Here's the Economic Calendar for the week commencing the 1st of November 2010. This week is monetary policy mayhem week! The main even will be the announcement from the US FOMC as it announces its decision on monetary policy, and more importantly its decision on quantitative easing - this will be closely watched by the world. And then there's also the Reserve Bank of Australia, European Central Bank, Bank of England, Reserve Bank of India, and of course the Bank of Japan - who rescheduled its meeting to follow the Fed's announcement. Other than the monetary policy mayhem there's the usual PMI's from China and the US, and nonfarm payrolls on Friday. [more]
This week we review the Q3 GDP results from the UK and US, then look at the recent data on the US housing market and consumer confidence. Then we examine some of the monetary policy decisions announced over the week, before wrapping up with a look at the inflation and employment situation in Japan.
1. US GDP
First up is US GDP which grew 0.4% q/q (or 2.0% "annualised" vs consensus 2.0%). On a year on year basis the US economy grew 3.1% vs 3.0% in Q2. Much of the gains were in inventory investment, consumer spending, equipment investment and government spending. So overall, the result was much as expected - relatively ho-hum, showing the US economy recovering - but at a subdued and muddled pace. So of course it's not plain sailing yet, a lot of the damage done during the financial crisis needs to be repaired, and a lot of the excesses need to be unwound before a true sustainable economic recovery can take place in the US.
2. UK GDP
over in the UK the growth rate was relatively strong at 0.8% q/q, which is a little lower than the 1.2% in Q2, but still respectable and enough to disappoint those that were hoping for another round of quantitative easing from the Bank of England. On an annual basis the British economy grew 2.8%, up from 1.7% in Q2. But as with the US, the all clear can't be signaled yet, and it is too soon to rule out further monetary policy stimulus - especially as the UK government seeks to reign in its budget deficit (maybe a bit of contracting on the fiscal and expanding on the monetary). So all the more reason to watch what happens next week!
3. US Consumer Confidence and Housing
Also out in the past week was the much watched Case Shiller House price report for August, which came in weaker on a monthly basis and slowed its increase on a yearly basis. So a disappointing result, but not a surprising result - there's no fundamental basis to expect a strong upsurge in the US housing market (and relatively small basis for sideways movement in prices). So of course it's also unsurprising to see still subdued results in the consumer confidence numbers, albeit with a small increase to 50.2 from 48.5 in September. At the margin the result was positive in that much of the increase was driven by an increase in the future expectations index, which is sensible.
4. Monetary Policy
In monetary policy there were no major events this week, the main items of interest were Denmark, and Sweden both increasing interest rates slightly - but signaling a slow move. The other interesting part was Japan, which expanded the scope of its asset purchase program and brought forward the next meeting date (to just after the Fed's meeting next week). On that note, the next week will be a very interesting week monetary policy-wise as the US FOMC, Bank of Japan, Bank of England, RBA, and ECB are all set to announce policy decisions. The main point of attention will be what the US Fed does in terms of QEII - will it go for a shock and awe campaign, or will it go for an incrementalist approach? Either way it almost seems a certainty now that the second quantitative easing campaign is about to commence.
5. Japan Inflation and Unemployment
In Japan, deflation remained persistent with the CPI falling -1.1% vs -1.0% in August, but the jobless rate slipped slightly to 5.0% vs 5.1% in August on the back of increasing payrolls. As pointed out, the Bank of Japan expanded the scope of its asset purchase program to include lower graded corporate bonds in effort to try and stimulate the economy and try and inject a semblance of inflation. Most remarkably though was the move to hold another meeting next week just after the Fed, which signals that the BOJ is ready to act if the US makes moves to devalue the US dollar. This would not be surprising as the Japanese economy is traditionally an export led economy, and with recent trade results faltering somewhat it may make for an interesting week indeed.
So we saw the US with relatively subdued growth in Q3, but growth nonetheless. But without showing major signs of strength has all but pave the way for a second campaign of quantitative easing by the US. Meanwhile the UK grew a little faster, and perhaps even blew the case for an extension of the asset purchase program by the Bank of England. We also saw a weakening US housing market and a US consumer stuck in limbo. On the monetary policy front most held, a couple increased, but the real monetary policy action will come next week. In Japan deflation remained, jobless declined slightly, and the BoJ lined itself up to counter any possible dollar devaluing determinations from the Fed next week.
