Here's the Economic Calendar for the week commencing the 26th of September 2010. This week there's additional GDP iterations due out from the US and UK, and of course given September ends this week (damn this year is going fast!) there will be the PMI stats out, with China and the US being the key ones to watch in that space. Japan also takes to the stage a few times this week with trade data, the quarterly Tankan survey, retail trade, industrial production, employment, and CPI data all due out this week. Of course the other key data in the US to watch will be the Case-Shiller house price index, and both the Conference Board and University of Michigan consumer confidence stats. [more]
This week we look at some of the monetary policy decisions that were announced, then review the consumer spending stats in the US before checking in on inflation in the US as well as the UK. We wrap-up with a snapshot of the commodities market.
1. Monetary Policy Review
This week there were a few interest rate decisions out; the Reserve Bank of New Zealand held rates steady at 3.00% citing global growth as well as the earthquake impact. The Reserve Bank of India increased rates again; lifting the repo rate +25bps to 6.00% (and the reverse repo rate +50bps to 5.00%) as inflation concerns continued. The Swiss National Bank left the 3-month libor target rate unchanged at 0.25%, judging current levels to be appropriate. The Central Bank of the Republic of Turkey held its 1-week repo rate at 7.00% but cut the overnight borrowing rate -25bps to 6.25%. There was also the Bank of Japan of course, which intervened in the currency markets this week for the first time in 4 years, as the strong yen started to put pressure on the Japanese economy. So basically same story here as usually mentioned - a very de-synchronized approach to monetary policy across the globe at the moment as we carry on through the uneven recovery.
2. US Retail Sales
US retail sales beat expectations in August, rising 0.4% month on month vs consensus 0.3%, and more or less flat vs July's growth rate. Core retail sales grew 0.6% vs expected 0.4%, and previous 0.2%. The strong sectors were gasoline station sales, food & beverages, and clothing; while the weak sectors were health & personal care, sporting goods & hobby stores, general merchandise, and nonstore retailers. So the numbers are relatively positive - at this stage of the recovery a small positive or even just a plain positive is a win; but retail sales are still tracking well below trend.
3. US Inflation
US CPI came in flat year on year again, with headline inflation rising 1.2% year on year vs 1.3% in July, and core rising 1.0% - the same as July and June. Basically nothing to see here right now, this is the quiet part on the inflation front; the only real price pressure is coming from energy and food prices, but there is currently a baseline of demand that will probably stop the situation from falling into deflation. If any where the outlook is probably for a few more months of flatness, with a gradual increase.
4. UK Inflation
UK inflation rose 3.1% in August, placing it above the Bank of England's target 2.0% for the 8th consecutive month. The situation in the UK is a little different from the US one, there are a few one-offs in the CPI results still, but the outlook is for relatively persistent inflation around 3%. The Bank of England quarterly inflation outlook poll showed UK consumers expect prices to increase by 3.4% over the next 12 months, up from 3.3% in the May results, and the highest since August 2008. So the UK situation isn't terrific; relatively high inflation with relatively stagnant growth.
Since we looked at some CPI stats in this edition, it would be rude not to look at where commodities are tracking. If there is any reason for inflation to be underpinned at least, this is it. The dichotomy of economic growth rates in the global economy between dynamic emerging markets and mature developed markets is having an interesting effect. China and other emerging markets still has a strong appetite for commodities as it invests in infrastructure, and continues manufacturing - for exports as well as meeting the growing domestic demand. This will ultimately be good for the global economy, but it will also drag up inflation rates around the world as commodity input prices feed their way through the value chain.
So we looked at some of the monetary policy decisions last week and saw what will be characteristic of the global economic recovery as it plays out over the next couple of years, i.e. de-synchronised monetary policy, as a result of an uneven recovery and resulting political pressures. We then looked briefly at retail sales in the US and saw that people are still spending, and reviewed inflation results from the US and UK and noted that although inflation is currently flat-lining in these developed economies, the outlook will be for at least a gradual increase. Indeed if you think about the dynamics in play in the commodities markets, the possibility of the strong emerging markets dragging up not only global growth, but global inflation starts to get interesting...
