Economics summary

Industrial Production in Japan declined by -3.7% from December to January, the market was expecting a decline of -2.5%. Retail Sales fell by -2.3% from December to January against the market expectations of -0.8%. The production by automakers and auto parts, also the housing starts came in weaker than the market expected. Overall, the released economic indicators from Japan was on the weaker side. The Manufacturing PMI from China was 49.2 in February from 49.5 in January. The market was expecting a value of 49.5. The export sales fell sharply. Composite purchasing managers’ index fell to its lowest level in two years at 52.4 in February from 53.2 in January. Indices on the 28th of February: Weak US economic indicators and not well so positive political news have led to a negative close for the US stock markets. Less optimism about the trade talks between the US and China, together with weak economic indicators from China have led to negative close for the stock markets in A

The British Prime Minister, Theresa May, said at the British Parliament yesterday that she would put forward the Brexit agreement, including any changes she has agreed with the EU, to a vote by 12 th of March. If the changes got voted down, she would then forward suggestion for a hard Brexit (no deal), if this also got voted down, she would forward a postpone of the deadline for the UK to leave the EU. To postpone the deadline of leaving the EU would need the approval of all the EU countries. The FHFA released yesterday the statistics for the US house prices . House prices rose by 5.7% from the fourth quarter of 2017 to the fourth quarter of 2018, the rising price rate has thus slowed down through 2018. The growth rate peaked in February 2018, when the price rose by 7.7%. The US S&P Case-Shiller Home Price Index shows a slowed down in price growth for the major Metropolitan Area, the growth was positive from November to December 2018. United States Housing Starts fel

Yesterday, the oil price fell by about 2 dollars per barrel after the US President, Donald Trump,  tweeted at OPEC about how the oil price was too high and that the world couldn’t   take a price hike:…please relax and take it easy..”, was the message. The Italy’s bond yields fell after the credit rating agency, Fitch,  affirms the rating of Italy is still at BBB. The Bank of England is signaling that banks will gain additional access to funds, this is to avoid financial shock in case of a no deal Brexit. The British government has been discussing about postponing the Brexit date of 29th of March. Indices on the 26th of February: The US stock markets opened strong due to the postponing of the tariffs deadline. The indices fell back to the starting point at the end of the day. Chinese stock markets were still up due to the postponing and government’s additional stimulus to the economy.     Dow: +0.2% (25th of February ) S&P 500: +0.1% (25th of February) Nasdaq

Japan Producer Prices for services rose by 1.1% year over year in January, same rate as in previous month. The growth rate for service prices is usually higher than for manufacturing prices, which means the rising prices for services won’t contribute much to increase the overall inflation rate. The Japanese government has come to accept this fact. The economic adviser to Japan's Prime Minister and one of the key architects of Abenomics , Koichi Hamada, said that  prices don’t need to rise so much . Once the job market is tight enough, the public is better off having prices fall. The goal of 2% inflation can be abandoned, and the appropriate target level can be decided by the central bank. This might lead to the Bank of Japan to be less expansionary in the onward monetary policy. The US president, Donald Trump, announced that the US would postpone the implementation of tariffs on Chinese goods. Trump said that progress had been made in the negotiations, such as the issues of C

The EU Area Composite PMI   increased in February from previous month after it has been on a downward trend through 2018, though the PMI index for the manufacturing sector fell for the first time since 2013, to the value of under 50. The PMI index for the services sector increased by 1.1 to the value of 52.2. For the manufacturing sector, the fall was strongest in Germany, which fell by 2 points, but the services sector in Germany also increased by as much. The French manufacturing sector was unchanged. Even though the EU Area Composite PMI rose in February, it is still early to tell if the downward trend for the economic activity in the EU is over. The US president, Donald Trump, is meeting with Vice Premier of China, Liu He, today for trade talk. From the survey conducted by Bloomberg , none of the 29 China-watching analysts believes that the US will increase tariffs on Chinese goods on 1 st of March. 18 of the 29 analysts believe the tariff will increase ultimately

FOMC Minutes from the 29 th -30 th of January meeting shows that many of the FOMC members agreed about holding off the rate hikes, how long this would last was not certain. Many of the members argued that rate hikes might prove necessary only if inflation outcomes were higher than expected. This was in line with what Jerome Powell said at the press conference after the January meeting. The Minutes also shows that many of the members indicated that , if the economy evolved as they expected, they would view it as appropriate to raise the target rate later this year. Further, the Minutes points at uncertainty about slowing global economic growth, including China and Europe. There has been uncertainty about the reduction of the size of the Fed’s balance sheet , the process that started in October 2017. The Minutes has reduced this uncertainty by showing that almost all the members wanted a plan to stop the reduction later this year. Yesterday’s meeting between the British prim

