summary of financial economic news of last week

The pattern of the last weeks is starting to get familiar: The economic news was satisfying. There was unrest about Greece and again an agreement seems nearby. The resistance of the people is growing in and outside Greece. Even the finance minister of Luxembourg is now saying that Greece has to accept everything and to has to take its poison because Europe can stand a default of Greece very well. So he got his portion of blame because things are not that sure.
In the US the initial claims for unemployment declined prosperously to below 350,000 and that points to maybe even 4% growth in Q1.
The retail sales grew ncely +0.5% even with the strange fall of vehicle sales (while light vehicle sales were up a lot). The saving rate is OK again and doesn’t need to go up further. The NFIB survey for small and mid size companies was a bit higher. The forerunners of the ISM Phillyfed and Empire State survey were more in the plus than thought (=ISM will rise this month). The best news was the jump in the BAHMI that indicates how optimistic the home builders are. Already for quite some time less houses are started than new homes are sold, so the builders are getting rid fast of their inventories and are becoming less pessimistic.
The inflation declined as well CPI as PPI. After April a further rise of rents will stop the decline of the CPI and when Iran gets out of control oil price will add to inflation. The use of energy is at the moment extremely low in the US because of the hot winter and less gasoline sold. All OPEC members produce more than their quota so including lower growth in China the oil price should not go up ex Iran.
China promised to help Europe again and started special vehicles for investing abroad (yuan 50B last week). The Peoples Bank of China lowered the reserve requirement ratio with 0.5% (to 20.5% for large banks). GDP growth is too low now.

In Germany the sentiment indicator for the economy ZEW was good, pointing to positive growth in Q1.
In the UK the inflation declined a lot and the consumer confidence grew strongly.
The interest rate differentials of the euro periphery/ France with Germany didn’t move much despite good placements of government bonds.

In Japan the GDP growth in Q4 was negative, but the Tertiary Industry Index was up considerably (this service industry indicator points to better growth in Q1). The most important news was the Bank of Japan implementing new QE of 10T yen and BoJ has now an inflation target of 1% (0% is too low, deflation is bad).
In India the inflation surprised enough to the downside for the central bank to get in the easing mode. They did a QE of 10B rupeeh for buying of government bonds. In Indonesia the interest rates were lowered (again) by 1%.

Summary financial economic news of the past week

There was not much economic news. In the US the initial claims for unemployment were much better than expected, mortgage applications rose, the consumer confidence dipped a bit after the big rises, consumer credit disappointed, the trade deficit was worse than expected (but according to the deteriorating trend). In the VS agreement was reached about help for mortgage holders that are under water (a drop on the plate of $ 700B of mortgages with negative equity at the current house prices.
In Europe the industrial production growth numbers disappointed in Germany and France, but new orders improved in Germany. In Italy the industrial production rose (and JP Morgan revised growth up for 2012 to only -1.7%).
In Japan the numbers were better than expected (leading indicators, trade deficit, consumer confidence, credit growth). But today’s -.06% GDP growth over Q4 disappointed.
In China the inflation rose from 4,1% to 4,5%, more than expected.

Romney lost surprisingly in three states from Santorum and is now saying he will be much more of a conservative in the future, he is born again as a conservative.

The problems for Greece accumulate, but the markets almost don’t care for the time being. It last long before agreements are made and this caused a bit higher ineterst rates in Southern Europe.
The equity markets showed small declines, because of worries about Greece and Chinese inflation. Also all those publications that Israel has to strike Iran this spring didn’t help either.
The underlying trends are still quite good: macro indicators are improving, much less recession fear in the US and the belief is growing that QE3 will arrive even while the economy is improving, as Bernanke told to the senate last week again.
The optimism can get dented because optimism is quite high (even Roubini is a bull) and some brokers are communicating mildly warning sounds about overoptimism for the growth in the US (high gasoline prices, Greece and inflation now central banks print money like never before.

