Market Monitor - 27 February 2015

Central bank speak
By Anne D. Picker, Chief Economist
produced by
Global Markets
Equities were mixed, buffeted by surprise central bank moves and a slew of new economic data,
especially from the Eurozone and the United States. Equities in the U.S. tumbled after a better
than expected employment report raised expectations that the Fed will increase interest rates
sooner than later.
Four central banks were scheduled this week — the Reserve Bank of Australia, the Banks of
Canada and England and the European Central Bank. However, two others surprised markets —
the People’s Bank of China and the Reserve Bank of India — with unscheduled interest rate
reductions.
European Central Bank
The European Central Bank left its
interest rates unchanged. The key
refi rate remains at just 0.05
percent between the deposit rate
(minus 0.20 percent) and the
marginal lending facility rate (0.30
percent). The main focus was ECB
President Mario Draghi's press
conference. Traders were listening
for the anticipated particulars on
how the quantitative easing
program announced in January will
work together with updated staff
economic forecasts. With regards
to the former, monthly bond
purchases (private and public)
totaling some €60 billion will begin on March 9 and, as previously signaled, run at least through
September 2016 and longer if deemed necessary.
The new economic forecasts show a notably more optimistic view than in December. However,
the midpoint of the harmonized index of consumer inflation is still seen below 2 percent
throughout the projection horizon, now extended to 2017. This suggests that policy will retain a
dovish bias. Expected growth has been revised up by 0.5 percentage points to 1.5 percent this
year and by 0.4 percentage points to 1.9 percent in 2016. The first call on 2017 is 2.1 percent.
Anticipated inflation has been shaved from 0.7 percent to zero this year on weaker oil prices but
is put 0.2 percentage points higher at 1.5 percent in 2016. The following year is marked at 1.8
percent. Ironically the long awaited launch of quantitative easing comes just as the Eurozone
economy has finally starting to show some signs of meaningful growth, notably in the key
household spending sector.
1
Bank of England
The Bank of England monetary
policy committee’s March meeting
concluded with the decision to
leave policy on hold. The Bank
Rate stays at 0.5 percent and its
asset purchase ceiling at Stg375
billion. The meeting marked the
sixth anniversary of Bank Rate
being cut to its present record low
of
0.5
percent.
Economic
developments since the February
discussions have been somewhat
mixed but generally in line with the
familiar pattern of solid growth and
low inflation. Retail sales were
surprisingly soft in January but consumer confidence is high and the PMI surveys for
construction, manufacturing and services all point to faster growth in mid-quarter. However, and
notwithstanding further signs of a modest pick-up in both nominal and real wages, headline
inflation has slipped to just 0.3 percent and so even further below the BoE’s 2 percent medium
term target. At the same time the pound's trade weighted index has risen by a further 3 percent
and effectively tightened monetary conditions by itself.
Bank of Canada
Amidst some speculation about a
second successive interest rate
cut, the Bank of Canada’s March
monetary policy meeting left key
interest
rates
unchanged.
Accordingly, the target for the
overnight rate stays at the 0.75
percent mark to which it was
lowered at the January meeting
and the deposit rate and Bank
Rate remain at 0.5 percent and
1.0 percent respectively.
The unexpectedly rapid speed
with which the central bank
responded to tumbling energy
prices at the start of the year meant that financial markets would not have been especially
surprised had another 25 basis point ease been delivered. However, recent comments from
Governor Stephen Poloz intimated that while benchmark rates could well go lower at some point,
more time was needed to assess the effects of the January move.
Explaining today's decision the BoC pointed to recent economic developments at home and
abroad essentially matching its own expectations. Moreover, while still looking for the bulk of the
negative impact on Canadian gross domestic product of weaker energy prices to filter through
over the first half of the year, risks around the anticipated inflation profile are now judged to be
more evenly balanced. However, the sharp rise in oil price volatility has necessarily heightened
uncertainty about the economic outlook and the BoC is clearly willing to adjust its stance as
deemed necessary over coming months and quarters.
2
Reserve Bank of Australia
The Reserve Bank of Australia
kept its key interest rate at 2.25
percent — many analysts were
expecting another 25 basis point
interest rate cut to follow
February’s
25
basis
point
reduction. According to Governor
Glenn Stevens’ statement, the
“Board judged that, having eased
monetary policy at the previous
meeting, it was appropriate to hold
interest rates steady for the time
being. Further easing of policy may
be appropriate over the period
ahead,
in
order
to
foster
sustainable growth in demand and inflation consistent with the target. The Board will further
assess the case for such action at forthcoming meetings.”