The unemployment rate in the UK for the fourth quarter of 2018 was released yesterday. The unemployment rate was at 4%. Average weekly earnings for employees was unchanged at 3.4 %, the market was expecting an increase in the earnings. Still the earning for employees is on an upward trend. Even though the economic growth in the UK was slowing down in the end of 2018, the employment situation isn’t   showing any sign of slowdown.   The reason might be because of companies are still waiting for Brexit agreement to be settled, before they do any changes in their workforce. The ZEW Indicator of Economic Sentiment for Germany rose by 1.6 points in February from January. The sentiment is still in negative territory. The assessment of the current economic situation has declined sharply in the past year and indicates a GDP growth of 1%. Yesterday, the New York Fed President, John Williams said that he was comfortable with the level US interest rates are right now, unless the outloo

The US President, Donald Trump, received on Sunday from the U.S. Commerce Department the findings about whether imported vehicles pose a national security threat. By designating the imports of autos and auto parts as a risk to the national security, the tariffs of 25% on auto vehicles could be implemented. Trump has for a while been concerned about how the tariffs on US vehicles are higher than on the European vehicles. A report from The Center for Automotive Research shows that if the US imposes a tariff of 25% on auto vehicles, there would be retaliatory tariffs on US goods. The end results would cost the US economy potentially as many as 367 000 jobs. The President has 90 days to decide on whether to act on the findings. The trade talks continue today between the US and China in Washington. The US trade delegation is led by the United States Trade Representative, Robert Lighthizer, while the Vice Premier of China, Liu He, would attend the trade talks later this week.

The Asian stock markets closed in positive today due to an expectation of agreement between the US and China regarding trade . The trade talk will be continuing this week in Washington, as of today, no detail from the talk has emerged yet. The British prime minister yet again will be trying to get the Members of parliament to agree on the changes of the Brexit deal that also include the backstop solution to only be a temporarily solution. The backstop solution is the deciding factor to get the Brexit supporters in her own political party to agree on the changes of the Brexit deal. The US Manufacturing production fell 0.9% in January, the market was expecting unchanged movement. It was especially the large drop in motor vehicle assemblies that had pulled down the January number. The vehicle assemblies fell by 13.9%, biggest decline since the financial crisis. It is not unusual for a 10% decline in a month. The ISM Purchasing Managers Index in the US fell in December, but had

Yesterday the stock markets in Europe started the day in positive, but once the US stock exchanges opened, the market sentiments started to decline. All three major US exchanges opened yesterday with a decline. The US retail sales for December 2018 showed a decline of 1.2% from November, the market was expecting a small increase. Excluding the volatile components (automobiles, gasoline, building materials and food services), the retails declined by 1.7% in December. Quarter to quarter, the growth was 0.5% for the fourth quarter. On average, the quarterly growth has been just above 1% for the past years. The numbers show that the consumer spending has been weak at the end of 2018. How strong the macroeconomic indicators affecting the stock market varies from day to day, but lately, the surprises, both positive and negative, have been giving highly volatile effect in the financial market. This shows that there is uncertainty among the investors regarding the global economic growth.

The stock exchange in Madrid, Spain, was one of the few exchanges that ended in negative yesterday. The Spanish parliament rejected the minority Socialist government proposed 2019 drafted budget yesterday and the Spanish Prime Minister Pedro Sanchez is expected to call for a snap election in mid-April. The US President, Donald Trump, is considering extending the deadline for China tariff increase from 1 st of March to 1 st of May. Also, the Chinese President, Xi Jinping is expected to be attending the trade meeting with the US Secretary of the Treasury, Steven Mnuchin on Friday. This is a positive signal, because earlier trade talks between the two countries have always been on a lower level. The US core consumer price (CPI)(excluding food and energy) increased by 2.2%, year over year in January, the same rate as in December, year over year. The market was expecting a 2.1% growth rate. Month over month, the inflation rate growth was 0.2%, the fifth consecutive month with gr

The market sentiment has been improving after a slow start at the beginning of the week. The factor responsible for the positive sentiment is mostly likely the trade meeting between the US and China, more specifically, the hope for a positive outcome from the meeting. The US president, Donald Trump said on Tuesday that he would let the 1 st of March deadline for increasing tariffs on 200 bn. dollars worth of Chinese goods slide for a little while. For the deadline to be extended is to be expected, because three months period is too short for the two countries to reach an agreement.   In addition, President Trump seems to be increasingly supportive of the tentative plan for the funding of the border security proposed by the US Congress. This might lead to the approval of the legislation and thus avoiding another government shutdown. The Job Openings and Labor Turnover Survey ( JOLT s) in the US rose and reached an all time high of 7.335 million in December 2018, in ad

At the US Congress, both the Democrats and Republicans have broken through and approved on a tentative deal. The deal, if passed into law on Friday, would fund the government and avoid another shutdown. The deal involves putting about 1.4 billion dollars toward physical barriers on the US-Mexico border, far below the 5.7 billion dollars demanded by President Trump in wall funds. More important for the financial market though, is the trade talk progression in China. The investors in the financial market have been waiting for a tangible result of the trade talk. This result might be coming this week. The investors’ expectations seem to be on the optimistic side. The stock markets in Europe ended in a gain yesterday, led by sectors exposed to global trade, like industrial and IT sectors. The stock markets in Asia also ended in positive today. The British GDP growth eased from 0.6% (quarter to quarter) to 0.2% in the last quarter of 2018, matching the market expectations. The GDP

