Here's the Economic Calendar for the week commencing the 26th of December 2010. As we enter the last market week of 2010 there's only a handful of economic events this week. No doubt the interest rate increase in China will play a part in how the following week turns out. The main events this week will be Japan data (jobless rate, CPI, industrial production, and retail trade), and US data ( consumer confidence, and the S&P/Case-Shiller house price report), and China data (industrial profits and leading index). [more]
The central banks of Hungary, Japan, Poland, the Czech Republic, Georgia, Uruguay, Russia, and China all announced monetary policy rate decisions in the past week. The main standout was the People's Bank of China, which raised interest rates 25bps, lifting the 1-year lending rate to 5.81% and the 1-year deposit rate to 2.75%. Another notable was Russia, which kept the refi rate at 7.75% but increased the overnight deposit rate by 25bps to 2.75%. Another interesting move was the Magyar Nemzeti Bank of Hungary which raised the benchmark 2-week interest rate 25bps to 5.75%, as a response to government policies - and to the protest of the government of Hungary, which is seeking to rein in the Bank. The other banks that announced decisions held steady for a range of reasons, taking a wait and see approach.
So in some sense the theme of the week was emerging markets tightening. China had already commenced tightening as inflation has recently spiked up (driven mostly by short term food price inflation), and the economy is rocketing along, Brazil and India have both been tightening too as the risks of overheating begin to outweigh the risks of maintaining growth. But Russia is the most recent one to join the tightening club in the emerging markets. So it will be interesting to watch over the next year how these large and powerful emerging markets manage monetary policy in the backdrop of rising inflation and strong growth; and there is a lot riding on them to get it right. There are no major central bank meetings scheduled for next week.
Article source: http://www.centralbanknews.info/2010/12/monetary-policy-week-in-review-26-dec.html [more]
New Zealand saw an unexpected contraction in GDP in the September quarter, recording a -0.20% decline from the June quarter. On a year on year basis GDP was up 1.50% which was lower than consensus estimates for 1.80% growth. Much of the weakness was due to a minor loss of momentum and the impact of the Christchurch earthquake. However there are several reasons why this will likely be the low point as 2011 is set to be a strong year for economic growth in New Zealand.
Digging into the details on an expenditure approach, the chart below shows the breakdown, with residential buildings have the most significant negative impact in the quarter, and with net exports also having a negative impact (i.e. through higher imports and lower exports). Government expenditure also decreased as the government looked to cut costs, having recently been put on negative credit watch by Standard & Poor's. The residential buildings aspect is likely to be a positive contributor over the next year as rebuilding efforts take place in Christchurch, broadly this effect will add to overall GDP growth over the medium term.
On a sector basis, the most significant detractor was fishing, forestry and mining (mining will likely also fall somewhat as the Pike river coal mine disaster has seen the mine closed for the foreseeable future), with construction and manufacturing also falling. Slightly offsetting that was transport and communication and wholesale trade; which is a positive sign for the broader economy. The retail, accomodation and restaurants sector will likely receive a significant boost through 2011 as New Zealand hosts the Rugby World Cup (go the all blacks!).
So overall it was a negative result, but this was largely due to the short-term impact of the earthquake. Going into 2011 the New Zealand economy will likely pick up steam as the impact of the post-earthquake rebuilding, Rugby World Cup, still relatively loose monetary policy, and a general gathering of momentum underpin the recovery.
Econ Grapher Analytics www.econgrapher.com
Statistics NZ www.stats.govt.nz
Article Source: http://www.econgrapher.com/23dec-nzgdp.html [more]
This week we review inflation data from the US and the EU. Also examined is Japan's influential Tankan business sentiment survey, and a check in on US housing starts. Finally we sum up with a look at some of the many monetary policy decisions from the past week.
1. US Inflation
The US recorded a 1.1% y/y headline rate of inflation in November (vs 1.2% in October), and core inflation of 0.7% (vs 0.6% in October). So overall a pretty ho-hum result, inflation at the consumer level is still quite subdued despite inflation pressure beginning to rise at the producer level; particularly in commodities. So the case remains that the Fed still has its work cut out in terms of spurring up inflation - but the question is, when will the new worry of inflation rather than deflation come about? this is one to watch carefully.
2. EU Inflation
Over in the EU, inflation rates were unchanged between October and November, with the EU rate at 2.3%, and the Euro-Area headline rate at 1.9% and the Euro-Area core rate was 1.1%. The same old story of significant diversity across the region applied with the highest rate of 7.7% recorded in Romania, and the lowest rate -0.8% in Ireland. And so the Euro experiment continues, inflation will likely gradually pick up over the next year, provided that the economic recovery doesn't get derailed (and there are a few risks floating around).
3. Japan Tankan
The influential business sentiment survey, the Tankan all companies index had fell to -11 from -10. Large manufacturers declined to 5 from 8, and large non-manufacturers fell to 1 from 2. Small manufacturers improved to -12 from -14 and small non-manufacturers fell to -22 from -21. Thus overall the results were relatively negative, reflecting the challenging economic conditions in Japan. Companies are finding the dual effects of fading stimulus and a stronger Yen to be having a negative impact.
4. US Housing Starts
Housing starts in the US were basically flat again, recording 0.555m vs consensus 0.550m, and previous 0.519. So the results look kinda good, but in a time series (as in the chart below) it's clear the market is still just muddling along. The only real good news out of this piece is that at least it didn't get worse, i.e. there appears to be some stabilizing.