The Board continued to press for a lower exchange rate for the Australian dollar. It noted again
that the currency “has declined noticeably against a rising U.S. dollar, though less so against a
basket of currencies. It remains above most estimates of its fundamental value, particularly given
the significant declines in key commodity prices. A lower exchange rate is likely to be needed to
achieve balanced growth in the economy.” The Board noted that the economy is continuing to
grow below trend with domestic demand weak. This has resulted in a gradually increasing
unemployment rate. It said that the economy will continue to operate with spare capacity for some
time.
Reserve Bank of India
The Reserve Bank of India
surprised for a second time and cut
interest rates by an additional 25
basis
points
at
another
unscheduled meeting. The second
surprise move this year put the
benchmark repo rate at 7.5 percent
and was accompanied by 25 basis
point reductions in the reverse repo
to 6.50 percent and in the MSF rate
and Bank Rate to 8.5 percent, all
with immediate effect. However, the
cash reserve ratio was again held
at 4.0 percent.
The latest cut, which came somewhat ahead of most analysts’ forecasts, was attributed by the
RBI to low capacity utilization, weak real economy indicators and sluggish credit. It clearly
indicates that the government’s newly delivered annual budget was not seen as posing any
inflationary risks and that the recently confirmed inflation targets would be undershot were policy
not to be loosened again. The monetary ease also suggests that the RBI is more than a little
dubious about the quality of the revised and rebased national accounts data. The move by the
RBI came four days after Prime Minister Narendra Modi’s government presented its first full
budget since coming into power last May.
3
People’s Bank of China
With growth slowing, the People’s
Bank of China lowered its
benchmark interest rates for the
second time in three months.
Effective March 1, the one year
bank lending rate will drop 0.25
basis points to 5.35 percent and
that deposit rates also will be
reduced by 25 basis points to 2.50
percent. The move comes as
policy makers search for ways to
stimulate the economy while also
promoting overhauls aimed at
allowing market forces to play a
greater role in the country’s
development.
For the first time in two years in November, the government reduced interest rates. Earlier in
February, it lowered the reserve requirement ratio, allowing banks to lend a larger share of their
assets. The move on Saturday (February 28) to cut rates again was an effort to reduce corporate
debt burdens and financing costs for borrowers and home buyers. In the fourth quarter of last
year, growth dipped to 7.3 percent on the year — the slowest rate in more than two decades. And
January’s consumer price index slid to 0.8 percent on the year and the weakest since late 2009.
While investors were expecting Beijing to loosen monetary policy further after it cut rates in
November for the first time in two years, then lowered the amount of money banks need to hold in
reserve in February — the timing of the latest move, coming shortly after the Lunar New Year
holiday, was earlier than expected.
The Chinese government set its economic growth target for 2015 at around 7 percent, the lowest
in 11 years. Prime Minister Li Keqiang announced the new goal Thursday morning at the opening
of the National People's Congress, the annual meeting of the country's legislature. China kept its
growth target at 7.5 percent for the past three years, after lowering it from the longstanding target
of 8 percent in 2012.
4
Global Stock Market Recap
Index
2014
Dec 31
2015
Feb 27
Mar 6
% Change
Week
2015
Asia/Pacific
Australia
Japan
Hong Kong
S. Korea
Singapore
China
All Ordinaries
Nikkei 225
Hang Seng
Kospi
STI
Shanghai Composite
5388.6
17450.8
23605.0
1915.6
3365.2
3234.7
5898.5
18797.9
24823.3
1985.8
3402.9
3310.3
5868.6
18971.0
24164.0
2012.9
3417.5
3241.2
-0.5%
0.9%
-2.7%
1.4%
0.4%
-2.1%
8.9%
8.7%
2.4%
5.1%
1.6%
0.2%
India
Indonesia
Malaysia
Philippines
Taiwan
Thailand
Sensex 30
Jakarta Composite
KLCI
PSEi
Taiex
SET
27499.4
5227.0
1761.3
7230.6
9307.3
1497.7
29220.1
5450.3
1821.2
7730.6
9622.1
1587.0
29449.0
5514.8
1807.0
7861.33
9645.8
1568.3
0.8%
1.2%
-0.8%
1.7%
0.2%
-1.2%
7.1%
5.5%
2.6%
8.7%
3.6%
4.7%
Europe
UK
France
Germany
Italy
Spain
Sweden
Switzerland
FTSE 100
CAC
XETRA DAX
FTSE MIB
IBEX 35
OMX Stockholm 30
SMI
6566.1
4272.8
9805.6
19012.0
10279.5
1464.6
8983.4
6946.7
4951.5
11401.7
22337.8
11178.3
1691.0
9014.5
6911.8
4964.4
11551.0
22436.1
11091.9
1662.6
9080.0
-0.5%
0.3%
1.3%
0.4%
-0.8%
-1.7%
0.7%
5.3%
16.2%
17.8%
18.0%
7.9%
13.5%
1.1%
Dow
NASDAQ
S&P 500
S&P/TSX Comp.