With The Federal Reserve’s announcement that it would be patient with the contractionary policy, the earnings reports for the forth quarter of 2018, the US government shutdown and the Brexit issue. All these factors have been occupying the attentions from the trade conflict between the US and China. Last week, however, the attentions were back to the trade conflict when President Trump said he wouldn’t be meeting with China’s president, Xi Jinping, before the first of March, when the tariff ceasefire expires. The United States Trade Representative, Robert Lighthizer and The U.S Secretary of the Treasury, Steven Mnuchin are in Beijing this week to continue the trade negotiations. If the two countries cant come   to an agreement, the US will increase the tariffs on 200bn. dollars worth of Chinese goods from 10% to 25%. The implementations of tariffs on more Chinese goods will most likely follow afterwards. The prime minister of the UK, Theresa May will be presenting a new Brexi

The European Commission publishes the Winter 2019 EconomicForecast ( EU and Eurozone ). The Commission has considerably adjusted downward the future economic growth of the major european economies. It has forecasted   the GDP growth in the Eurozone to be 1.3% this year, from the last forecasted of 1.9%. The forecast for next year’s growth is 1.6%, unchanged from the last time. The downward adjustment is because of the weaker than anticipated economic growth in the third and fourth quarter of 2018. The Commission forecasted the real GDP growth in Italy to be 0.2% in 2019 and is expected to pick up to 0.8% in 2020. In the last forecast, the Commission was expecting a growth of about 1% each year. Even though the Italian government has implemented an expansionary fiscal policy, the uncertainty in financing conditions will overshadowed the policy. Italy’s new populist government, and it’s proposed budget that will lead to a higher deficit (estimated 2.4% of GDP), will lead to a decli

After a strong economic growth in 2017, China’s growth has subsided considerably in 2018. On the first half of 2018 the growth was subsided due to the less public investment and weaker consumer spending. The latter was unwanted, but the former was in conjunction with what the Chinese’s government wanted ( less debt in the stated owned enterprises and less local government debt). The economic growth in the second half of 2018 was subsided due to a decline in the housing market and a still weak consumer spending. The decline in the housing market was in conjunction with the government’s wishes (to prevent housing speculation). The positive side was that the public investment was rising in the second half of 2018, because Beijing was focusing less on reducing debt and more on boosting the economic growth. The export growth in China was strong through 2018. This was due to the trade conflict with the US which had led to US companies expedited their imports from China earlier than usu

Since 2011, the ECB has been supplying liquidity to the banks in the EU area through longterm refinancing operations . The first operations weren’t successful, much because of the financing terms weren’t attractive enough. The success came after the TLROII was introduced in March 2016. TLROII has a four-year maturity, which means banks don’t have to pay back the loans for four years. The borrowing interest rate is the main interest rate in the ECB, which is 0%. If the borrowing bank manages to increase their balance sheet to an individual benchmark, it can receive interest instead of paying the interest, so-called negative interest or deposit facility rate, the current deposit facility rate is at -0.4%. Banks that, prior to TLROII was introduced, had too strong growth in their balance sheets, the growth had to be subsided for them to be eligible for the negative rate. For banks that had declining balance sheets, the decline had to slow down if they would like to be eligible f

After the stock market last year had a biggest decline since the Black Monday in 1987 , the Federal Reserve has been reconsidering its monetary policy. The Chair of the Federal Reserve, Jerome Powell, has repeatedly said that the Fed will be more patient about setting the target rate . The economic indicators will be the determining factors for whether the Fed is changing target on the benchmark rate or not. This was confirmed on the last Federal Reserve rate decision and at the press conference last week. One of the reasons the Fed will be patient is the inflation rate. The core inflation rate is close to Fed’s objective of 2 percent and with a low risk of a sudden rise in inflation, The Fed can hold off the rate hike longer. Though, the average hourly earnings are rising which will lead to rising prices/inflation rate. The Federal Reserve Board has said that it will accept an inflation rate a little over 2 percent objective. The other reason for a more patient in determinin

The US employment continues to be a positive surprise. The nonfarm payroll employment increased by 304 000 in January. The market was expecting 165 000. The number for December was revised down by 90 000 to 222 000, still the employment situation is still strong. Job gains have averaged 241 000 pr. month the last 3 months. The unemployment rate raises from 3.9% in December to 4% in January. The raise is explained by the partial federal government shutdown, which results in a temporary layoff of 175 000 workers, thus raising the total unemployment number by 240 000. Now that the shutdown is over, the unemployment number will be declining. The average hourly earnings for private nonfarm payroll raise by 0.1% from December. Over the year, the average hourly earnings have increased by 3.2%. All the above numbers show a strong growth in the US economy. With strong job gain, and an ok gain in earnings, all this will lead to a growth in consumer spending, which is the most impor