhaps the week's most resilient performance was put in by Hong Kong's Hang Seng which rose 1.6 percent to keep its year-to-date showing, despite all the civil unrest, in the plus column at 3.4 percent. The Hang Seng got a 0.7 percent lift on Thursday after the government announced measures to ease housing shortages and help restore business confidence. On Wednesday, negotiators for the UK and the EU agreed to a new Brexit deal that paves the way for the UK to leave the Union by Oct. 31. However, terms of the deal have already been rejected by Northern Ireland's Democratic Unionist Party, and without DUP support, Prime Minister Boris Johnson may not have the numbers to get Parliament's approval. Amid the doubt, the FTSE showed limited reaction to the news slipping 1.3 percent on the week to trim its year-to-date gain to a still respectable 6.3 percent.

The bottom line

The global economy is clearly slowing, evident in production data, retail sales data, and no less than inflation data and inflation expectations data. If the global economy did expand in the third quarter, it wasn't by much and it was amid instability and weakness in manufacturing, the sector that is watched with special care for future indications on general cyclical change. Yet the third quarter is already history before many of the GDP numbers, such as those for the US, have yet to come out. The most useful information from the third quarter numbers will be what they say about momentum going into the fourth quarter. And the coming week will offer a first look at the beginning of the fourth quarter, with a round of October PMIs.

**Jeremy Hawkins and Brian Jackson contributed to this article

Week of October 21 to October 25

The week's theme is timely data, capped on Thursday by October PMI flashes out of Japan and Europe. CBI industrial trends out of the UK, also for October and which have been struggling badly, will be posted on Tuesday. French business climate, in contrast, has been holding up well and will lead Wednesday's session followed by EC consumer confidence which, though soft, has been steady. Japanese PMI flashes open Thursday's heavy run that will include European PMIs the most important of which to watch will be German manufacturing, and whether and how deep it continues to contract, and also German services and whether it continues to be pulled under by manufacturing. The highlight on Thursday will be a policy statement from the European Central Bank which is facing stagnation in Europe yet may not cut its main policy rate. A central concern in the US is weakness in business investment with capital goods data in the durable goods report, also on Thursday, offering important updates. Germany winds up the week with GfK consumer climate and Ifo business climate data on Friday.

German PPI for September (Mon 02:00 EDT; Mon 6:00 EDT; Mon 08:00 CEST)

Consensus Forecast, Month-to-Month: -0.1%

Consensus Forecast, Year-over-Year: -0.3%

German producer prices are bumping along at three-year lows. September's consensus is minus 0.1 percent for the monthly rate and minus 0.3 percent for the yearly rate which would compare with respective results in August of minus 0.5  percent and plus 0.3 percent.

UK: CBI Industrial Trends for October (Tue 06:00 EDT;  Tue 10:00 GMT;  Tue 11:00 BST)

Consensus Forecast: -18%

Pulled lower by deeper contraction in exports, September's headline orders balance deteriorated noticeably to minus 28 percent. For October the consensus is minus 18 percent.

Canadian Retail Sales for August (Tue 08:30 EDT;  Tue 12:30 GMT)

Consensus Forecast, Month-to-Month: 0.6%

Canadian retail sales in August are expected to increase 0.6 percent versus a 0.4 percent rise in July that was led by motor vehicles.

French Business Climate Indicator for October (Wed 02:45 EDT; Wed 06:45 GMT; Wed 08:45 CEST)

Consensus Forecast, Manufacturing: 103

Sentiment has been steady and positive especially compared to the Europe as a whole. For October, INSEE's measure of manufacturing sentiment is expected to rise 1 point to 103.

EC Consumer Confidence Flash for October (Wed 10:00 EDT; Wed 14:00 GMT; Wed 16:00 CEST)

Consensus Forecast: -6.7

However soft, confidence has at least been steady, at minus 6.5 in September after minus 7.0 and minus 6.6 in August and July. Forecasters see the European Commission's consumer confidence flash coming in at minus 6.7 for October.

Japanese PMI Manufacturing Index Flash for October (Wed 20:30 EDT; 00:30 GMT; 09:30 JST)

Consensus Forecast: No consensus

There is no forecaster consensus for Japan's manufacturing PMI which has been underwater all year. This index ended September at 48.9.

German PMI Flash for October (Thu 03:30 EDT; Thu 07:30 GMT; Thu 09:30 CEST)

Consensus Forecast, Manufacturing: 41.6

Consensus Forecast, Services: 51.7

Consensus Forecast, Composite: 48.7

Severe contraction in manufacturing has been pulling back expansion in services, making in September for a lower-than-expected 48.5 for Germany's composite PMI. Only marginal improvement is expected for October's manufacturing PMI, at a consensus 41.6 versus September's 41.4 with services also seen rising slightly, to 51.7 versus 51.4. The composite is expected to come in at 48.7.

Eurozone PMI Composite Flash for October (Thu 04:00 EDT;  Thu 08:00 GMT;  Thu 10:00 CEST)

Consensus Forecast, Manufacturing: 46.0

Consensus Forecast, Services: 51.6

Consensus Forecast, Composite: 50.4

Slow growth for services and significant contraction for manufacturing are the expectations for October's PMIs for the Eurozone, at 51.6 for services and 46.0 for manufacturing. Consensus for the composite flash of the Eurozone is 50.4.

European Central Bank Announcement (Thu 07:45 EDT; Thu 11:45 GMT; Thu 13:45 CEST)

Consensus Forecast, Change: 0.0 basis points

Consensus Forecast, Level: 0.0%

The European Central Bank is not expected to cut its refi rate from zero at its October meeting. At its September meeting, the bank cut its deposit rate by 10 basis points to minus 0.50 percent. Net asset purchases were reinstituted at €20 billion per month in September.

US Durable Goods Orders for September (Thu 08:30 EDT; Thu 12:30 GMT)

Consensus Forecast, Month-to-Month Change: -0.7%

Consensus Forecast, Ex-Transportation: -0.1%

Core Capital Goods Orders (Nondefense Ex-Aircraft): -0.1%

Durable goods orders in September are expected to fall 0.7 percent with another month of weakness seen for commercial aircraft where orders have been down this year. Excluding transportation equipment, orders are expected to decrease 0.1 percent. But core capital goods orders have been the mostly closed watched of all the readings in this report and they have been weak with a 0.1 percent decrease the call after August's 0.4 percent decline.

Germany: GfK Consumer Climate for November (Fri 02:00 EDT; Fri 06:00 GMT; Fri 08:00 CEST)

Consensus Forecast: 9.8

A dip to 9.8 is the call for November's Gfk survey which in October rose a surprising 2 tenths to 9.9. Despite October's improvement, household morale was still at a 3-1/2 year low.

German Ifo Economic Sentiment for October (Fri 04:00 EDT; Fri 08:00 GMT; Fri 10:00 CEST)

Consensus Forecast: 94.5

For October, German economic sentiment is expected to edge lower to 94.5 versus 94.6 in September which compared to August was up 3 tenths for only the second monthly increase since September last year.