1. Bureau of Economic Analysis www.bea.gov
2. UK National Statistics www.statistics.gov.uk
3. Conference Board www.conference-board.org & Standard & Poors www.standardandpoors.com
4. CentralBankNews.info www.centralbanknews.info
5. Trading Economics www.tradingeconomics.com
Article Source: http://www.econgrapher.com/top5graphs-30oct.html [more]
This week the focus is on China, with the quarterly statistics out this week - as well as a surprise interest rate increase from the PBOC. Among the data we review in this edition is GDP growth, inflation trends, the interest rate decision, retail sales growth, and the continued rise of new lending.
1. China GDP
First up is GDP, China saw growth decelerate slightly to 9.6% year on year in the September quarter (or 10.6% YTD on YTD), down slightly vs the 10.3% growth rate in the June quarter. Some of the deceleration was due to a higher base comparison period, but also impacts from macroeconomic controls put in place by the government. So basically the Chinese economy is still tracking along at a relatively fast pace.
2. China Inflation Outlook
Of course the inflation outlook should also remain elevated. The September inflation figure was 3.6% vs 3.5% in August, and 2.9% in June. The PBOC Future Price Expectations Index was also recently released; rising to 73.2 from 70.3 as inflation expectations remain elevated. Much of the inflation result was driven by food prices. Overall the inflation outlook for China remains high, a simple convergence in the chart below should say that one or the other has to give soon (i.e. either higher inflation or lower expectations), but the fundamentals line up with rising inflation.
3. China Monetary Policy
So it's not a major surprise then that the PBOC raised interest rates, especially in the back drop of a series of increases in the Required Reserve Ratios for the banks. The People's Bank of China increased the main policy rate 25bps to 5.56% from 5.31%, as well as increasing the 1-year benchmark deposit rate 25bps to 2.50% from 2.25%, marking the first increase since 2007. The move is a logical response to the rapid growth in lending (more on that later), concerns about asset bubbles and overheating, as well as the usual monetary policy reason of higher inflation.
4. Retail Sales
The consumer spending data shows no tapering off either, with continued strong growth - a positive sign for an economy that is facing the challenge of rebalancing to a domestic demand vs export driven growth. The fastest growing categories were 'Gold and Silver Jewelry' (54.9%), 'Furniture' (39.6%), and 'Building and Decoration Materials' (39%), while the largest categories were 'Automobile' (CNY 148 bn), 'Petroleum and Related Products' (CNY 93.7bn), and 'Grain, Oil, Foodstuff, Beverages, Tobacco, and Liquor' (CNY 70.2 bn). So what does that tell us? Chinese consumers are spending most of their money on cars and driving, and spending on discretionary wealth or status items is rising fast. Which is not overly surprising given the per capita rise in income of 9.7% (driven by an 18.7% increase in income from wages and salaries).
5. New lending
The value of new loans is consistently rising in China, attracting the attention and action from the central bank. And wisely so, as the rapid pace of growth in loans threatens to blow out inflation, and potentially create overheating and asset bubble issues. But cultural and regulatory factors have dictated a relatively lower use of debt (as compared to e.g. the US). So lending growth may well be key factor in rebalancing China's economy - the key is getting it done sustainably, and avoiding the excesses demonstrated by the US experience.
So the Chinese economy is still going strong, judging by the data that was released this week. This is heartening given the slowing that we're seeing in several other key economies e.g. US, Japan... but at the same time the divergence in economic prospects has created tensions.
For China the outlook appears to be for continued strong growth, rising inflation; and accordingly tighter monetary policy conditions (which is good for the sustainability of the economic growth). There are promising signs on the rebalancing process in the consumer spending data (though more needs to be done), but also interesting signs around wealth and income levels.
The key risks for China's economy remain; inflation and overheating, potential impact from the global economic slowdown, the challenges in reorientating the economy to a domestic demand led strategy from an export led strategy, and policy risk (i.e. tightening too much too fast). Apart from that expect more of the same.
1. National Bureau of Statistics www.stats.gov.cn
2. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
3. People's Bank of China www.pbc.gov.cn
4. National Bureau of Statistics www.stats.gov.cn
5. People's Bank of China www.pbc.gov.cn
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