Tomorrow (Friday) could be among the most challenging sessions of the third quarter. The focus is primarily on Japan and Europe, but the US reports its first estimate of Q2 GDP. After a six-month soft patch that heightened fears in some quarters that the world’s largest economy was headed for a recession, the US economy appears to have returned to trend growth. It enjoyed good momentum as the quarter wound down, and currently, Q3 GDP is also projected to be above trend. Â
Japan, though, will get the ball rolling. It will report a slew of data before the Bank of Japan announcement. Due to the pending BOJ announcement, the data may have little impact. However, the takeaway is despite a tight labor market and aggressive BOJ monetary policy, consumption, production is weak, and deflationary forces remain formidable.  Â
Since last September, there has been only one month (February) that overall household spending was higher on a year-over-year basis. It is expected to have been 0.4% below a year ago levels in June. Retail sales, a component of household spending is expected to have risen by 0.3% in the month of June. Retail sales have fallen consistently on a month-over-month basis since last November, with March being the sole exception. Â
Industrial production has been moving in a saw tooth pattern since the end of last year. A decline in one month is followed by a gain, which is then followed by another fall. Industrial output fell 2.^% in the month of May, and to maintain the pattern; output would have to have risen in June. The median forecast is for a 0.5% gain. In the first five months of this year, the average monthly change has been a 0.2% decline. Â
Consumer prices are expected to have fallen by 0.4% in the year through June. This would match the May reading, which was the largest fall in consumer prices for three years. Excluding food and energy, the year-over-year pace is expected to slip to 0.5% from 0.6%. That would be the weakest since May 2015. Â