1. Reserve Bank of New Zealand www.rbnz.govt.nz & Reserve Bank of India www.rbi.org.in & Swiss National Bank www.snb.ch & Central bank of the Republic of Turkey www.tcmb.gov.tr
2. US Census Bureau www.census.gov
3. US Bureau of Labor Statistics www.bls.gov
4. Trading Economics www.tradingeconomics.com
5. Thomson Reuters/Jefferies www.jefferies.com
Article Source: http://www.econgrapher.com/top5graphs18sep.html [more]
The RBNZ (Reserve Bank of New Zealand) left the OCR (Official Cash Rate) unchanged at 3.00%, leaving banks' core overnight funding costs unchanged. The decision was expected by most, with most economists in New Zealand expecting the next move not to come until as late as December this year.
The RBNZ also released its detailed economic analysis report; the Monetary Policy Statement, where it outlined its views on the New Zealand economy and rationale for the decision. The Bank noted that (as with the expectations of those in the market) further tightening of monetary policy is likely to be more drawn out:
“Over time, it is likely that further removal of monetary policy support will be required. The pace and extent of further OCR increases is likely to be more moderate than was projected in the June Statement.”
The New Zealand Economy
In its assessment of the New Zealand economy the RBNZ noted the likely impact of the Christchurch earthquake (see below for more details), but it also honed in on the slowing of the pace of the global economic recovery; in particular in the US. But pointed out that New Zealand's key trading partners; China and Australia are both growing strong and will likely support demand for exports.
However the RBNZ did note the decline in the outlook for the household sector as deleveraging runs its course; thus resulting in a relatively subdued housing market and lackluster consumer spending. On the inflation front, unsurprisingly the RBNZ did not see significant underlying inflationary pressure, but did note the likelihood of a spike in short-term inflation.
“Overall, despite the weakened outlook, we still expect that growth will progressively absorb current surplus capacity over the next few years. In addition, changes to indirect taxes and earthquake impacts will cause headline inflation to spike higher over the coming year. Previous experience of GST increases, the fact that annual CPI inflation has been near 2 percent for the past year and a half, and the subdued state of domestic demand suggest this inflation spike will have little impact on medium-term inflation expectations." [more]
The Bank of Japan today intervened in the forex market, selling Yen (JPY) as the exchange rate entered the psychologically important 82 yen zone. After the intervention the USD strengthened against the JPY, with the USD/JPY rate rising to about 85.50. The move follows repeated threats by the Bank of Japan to take "decisive steps" if necessary. Japan's Finance Minister, Yoshihiko Noda, noted that the impact of the rising Yen on the economy could no longer be ignored - he also noted that Japan had acted alone in the move. So what does this mean? and what does it signal?
In the short term it probably means more volatility in the JPY, and possibly a continuation of the artificially induced pullback. As Japan is very much a trade driven economy, the exchange rate has a material impact on export competitiveness and thus growth in exports (note exports have still not recovered to pre-crisis levels in Japan).
In the medium to longer term though currency intervention often tends to have the effect of blowing air into the wind; currency intervention has its place at the margins and at the extremes, where it can be quite effective - or as a trigger point. But if the fundamentals suggest the exchange rate should be trending in a certain direction then intervention is liable to backfire.
The move also sends some strong signals about the relative levels of desperation felt by the Ministry of Finance and the Bank of Japan by extension. It means they are getting nervous about the state of the Japanese economy, and maybe they should be. The deflation problem is still there, so is the debt problem, growth has rebounded - but for how long, trade has rebounded - but the exchange rate issue has played a part; global demand will also come into the mix.
So what's the conclusion? Well for one the "yentervention" probably wont work long term, and probably wont have the intended impact of boosting exports. And on the signaling side, well, Japan may well be going the way of the US and we may start seeing double on the double-dip front!
Econ Grapher Analytics www.econgrapher.com
Global View Forex www.global-view.com
Article Source: http://www.econgrapher.com/15sep-yentervention.html [more]
In this report we look at the rise in inflation in the economy of China, followed by continued monitoring of the rise in consumer spending and domestic demand. Then we review the potential rebound in industrial production; looking also at its links with international trade. Finally we note how along with the trends in trade, how loan growth is playing into the dynamics of the global economy and the Chinese economy.
1. China Inflation
China's inflation rate rose to 3.5%, matching consensus, and up on July's 3.3% increase. The chart below shows the inflation rate rising in line with the sharp increase in the future prices expectation index, which is currently at 70.3, vs just 11.4 a year ago. The increase is as to be expected given fundamentals, and if past experience is a guide then the picture below is for further inflation to come - which will put pressure on the PBOC in setting interest rates.