Bolsa
17823.1
4736.1
2058.9
14632.4
43145.7
18132.4
4963.5
2104.5
15234.3
44190.2
17856.8
4927.4
2071.3
14952.5
43280.8
-1.5%
-0.7%
-1.6%
-1.9%
-2.1%
0.2%
4.0%
0.6%
2.2%
0.3%
North America
United States
Canada
Mexico
5
United States
The good news is bad news
syndrome reasserted itself Friday
when a better than anticipated
employment report drove equity
indexes down. Investors saw a Fed
rate increase looming in the
relatively near future. Although the
Nasdaq and Dow were up after
four days of trading, Friday’s
losses took them deep into
negative territory. The three
indexes were down three of five
days. The Dow lost 1.5 percent,
the S&P declined 1.6 percent and
the Nasdaq lost 0.7 percent.
Economic data for the week were mixed. Obviously, the employment report was a bigger plus
than other positive data that included real personal spending, the nonmanufacturing PMI and the
narrowing trade deficit. Auto sales slowed as did the ISM manufacturing PMI and factory orders
while weekly initial claims climbed. Weather may have had an impact here given the colder and
snowier than normal weather in many parts of the country.
Looking ahead to the next FOMC meeting, the Federal Reserve published its Beige Book in
preparation for its March 17 and 18 FOMC meeting. It stated that the US economy continued to
expand across most of the country amid broad based hiring and rising consumer spending. Some
points of concern included the bad weather in the Northeast, the impact of lower oil prices on
businesses in the industry and the West Coast port dispute that slowed trade. These were
counterbalanced by auto sales rising, manufacturing increasing and rising loan demand. Payrolls
“remained stable or expanded” across broad range of sectors, though “wage pressures remained
moderate and were limited largely to workers in skilled occupations. Prices for goods and
services were flat or increasing slightly. The Fed found modest or moderate growth in eight of its
12 districts. Elsewhere the pace of economic activity was increasing only slightly or slowing.
“Both the New York and Boston Districts reported that harsh winter weather negatively affected
retail business in their Districts,” according to the Beige Book. “However, the Boston and
Cleveland Districts also reported increased sales of winter-related items such as winter apparel,
rock salt and snow shovels.” A work slowdown at West Coast ports hurt agricultural exports cargo
volumes at some Midwest trucking firms, but boosted traffic at East Coast ports. Energy-related
activity took a hit as crude oil prices remained low.
6
Europe
Equities were mixed last week —
the FTSE retreated while the CAC,
DAX and SMI advanced. Results
Friday were mixed as well following
the release of the better than
expected U.S. employment report
for February. The report points to a
Federal Reserve rate hike in the
near future. The euro added to its
recent weakness against the dollar
with the European Central Bank
going in the opposite direction. The
FTSE lost 0.5 percent while the
CAC, DAX and SMI added 0.3
percent, 1.3 percent and 0.7
percent respectively. The FTSE posted its highest ever close on Thursday. The FTSE has yet to
hit 7,000, a key target for many traders, and some dealers said uncertainty ahead of Britain's
general election in May could hinder the rally in the near term.
The European Central Bank announced Thursday that it will begin its bond purchases under a
$1.1 trillion quantitative easing plan on March 9 and expects the impact from its stimulus
measures to return inflation to the euro area next year. Britons' inflation expectations fell to its
lowest level in more than 13 years and more people expect interest rates to remain unchanged
over the next 12 months according to the results of a quarterly survey by the Bank of England.
7
Asia Pacific
Equities were mixed last week as
investors responded to the higher
European Central Bank economic
growth forecasts for the Eurozone
and after the Bank laid out its plans
for bond purchases to combat
deflation. ECB President Mario
Draghi on Thursday said the ECB
will purchase €60 billion of public
and private sector assets every
month until September 2016, or
beyond if necessary to put the
Eurozone back on track for
sustained growth. The bond buying
stimulus program begins on March
9. However, some investors were cautious as they waited for U.S. employment data that would
be released after markets here were closed for the week.
The Shanghai Composite lost 2.1 percent as worries over growth and tighter liquidity kept
investors on the sidelines. China will pursue an expansionary fiscal policy this year to withstand
the downward pressure on the economy according to Chinese Finance Minister Lou Jiwei on
Friday. The Hang Seng lost 1.7 percent on the week. A surprise interest rate cut by the People’s
Bank of China helped lift stocks in Hong Kong and Shanghai Monday, although expectations for
Beijing to soon set a lower growth target for the economy this year kept a cap on gains.
Chinese Premier Li Keqiang said leaders were aiming for about 7 percent economic growth after
a 7.4 percent expansion last year, the slowest in more than two decades. The fresh target this
year was widely expected amid sluggish domestic demand and a slow recovery in the global
economy. Leaders had targeted about 7.5 percent growth for last year.