financial economic news of the past week

There was a lot of macro news, mainly from the US. The news was better than expected, in Europe/UK even more than in the US.
In the first week of the months you get the surveys about how well manufacturing and the service sector are doing in a lot of countries.
The ISM manufacturing, the barometer for US industrial production) improved 1 point to 54.1 with new orders very strong. In Europe and the Emerging Markets the barometers for business (PMI's) were also strong. India had for the second month in a row the best rise and there the PIM is above 57 (no wonder Indian equities are a top performer this year).
The ISM non manufacturing was in the US almost 57 and this was a major pleasant surprise and bodes well for employment growth in the service sector.
That employment growth was with 243,000 about 100,000 more than the consensus thought. A big part of that surprise is caused by the unusually warm weather in January, but still, the numbers were quite good, almost everywhere in the economy and the unemployment rate declined further (only point of attention: the participation rate did not go up).
The house prices declined in the US, a disappointment (but this was November, old news). The car sales were very strong, even while consumption expenditures did not grow in January and while personal income rose with 0.5% (not annualised).

The fear for the euro crisis is still diminishing, visible in lower bond yields in Italy and Spain. The Greek are still making objections against the actions that are needed with the depreciation of their debts (Germany is not allowed to control tax income in Greece, they have to throw a lot more money for the good purpose, so the austerity in Greece can be less) but the markets don’t seem to mind this, they dream about how many bubbles a trillion euro of 3 years deposits (LTRO) of the ECB at February 29 can be made on the European stock markets.
There is some political unrest in Russia and Iran, but even that was not disturbing the party.
The long dated bond yields ought to rise wit hall that good macro news, but that was disappointingly little the case.
Bernanke held its Humphrey Hawkins Testimony, but this produced no news (quite unusual, the FED seems to have communicated everything that could be communicated, there was only some dismay about the FED doing politics with their suggestions to help the housing market).

Summary of financial economic news of the past week (January 22-29)

The FED got the most attention with its new way of communicating. Every member had to indicate for years ahead what the FED rate could be. This resulted in a solemn promise of Bernanke not to hike rates before the end of 2014. Suddenly an inflation target was presented of 2% for PCE (personal consumption expenditures weighted as in the GDP). So the US is now in a Japan trajectory with an ejection possibility when inflation should become too high. Bernanke also suggested a new round of QE was around the door.
All these wonderful things did the markets progress and the dollar regress.

In Europe the worries continued about Greece where Private Sector Involvement in the form of getting rid of c. € 100 billion of debts, while the worries also grew about Portugal. The ten year rates of Italy declined to an anaemic 6% and in Spain to below 5%.

In Germany the IFO was very good, the growth in the first quarter in Germany is very likely positive, but in France the INSEE was a mess. In Spain the unemployment rate rose to an disappointing 22.9% (reason for Fitch to lower its rating).
The growth of M3 in the Eurozone was only 1.6%, far below the norms of the old BUBA and the ECB ought to repair this with quantitative easing but the market doesn’t believe this, see the stronger euro last week.

In the US the orders for durable goods rose a strong 3% and together with a higher Richmont Fed Manufacturing index this points to a higher ISM this week. The new leading indicators rose 0.4% and the Chicago Activity Index (a repository of about 80 surveys about the US economy) was positive again, implying near or a bit above trend growth. The housing market indicators were weak.
The growth of the GDP in the fourth quarter was with 2.8% a bit below consensus (mainly because of defence spending subtracting 0.7% from growth) and 1.9% was caused by inventories what was dismayed by the markets.

A lot of central banks of Emerging Markets were in a mood to easse monetary policy. Thailand lowered the rates, India the reserve requirement ration. Brazil indicated to lower rates further. China disappointed (not at all surprisingly) by not lowering the reserve requirement ratio as a new year wish.

The profit season is a bit disappointing in the US (main reason the strong dollar), especially revenues are lower than expected and the guidance is not in the direction of prosperity. The numbers are not that bad (especially technology, industrials and materials surprised very positively, but energy, staples, telecom and utilities negatively). In Europe the profit numbers were also a bit disappointing, while you could have expected some help of the lower euro.

Several sentiment indicators are showing now a bit too much optimism.