5. Monetary Policy Review
In the past week the central banks of Sri Lanka, US, Hong Kong, Norway, Namibia, Sweden, Botswana, Egypt, Switzerland, India, Poland, Turkey, Chile, Columbia all met to review monetary policy settings. There were a few movements in interest rates with those to tighten being: Sweden +25bps and Chile +25bps, while those that dropped rates were: Namibia -75bps, Botswana -50bps, and Turkey -50bps. While the rest held steady, and the US made no alterations to its quantitative easing program.
So we saw inflation basically flat-lining in the US for now, over in the EU inflation appears to be gradually picking up but risks remain. Japan saw less than exciting results in the Q4 reading of the Tankan survey, and the US saw flat housing starts as the housing market appears to be stabilizing somewhat. On the monetary policy front we saw a couple tighten, a few drop, and most hold steady as monetary policy becomes more de-synchronized as the global recovery also becomes more de-synchronized.
1. US Bureau of Labour Statistics www.bls.gov
2. Eurostat epp.eurostat.ec.europa.eu
3. Bank of Japan www.boj.or.jp
4. US Census Bureau www.census.gov
5. CentralBankNews.info www.centralbanknews.info
Article source: http://www.econgrapher.com/top5graphs18dec.html [more]
China released its main economic indicators for November over the weekend, following the decision by the People's Bank of China to raise the required reserve ratio another 50bps. This article reviews some of the key data points in the release. We look at inflation, retail sales, industrial production, money supply growth, and new loans.
1. China Inflation
China saw a further spike in inflation in November with the year on year increase in the CPI rising to 5.1% from 4.4% in October. As with October much of the inflation was coming from food prices e.g. "foodstuff" inflation was 11.7% y/y and "non-foodstuff" was 1.9%. The figure came in higher than an expected 4.7% and provides a bit of justification to the PBOC lifting the RRR on Friday, but the question remains; will it need to do more? And how can it address the food price inflation issue? One easy answer could be to let the yuan appreciate and then import cheaper food, but then things are generally never as easy as they seem.
2. Loan Growth
In a similar vein, loan growth came in at 564 billion yuan vs 588 billion in October, pushing the total new loans within inches of the full year quota of 7.5 trillion yuan. So banks will either have to just go over quota - not sure how practical that is, or wait until existing loans are repaid before extending new loans over December. As for next year, in line with the "prudent" monetary policy rhetoric the quota is likely to be a little lower, possibly 6 trillion yuan. But keep watching this space - we all know what excessive loan growth can lead to (i.e. US, et al).
3. Retail Sales
Retail sales grew again around 18 or 19%, but dipped slightly month on month (seasonal) to 1.39 trillion yuan in November. Again one of the fastest growing categories year on year was "Gold and Silver Jewelry" at 67% (totaling 11.5 billion in Nov or 113.7 billion YTD), which is interesting; is it a wealth effect? are lots of people getting married? or are the Chinese searching for stores of value and inflation hedges? Probably the latter. On volume, automobiles and petroleum and related have dominated spending.
4. Industrial Production
Industrial production picked up slightly to 13.3% against 13.1% in Oct. The fastest growing sectors were general purpose machinery (19%), transport equipment (18.1%) nonmetal mineral products (18%), and electrical machinery & equipment (17.4%). So the industrial sector is still cranking away, churning out cars and various other machines and equipment. And given the record exports number in November it's likely that both external, but predominantly internal demand will sustain activity in the medium term (include government in the internal part).
5. Money Supply
Finishing up with money supply, M2 grew at 19.5%, M1 22.1%, M0 16.3%. Basically money supply growth is still carrying on at a relatively elevated pace, and this will put some pressure on inflation (but some money supply growth is needed). It's also worth at this juncture pointing out where some of the key rates are at, the PBOC's policy rate is 5.56% (the bank lifted it 25bps in October), the RRR is 18.50% (from the 20th of Dec), and the government bond rate was 3.96% at the end of Nov (up about 60bps since Sep, having not changed much off an average about 3.40% Jan-Sep). Monetary policy will likely be a hot topic in China in the short-medium term, but let's hope they get inflation under control and achieve a sustainable growth outcome.
It's always a good chance to get a feel for where the Chinese economy is when they release the monthly main economic indicators. Indeed, I always try to expand the range of indicators and data sources when it comes to analyzing China e.g. the Manpower employment survey. But anyway we can takeaway some conclusions from this review of the November data. First of all the rate of inflation is increasing, and it appears to be a tough problem to tackle. Second, loan growth and money supply growth are still going strong, and likely aren't helping the inflation fighting effort. Third, there is still signs of a pretty strong economy e.g. in the retail sales stats and the industrial production stats. So it seems, given relative economic strength that the authorities will have room to maneuver in bringing inflation down - but there is a palpable risk of overdoing things or forcing a slowdown (but then isn't that better than blowing a bubble?).
1. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
2. People's Bank of China www.pbc.gov.cn
3. National Bureau of Statistics www.stats.gov.cn
4. CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com & National Bureau of Statistics www.stats.gov.cn
5. People's Bank of China www.pbc.gov.cn
Article Source: http://www.econgrapher.com/12dec-china.html [more]
Here's the Economic Calendar for the week commencing the 5th of December 2010. This week there's a few central bank meetings (AUD, CAD, NZD, GBP), China data begins to trickle out (property prices, international trade), and a range of trade, international accounts, and industrial production figures are due out from a range of economies. [more]