The Nikkei added 0.9 percent as shares hit a fresh 15 year high, buoyed by encouraging
comments from the European Central Bank on the outlook for Eurozone growth and inflation. It
was the fourth consecutive week of gains, as hopes for robust U.S. jobs data later in the global
market day Friday and signs of a brightening economic outlook for Europe boosted sentiment.
The Sensex was up 0.8 percent in a holiday shortened trading week. In the process the index
briefly breached the 30,000 level on Wednesday for the first time ever when the Reserve Bank of
India surprised investors with a 25 basis point repo interest rate cut. Traders were optimistic that
the government’s Budget proposals will increase corporate earnings and push growth.
Meanwhile, the new "inflation targeting" mechanism is "credit positive" for India as it would
increase the predictability and effectiveness of RBI's monetary policy in achieving the desired
results.
8
Currencies
The U.S. dollar rallied Friday after
the employment report indicating
labor market strength has bolstered
the argument for the Federal
Reserve to raise interest rates for
the first time since 2006. The U.S.
currency rose against its major
peers as employers added more
jobs than forecast and the
unemployment rate fell to the
lowest level since 2008. Traders
increased wagers on a rate
increase by September. While the
Fed has said it will be ‘patient’ on
increasing borrowing costs, Chair
Janet Yellen has said many times that timing is data dependent. The dollar reached the strongest
level against the euro since September 2003. U.S. employers added 295,000 workers in
February and the unemployment rate slid to 5.5 percent.
The European Central Bank, which cut rates to record lows, said Thursday it would begin buying
bonds next week to avert deflation and spur economic growth. The Bank of Japan is making
unprecedented bond purchases, and central banks from Sweden to Turkey to China have
lowered borrowing costs. The euro declined below $1.10 Thursday for the first time in more than
11 years on Thursday after European Central Bank President Mario Draghi shed light on the
parameters of the central bank’s bond buying program aimed at rekindling economic growth in
the region.
The Canadian dollar rallied
Wednesday after the Bank of
Canada kept its policy rate
unchanged at 0.75 percent. The
Loonie which declined against the
dollar ahead of the decision
reversed its losses to gains on the
news. In a statement, the BoC
said that oil prices were now
"close" to the Bank's assumptions
and its January policy action will
"mitigate the negative effects of
the oil price shock". The Bank's
message has been unpredictable
recently, sending the Canadian
dollar on volatile swings so far this year. Just eight days ago, traders had been pricing in an 80
percent chance that the BoC would cut rates at Wednesday’s meeting, but a speech by Stephen
Poloz threw cold water on those expectations. The Bank shocked investors in January by cutting
interest rates, becoming the first G-7 country to ease policy in the wake of the oil shock. However
since then the price of oil has stabilized near $50 a barrel, the level on which the BoC based its
most recent quarterly forecasts.
9
Selected currencies — weekly results
2014
Dec 31
U.S. $ per currency
Australia
New Zealand
Canada
Eurozone
UK
Currency per U.S. $
China
Hong Kong
India
Japan
Malaysia
Singapore
South Korea
Taiwan
Thailand
Switzerland
*Pegged to U.S. dollar
Source: Bloomberg
A$
NZ$
C$
euro (€)
pound sterling (£)
yuan
HK$*
rupee
yen
ringgit
Singapore $
won
Taiwan $
baht
Swiss franc
2015
Feb 27
March 6
% Change
Week
2015
0.817
0.780
0.861
1.210
1.559
0.781
0.756
0.800
1.119
1.543
0.772
0.737
0.793
1.085
1.505
-1.2%
-2.6%
-0.9%
-3.0%
-2.5%
-5.5%
-5.6%
-7.9%
-10.3%
-3.4%
6.206
7.755
63.044
119.820
3.497
1.325
1090.980
31.656
32.880
0.9942
6.269
7.755
61.839
119.630
3.604
1.363
1098.000
31.458
32.355
0.953
6.263
7.757
62.171
120.690
3.650
1.382
1098.810
31.435
32.586
0.985
0.1%
0.0%
-0.5%
-0.9%
-1.3%
-1.4%
-0.1%
0.1%
-0.7%
-3.3%
-0.9%
0.0%
1.4%
-0.7%
-4.2%
-4.1%
-0.7%
0.7%
0.9%
0.9%
10
Indicator scoreboard
Europe
Eurozone
At 51.0, growth in February's
manufacturing PMI was just a tick
down from the flash estimate and
unchanged from the final January
figure. The rate of output
expansion also matched January
despite a minor pickup in new
orders growth to a 7-month high.
Disappointingly, the acceleration in
total orders was wholly attributable
to increased momentum in exports
which helped to mask subdued
domestic
market
conditions.
