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Waiting - then reacting
International Perspective - March 3, 2017
By Anne D. Picker, Chief Economist


Global Markets

Last week can be divided into two parts — before President Trump's address to Congress Tuesday night (US ET) and after. Interspersed was an avalanche of updated economic data for investors to consider, some earnings reports and a slew of fed speak that culminated in Fed Chair Janet Yellen's speech Friday afternoon. On the week, indexes in both Europe and the Americas advanced while those in the Asia Pacific region were mixed.


Most indexes tracked here advanced in February — the exceptions were the PSEi and SET in Asia and the Bolsa in North America. All indexes followed here are up so far for 2017.


Hawkish comments from Federal Reserve officials climaxed Friday when both Chair Janet Yellen and Vice Chair Stanley Fischer indicated that a fed funds interest rate could happen at the mid-March FOMC meeting. During the week, others including New York Fed President William Dudley, San Francisco Fed President John Williams and Governor Jerome Powell have indicated that U.S. borrowing costs may climb possibly at faster clip than many expected.


U.S. President Donald Trump's address to Congress Tuesday night offered little in the way of policy details, but investors were relieved by the President's more measured than expected tone and his apparent desire to pass an immigration reform bill that would give some illegal immigrants legal status.


Political concerns in Europe also gave investors pause at the start of the trading week. Brexit worries weighed as media reports suggested that UK Prime Minister Theresa May's team is preparing for Scotland to potentially call for a second independence referendum in March. And then there are the elections in the Netherland and in France.


A global view of manufacturing

Global manufacturing production's expansion accelerated in February. The global PMI reading climbed to a three year high of 52.7. The increase was supported by stronger growth of total new orders and rising levels of international trade. Business confidence also improved, encouraging faster job creation.


National data suggest that developed nations tended to fare better than emerging markets during the month. PMI levels edged higher in the Eurozone (70-month high) and Japan (35-month high) to offset mild decelerations in the rates of expansion in the US and the UK.


Although the rate of improvement across emerging markets remained weaker than developed countries, the pace was faster than in January. This stronger upturn mainly reflected growth accelerations in China, India, Vietnam and the Czech Republic. Global manufacturing employment increased for the sixth successive month with the rate of job creation the sharpest in five-and-a-half years. International trade flows strengthened with new export orders rising to the greatest extent in almost six years. Average input prices continued to rise with the rate of inflation remaining close to January's 68-month record.


Bank of Canada

As widely expected there were no changes to key interest rates from the Bank of Canada. The overnight rate remains at 0.50 percent where it has been since July 2015 — in the middle of the corridor described by the deposit rate (0.25 percent) and the Bank Rate (0.75 percent). However, the Bank's Governing Council remains attentive to the impact of significant uncertainties weighing on the outlook including policy changes in the U.S.


Not much has changed since the BoC's last meeting in January. The economy is probably growing slightly better than anticipated. (The BoC did not have access to fourth quarter GDP data released the day after their meeting. Growth was above BoC expectations.) The unchanged stance was widely anticipated in the wake of a string of data that have suggested that the central bank's economic assessment is holding up pretty well. This was reflected in the January Monetary Policy Report where the updated forecasts showed no significant change from the October edition.


Inflation climbed to 2.1 percent in January reflecting higher energy prices due in part to carbon pricing measures in two provinces — the impact is considered temporary. In fact, in general the BoC seems quite happy in the way in which the domestic economy is performing and, on current trends, policy could well remain on hold for some considerable while yet. Certainly, the BoC has offered little indication of being in any hurry to tighten. Indeed, the Bank's announcement noted that the economy still has material excess capacity that is not expected to be removed until the middle of 2018.