2. Chinese Consumers - Retail Sales
The Chinese consumer showed further strength in August, with retail sales rising 18.4% year on year, reaching 9.75 billion yuan year to date. The trend is evidently upward, with the peak period close to spring festival yet to come (Chinese new year is in early February 2011). This chart is always an interesting one to monitor as it provides a good proxy for Chinese consumer spending, or the domestic demand component of China's economy. It heralds a shift in wealth, economic dynamics, as well as vast opportunities as per capita incomes rise.
3. China Industrial Production and PMI
Industrial production showed a rebound in August as hinted at by the PMI figures released earlier this month; industrial production grew 13.9% year on year, trumping forecasts for 12.9% and previous 13.4%. The rebound in PMI and industrial production is promising for the economy, but it could yet be too early to pick a halt to the decline; but one thing's for sure, and that's the recent rebound in trade - which could be triggering a second wave of activity.
4. China Trade Surplus
Indeed, China's trade figures showed continued strength in exports with exports growing 34.4% year on year to about $139 billion (July $145.5 billion), and imports growing 35% to $119 billion (July $116.8 billion), leaving a trade surplus of $20 billion (slightly down from $28.7 billion in July). The results show the rolling trade surplus picking up firmly, turning around the downward trend. One promising part of the results was that imports were growing faster year on year vs exports - which points to China's potential to start driving global growth and economic activity. The imports may also point to stronger domestic economy driven demand, as well as inputs for production and re-export.
5. Chinese Banks - New Loans
Finally, China saw a strong expansion in lending in August, with new loans by banks totaling 545.2 billion yuan. Year over year the figure was 134.8 billion stronger than in 2009, and up a strong 18%. The continued expansion of credit shows a contrasting strength in economic prospects as loan growth remains stagnant or even contracts in Europe and the US. But there is the need to remain vigilant about loan quality, and the perennial optimism and insistence of the banks about the triviality of stress tests is not cause for comfort- there is the potential that with such rapid and consistent loan growth that loan quality may have suffered in some cases; so keep an eye on loan impairments and bad debt provisioning.
As a brief summary we saw inflation rise again, but thought about how it could go higher yet. We reviewed the increasingly interesting retail spending data, and its implications for the outlook for domestic demand in the Chinese economy. Then we saw signs of a rebound in industrial production - as heralded by the PMI figures - and thought about how this may link in with the figures we're seeing in international trade. On the topic of international trade we thought about China's role in the global economy as it shows somewhat counter-cyclical growth in credit and lending - in contrast to more developed nations. The overall message is one of relatively strong activity in the Chinese economy, with a reasonably positive outlook - economic growth wise; but there are risks for the economy particularly around the aggressive expansion policies and inflation.
1. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
2. National Bureau of Statistics www.stats.gov.cn
3. National Bureau of Statistics www.stats.gov.cn & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
4. China Customs www.customs.gov.cn
5. People's Bank of China www.pbc.gov.cn
Article Source: http://www.econgrapher.com/13sep-chinaupdate.html [more]
This week we look at some particularly strong second quarter GDP numbers out from emerging markets Brazil and India, as well as one lucky developed market, Australia. Then we review the PMI results from the two biggest economies; China and the US.
[See Full Article For Charts]
We saw a continuation of the strengthening rebound of the Brazilian and Indian economies, confirming views on the global economy being driven by strength in emerging markets. We also saw continued strength in the Australian economy, which is set to continue its mining boom driven surge; but as with the strong emerging markets, inflation is a growing threat. The results are largely consistent with the idea of a 3-tiered economic recovery.
In China we saw improvement in both of the manufacturing PMI data, with some strength in new orders, and strength also showing through in the non-manufacturing sector. The data point to the possibility of the recent slowdown being temporary, and lines up with the results from the other big emerging markets, with the theme being strong growth - but potential for overheating.
Finally we saw some positives, but nothing particularly great in the US data this week. Aside from the promise of further stimulus measures coming next week, the scenario seems to be the muddle ages of the recovery. But one question on the US economic outlook front will be to what extent it may eventually gain from the growing strength in the large emerging market economies like India, China, and Brazil?
1. Trading Economics www.tradingeconomics.com
2. Trading Economics www.tradingeconomics.com
3. Australian Bureau of Statistics www.abs.gov.au
4. Yahoo Finance finance.yahoo.com & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
5. Yahoo Finance finance.yahoo.com & Institute for Supply Management www.ism.ws
Article Source: http://www.econgrapher.com/top5graphs4sep.html [more]