However, employment crept higher
for a sixth successive month and
at its sharpest rate over the period.
Backlogs were broadly unchanged. Price pressures predictably remained very weak and deflation
in input costs was only slightly less than January's 5-1/2 year record. Factory gate prices
decreased for a sixth straight month. Regionally, Ireland (57.5) was easily the best performer and
indeed its PMI saw a 182-month high. Spain (54.2) was second in the ladder ahead of the
Netherlands (52.2) and Italy (51.9). However, the core countries underperformed with Germany
(51.1) registering only modest growth and France (47.6) again well into contractionary territory
and, moreover, at the bottom of the international table.
February flash harmonized index
of consumer prices was down 0.3
percent on the year after sinking
0.6 percent in January. However,
the less negative tone to overall
HICP inflation was not mirrored in
the two core measures. Hence,
excluding food, alcohol, tobacco &
energy as well as omitting just
unprocessed food & energy, prices
were up 0.6 percent from a year
ago, unchanged from their January
finals. Non-energy industrial goods
inflation even ticked lower to minus
0.2 percent but services saw a 0.1
percentage point increase to 1.1 percent. Rather, the main boost to the headline rate came from
both energy, where inflation climbed 1.4 percentage points to minus 7.9 percent, and food,
alcohol & tobacco, where the rate jumped from minus 0.1 percent to 0.5 percent.
11
January unemployment dropped a
sizeable 140,000 to 18.059 million.
Following a downward revision to
December, the slide was enough to
shave another tick off the jobless
rate which now stands at 11.2
percent, its lowest mark since April
2012. There was good news for all
four larger economies as the
national rate fell 0.2 percentage
points to 23.4 percent in Spain and
0.1 percentage points to 10.2
percent in France, 4.7 percent in
Germany and 12.6 percent in Italy.
Germany was at the bottom of the
jobless ladder, just beneath Austria (4.8 percent), while Greece (25.8 percent in November)
remained firmly at the top above Spain and Cyprus (16.1 percent).
January retail sales (ex-autos)
were up 1.1 percent on the month
for the fourth increase in a row
and the sharpest since May 2013.
This follows a slightly firmer
revised 0.4 percent gain in
December. Annual growth of
purchases climbed from 3.1
percent to a multi-year peak of 3.7
percent. January's bounce was not
attributable to the more volatile
sectors as, excluding auto fuel,
non-food buying was up 1.2
percent from year-end, its second
monthly advance in excess of 1
percent since October. Food, drink & tobacco sales were 1.0 percent firmer following a 0.2
percent advance last time. Regionally, the monthly headline spurt was led by Germany where
sales jumped 2.9 percent but there were especially large gains too in Latvia (1.7 percent),
Luxembourg (1.3 percent), Portugal (6.8 percent) and Slovenia (2.4 percent). The only reported
declines were in Ireland (0.1 percent) and Lithuania (0.5 percent).
12
Fourth quarter gross domestic
product was up an unrevised 0.3
percent and 0.9 percent higher
when compared with the same
quarter a year ago. Private
consumption was up on the
quarter by a relatively modest 0.4
percent, a rate matched by gross
fixed capital formation. The former
followed a slightly larger 0.5
percent increase in the previous
period but the latter was an
improvement on a zero rate last
time. Government consumption
was again 0.2 percent higher, in
line with its rise in every other quarter of the year. However, inventory accumulation subtracted
0.2 percentage points from the quarterly change in real GDP, its second negative contribution in a
row. Headline growth was supported by overseas demand and exports followed a 1.5 percent
increase in the third quarter with a 0.8 percent advance. With imports rising only 0.4 percent, net
exports added 0.2 percentage points. Regionally growth among the larger four member states
was confirmed at their respective flash estimates. These showed quarterly increases in total
output of 0.1 percent in France and 0.7 percent in both Germany and Spain. Italy was unchanged
at 0.0 percent. Elsewhere Estonia posted a 1.1 percent rate, the strongest in the Eurozone, while
at the other end of the performance spectrum Cyprus contracted a further 0.7 percent or more
than double the third quarter pace.
Germany
January retail sales (ex-autos)
jumped 2.9 percent following a
larger
revised
0.6
percent
December increase. Unadjusted
annual sales growth jumped from
4.8 percent to 5.9 percent, the
fastest pace since June 2010.
January's monthly increase was the
fourth in as many months and left
real purchases 3.4 percent above
their fourth quarter average. Given
the highly volatile nature of the
data, the latest figures should be
treated with due caution but their
recent trend is consistent with the
sharp pick-up seen in consumer confidence since last October.
13
January total industrial production
was up 0.6 percent on the month
and up 0.8 percent on the year.
However, the improvement in the
headline data masked a much less
impressive composition and the
key manufacturing category saw
production only flat at December's
level. Capital goods were up a
respectable 0.5 percent on the
month but intermediates dropped
0.4 percent as did consumer
goods. Rather, overall growth was
led
by
the
more
volatile
construction
subsector
where
output jumped 5.0 percent. Energy was unchanged.
Switzerland
Fourth quarter gross domestic
product was up 0.6 percent after
increasing 0.7 percent in the third
quarter. On the year, GDP was up
1.9 percent for a second quarter.
However, private consumption was
up only 0.3 percent or half the rate
of the previous period and was
easily outpaced
by
general
government consumption which
climbed a sizeable 1.9 percent.
Investment
was mixed
with
spending on equipment & software
increasing a healthy 1.0 percent
following a 1.4 percent gain last
time but construction more than reversing the third quarter's 0.7 percent advance with a 1.4
percent decline. Inventories subtracted 0.2 percentage points from quarterly growth. Goods
exports struggled and, excluding valuables, dipped 0.2 percent having risen a solid 5.0 percent in
the third quarter. Exports of services expanded 0.6 percent but even this was only half the rate
registered last time. Goods imports excluding valuables dropped 1.8 percent while services were
up 0.5 percent.
14
Asia Pacific ex Japan
Australia
Fourth quarter gross domestic
product was up 0.5 percent on the
quarter and 2.5 percent compared
to the same quarter a year ago.
On the expenditure side, the
quarterly increase was driven by
net exports (0.7 percentage
points) and final consumption (0.6
percentage
points).
These
increases were partially offset by a
decrease in inventories (down 0.6
percentage points). On the year,
the largest contributors to total
trend growth were mining (0.5
percentage points), financial &
insurance
services
(0.5
percentage points) and health care & social assistance (0.3 percentage points). The largest
detractor was professional, scientific & technical services (down 0.5 percentage points).
January retail sales disappointed
and were up 0.4 percent against
expectations for a 0.5 percent
increase on the month. On the
year, retail sales were up 3.6
percent. In December, sales
gained only 0.2 percent on the
month but were 4.1 percent higher
on the
year. The largest
contributor to the increase was
cafes, restaurants & takeaway
food services (2.0 percent).
Department stores (2.2 percent),
other retailing (1.0 percent) and
household goods retailing (0.7
percent) also advanced. These were partially offset by declines in food retailing (down 0.7
percent) and clothing, footwear & personal accessory retailing (down 0.1 percent). Online retail
turnover contributed 2.8 percent to total retail turnover in original terms. Retail sales were up in
Queensland (1.2 percent), Victoria (0.5 percent), Tasmania (1.9 percent) and Western Australia
(0.1. percent). New South Wales was relatively unchanged. Sales declined in the Australian
Capital Territory (down 1.9 percent), the Northern Territory (down 1.8 percent) and South
Australia (down 0.1 percent).
15
January merchandise trade deficit
nearly doubled from the month
before as a lower Aussie dollar
caused imports to accelerate faster
than exports. The deficit widened
to A$980 million from A$503 million
in December. Imports were up 3.0
percent on the month but down 0.3
percent from a year ago while
exports gained 1.3 percent but
were 6 percent lower than the
same month a year ago. Rural
goods exports dropped 2 percent
with cereal grains and cereal
preparations contributing to the
decline. Non-rural exports were up 2 percent with other mineral fuels, transport equipment, other
manufactures and coal, coke and briquettes contributing to the increase. Partly offsetting these
increases were metals (excluding non-monetary gold). Services exports declined with travel and
transport contributing to the decline. Intermediate and other merchandise goods imports were up
4 percent while capital goods added 6 percent and consumption goods gained 3 percent.
Americas and Canada
Canada
Fourth quarter gross domestic
product slowed to 0.6 percent on
the quarter, down from the
previous period's revised 0.8
percent.
Annualized
growth
dropped from 3.2 percent to 2.4
percent while the yearly increase
was 2.6 percent. The deceleration
reflected a smaller increase in final
domestic demand which was up
0.4 percent on the quarter or
almost half the 0.7 percent rate
registered in the previous period.
The slowdown here was only
partially attributable to household
spending which eased to a 0.5
percent rate and masked a pickup in general government consumption from minus 0.1 percent to
plus 0.5 percent. Weakness was most apparent in gross fixed capital formation which slipped 0.1
percent on the quarter (business investment minus 0.6 percent) after a 1.6 percent increase last
time. Residential structures were only 0.4 percent firmer after a 3.0 percent increase previously.
In fact, the quarterly increase in real GDP would have been a good deal less but for a 0.4
percentage point boost from business inventories. The external accounts had a significant
negative impact as exports fell 0.4 percent on the quarter and imports advanced 0.4 percent. As a
result, net exports subtracted nearly 0.3 percentage points. The deterioration here was mirrored
in the overall current account deficit which widened out by C$4.3 billion to C$13.9 billion, the most
red ink since the fourth quarter of 2013.
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December gross domestic product
was up 0.3 percent and 2.8
percent on the year. December's
expansion was dominated by
goods producing industries where
output reversed November's 0.6
percent
monthly
decline.
Manufacturing followed a 1.6
percent drop with a jump of 2.5
percent and there were smaller
positive
contributions
from
agriculture, forestry, fishing &
hunting
(0.4
percent)
and
construction (0.3 percent). Mining,
quarrying, and oil & gas extraction
was down 0.8 percent and utilities lost 1.1 percent. The service sector grew 0.2 percent from
November largely thanks to strength in wholesale trade (1.6 percent), finance & insurance (1.3
percent) and transportation & warehousing (1.2 percent). Management of companies &
enterprises also performed well (0.8 percent). The sharpest reversal was in retail trade (down 1.4
percent) ahead of arts, entertainment & recreation (down 0.5 percent).
January merchandise trade gap
widened to C$2.45 billion — the
fourth shortfall in a row and was up
C$1.3 billion from December's
sharply upwardly revised C$1.22
billion deficit and the largest since
July 2012. January's deterioration
was wholly attributable to a 2.8
percent monthly drop in exports as
imports remained flat at their
December level. Exports to the U.S.
dropped 3.1 percent on the month
which, with imports off just 0.1
percent, was enough to see the
bilateral surplus with the U.S.
nearly halve to C$1.21 billion, the smallest black ink since September 1992. Weaker prices had
an important impact on both sides of the balance sheet and export volumes were only 1.3 percent
lower on the month. Even so, with price adjusted imports down just 0.1 percent, the real trade
balance still deteriorated. The overall monthly drop in nominal exports was dominated by energy
which posted a hefty 14.7 percent decrease, their eighth straight decline. Elsewhere metal & nonmetallic mineral products were off 8.6 percent and basic & industrial chemical, plastic & rubber
products 1.8 percent. Partial offsets were provided by gains in farm, fishing & intermediate food
products (4.5 percent), aircraft & other transportation equipment & parts (8.0 percent) and motor
vehicles & parts (3.1 percent). Cash imports were also dragged down by energy (down 19.2
percent) but this was largely mitigated by increases in industrial machinery, equipment & parts
(8.2 percent), electronic & electrical equipment and parts (9.3 percent) and aircraft & other
transportation equipment & parts (9.0 percent).
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United States
January personal income was up
0.3 percent for a second month.
On the year, income was up 4.6
percent. The wages & salaries
component jumped 0.6 percent,
following a 0.1 percent increase
the prior month. On the year,
wages & salaries were up 4.9
percent.
Personal
spending
declined 0.2 percent after slipping
0.3 percent the month before. On
the year, spending was up 3.6
percent. Durables slipped 0.1
percent due to sluggish auto sales.
Nondurables plunged 2.2 percent
with lower gasoline prices pulling this component down. Services advanced 0.5 percent after a
0.2 percent gain in December.
February ISM manufacturing index
slipped 6 tenths to 52.9. This is the
slowest rate of growth since
January last year when the polar
vortex was putting a freeze on
activity. New orders slowed 4
tenths to 52.5 which is the slowest
rate of growth since May 2013
while production slowed 2.8 points
to 53.7 which is the slowest rate of
growth since February last year.
Employment slowed 2.7 points to
51.4 for its slowest growth rate
since June 2013. Delivery times
rose which contributed positively to
the index though is related not to strength in demand but to labor-related port delays on the West
Coast and heavy weather on the East Coast. The slowing in deliveries added to backlogs and
inventories, again offering counter-intuitive signals of strength. Input prices were down for a 4th
straight month, reflecting oil effects.
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February ISM non-manufacturing
index was up 2 tenths to 56.9.
Employment was a stand-out
positive, jumping nearly 5 points to
a 4-month high of 56.4. However,
new orders growth was down
nearly 3 points to 56.7 for the
lowest reading since March last
year. Supplier deliveries slowed
further in February which added to
the composite for the month. But
the slowing is likely tied, not to
demand factors, but to the port
slowdown on the West Coast, a
slowdown which has since been
resolved. The slowing in deliveries is the likely reason behind a rise in inventories and a build in
backlog orders. Cost pressures, as they are in most reports, were flat, the result of course of low
fuel costs. A big plus in the report is wide breadth of strength with 14 of 18 industries reporting
growth in the month led once again by accommodation & food services which are getting a boost
from discretionary consumer spending, itself the result of the strong jobs market and low gasoline
prices. In the contraction column are both construction and mining, two sectors that remained
weak.
Initial jobless claims in the
February 28 week were up by
7,000 to 320,000. The increase lifts
the 4-week average by a steep
10,250 to 304,750. The average is
trending roughly 5,000 higher than
a month ago in a comparison that
does not point to improvement for
the labor market. Continuing
claims, which are reported with a 1week lag, also moved higher, up
17,000 in data for the February 21
week to 2.421 million. The 4-week
average was up 4,000 to a 2.404
million level that is slightly higher
than a month ago in another comparison that does not point to improvement for the labor market.
The unemployment rate for insured employees was unchanged at a recovery low of 1.8 percent.
19
January factory orders were down
0.2 percent for a sixth straight
month. On the year, orders were
down 2.3 percent. The decline was
centered in nondurables which, in
price effects tied to energy, dropped
3.1 percent in the month, offsetting
an unrevised 2.8 percent gain for
durables. The increase in durables
reflected a higher transportation
component which jumped 9.7
percent thanks to a big gain for
commercial aircraft. Other details
include a 2.0 percent decline for
shipments, a decline that gets
production off to a slow start for the first quarter. Inventories fell 0.4 percent in the month with
unfilled orders down 0.2 percent.
February employment increased
295,000 jobs after healthy revised
increases of 239,000 in January
and 329,000 in December. The
unemployment rate declined to 5.5
percent from 5.7 percent in
January.
The
labor
force
participation rate edged down
marginally to 62.8 percent from
62.9 percent in December. Private
payrolls increased 288,000 after a
237,000 gain the month before.
Goods producing jobs increased
29,000 after a 64,000 rise in
January. Manufacturing increased
8,000 after 21,000 in January. Construction advanced 29,000 after gaining 49,000 the month
before. Mining declined 9,000 after slipping 6,000 in the month before. Private services providing
industries jumped 259,000 after a gain of 173,000 in January. In February, food services &
drinking places added 59,000 jobs. Employment in health care was up 24,000. Transportation &
warehousing added 19,000 jobs and retail trade gained 22,000 jobs. Government jobs were up by
7,000 in February after an increase of 2,000 the month before.
20
January trade gap narrowed to
$41.8 billion from a revised $45.6
billion in December. Exports were
down 2.9 percent after slipping 0.9
percent the month before. Imports
dropped 3.9 percent, following a
rebound of 1.8 percent in
December. The slowdown on the
West Coast adversely affected the
data. The narrowing was led by the
petroleum gap which was $10.7
billion, down from $14.6 billion in
December. The goods excluding
petroleum gap narrowed slightly to
$53.6 billion from $54.0 billion in
December. The services surplus improved to $19.9 billion in January from $19.4 billion the
previous month.
Bottom line
Central banks dominated the news last week. As expected, the Reserve Bank of Australia, Banks
of Canada and England and the European Central Bank left their respective policies unchanged.
The ECB however, described how its quantitative easing program which was announced in
January would function. Two banks — The People’s Bank of China and the Reserve Bank of
India — not on the calendar however, both lowered their respective interest rates by 25 basis
points. Investors were awash with key economic data during the week as well. Numerous growth
estimates were updated including those for the Eurozone and Italy while both Canada and
Australia published their data for the first time. A slew of purchasing managers surveys were also
posted with mixed results. And of course, the U.S. employment report was reported Friday. It was
better than anticipated and sent U.S. stocks lower on anticipation of a Federal Reserve interest
rate increase.
This coming week will be much quieter. In Europe, merchandise trade and industrial output
dominate. In Asia, China’s inflation data will draw attention. Japan’s second estimate of growth
will also be parsed carefully. And in Australia, labour force data will be studied for further signs of
weakness.
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Looking Ahead: March 9 through March 13, 2015
Central Bank activities
March 12
New Zealand
Reserve Bank of New Zealand Monetary Policy Announcement
The following indicators will be released this week...
Europe
March 9
Germany
Merchandise Trade (January)
March 10
France
Industrial Production (January)
Italy
Industrial Production (January)
March 11
UK
Industrial Production (January)
March 12
Eurozone
Industrial Production (January)
UK
Merchandise Trade (January)
Asia/Pacific
March 9
March 10
Japan
China
March 11
Japan
March 12
Australia
India
Americas
March 12
March 13
United States
Canada
United States
Gross Domestic Product (Q4.2014 second estimate)
Consumer Price Index (February)
Producer Price Index (February)
Producer Price Index (February)
Machine Orders (January)
Labour Force Survey (February)
Consumer Price Index (February)
Industrial Production (January)
Initial Unemployment Claims (week ending prior Saturday)
Retail Sales (February)
Import/Export Prices (February)
Labour Force Survey (February)
Producer Price Index (February)
Consumer Sentiment (March preliminary)
Anne D Picker is Econoday’s chief economist and the author of
International Economic Indicators and Central Banks.
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