Global Stock Market Recap

  2016 2017 % Change
Index Dec 31 Feb 24 3-Mar Week Feb 2017
Australia All Ordinaries 5719.1 5786.9 5775.41 -0.2% 1.5% 1.0%
Japan Nikkei 225 19114.4 19283.5 19469.17 1.0% 0.4% 1.9%
Topix 1518.61 1550.14 1558.05 0.5% 0.9% 2.6%
Hong Kong Hang Seng 22000.6 23965.7 23552.72 -1.7% 1.6% 7.1%
S. Korea Kospi 2026.5 2094.1 2078.75 -0.7% 1.2% 2.6%
Singapore STI 2880.8 3117.0 3122.34 0.2% 1.6% 8.4%
China Shanghai Composite 3103.6 3253.4 3218.31 -1.1% 2.6% 3.7%
India Sensex 30 26626.5 28892.97 28832.45 -0.2% 3.9% 8.3%
Indonesia Jakarta Composite 5296.7 5385.9 5391.22 0.1% 1.7% 1.8%
Malaysia KLCI 1641.7 1698.4 1708.38 0.6% 1.3% 4.1%
Philippines PSEi 6840.6 7259.0 7247.12 -0.2% -0.2% 5.9%
Taiwan Taiex 9253.5 9750.5 9648.21 -1.0% 3.2% 4.3%
Thailand SET 1542.9 1564.6 1566.20 0.1% -1.1% 1.5%
UK FTSE 100 7142.8 7243.7 7374.26 1.8% 2.3% 3.2%
France CAC 4862.3 4845.2 4995.13 3.1% 2.3% 2.7%
Germany XETRA DAX 11481.1 11804.0 12027.36 1.9% 2.6% 4.8%
Italy FTSE MIB 19234.6 18596.7 19664.45 5.7% 1.7% 2.2%
Spain IBEX 35 9352.1 9453.5 9798.50 3.6% 2.6% 4.8%
Sweden OMX Stockholm 30 1517.2 1569.9 1581.32 0.7% 2.2% 4.2%
Switzerland SMI 8219.9 8525.6 8670.06 1.7% 3.1% 5.5%
North America
United States Dow 19762.6 20821.76 21005.71 0.9% 4.8% 6.3%
NASDAQ 5383.1 5845.3 5870.75 0.4% 3.8% 9.1%
S&P 500 2238.8 2367.3 2383.12 0.7% 3.7% 6.4%
Canada S&P/TSX Comp. 15287.6 15533.5 15608.50 0.5% 0.1% 2.1%
Mexico Bolsa 45642.9 47047.7 47414.570 0.8% -0.3% 3.9%


Europe and the UK

Equities fluctuated within a narrow band with the exception of Wednesday when global stocks staged a vigorous rally. However, on the week, all the indexes advanced. The FTSE was up 1.8 percent, the CAC jumped 3.1 percent, the DAX gained 1.9 percent and the SMI added 1.7 percent. Investors were cautious at the end of the trading week after Wednesday's rally. The indexes jumped after U.S. President Donald Trump's address to Congress even though few details of the new administration's policies had been given. However, investors took a bit of a pause Thursday as they began to question whether the recent surge in equities is sustainable. And investors heard an increasing number of Federal Reserve officials indicating an interest rate increase could happen this month. Markets were closed for the week when Fed Chair Yellen gave her highly anticipated speech on monetary policy Friday afternoon.


Meanwhile, the Brexit drama grinds on with expectations that the UK will formally begin negotiations at the end of March with the EU. And now investors are closely watching the upcoming elections in the Netherlands (March 15) and in France (April 23 with a second round vote between the top two candidates on May 7).


Flash February Eurozone inflation climbed to 2 percent — the highest in four year. The European Central Bank's target for inflation is below, but close to, 2 percent. But core inflation remains far from the target at only 0.9 percent on the year. Other data were of a positive nature as well. The jobless rate remained at 9.6 percent while the EU economic confidence reading was the highest since March 2011. Consumer spending was up in France. However, for the Eurozone and in Germany, retail spending was down. In the UK, the February PMI readings slipped but remained in positive territory. Swiss fourth quarter growth was up 0.1 percent on the quarter after increasing a revised 0.1 percent in the previous quarter. On the year, GDP was up only 0.6 percent after a revised 1.4 percent.


Asia Pacific

Equities rallied mid-week but slumped at the beginning and end. When the week began, investors were anxiously awaiting U.S. President Donald Trump's first address to Congress and the FOMC minutes from its last meeting announcement on February 1. The mid-week bounce occurred after the U.S. President's speech. After an exuberant trading day on Wednesday, investors began to pull back after a slew of Fed speak signaled that FOMC members were ready to enact a fed funds rate increase when they next meet March 14 and 15. The result was a very mixed picture across the region for the week.


On the week, indexes in Australia and India (down 0.2 percent), Hong Kong (down 1.7 percent) and mainland China (down 1.1 percent) retreated while only Japan's managed to climb. The Nikkei added 1.0 percent while the Topix was 0.5 percent higher thanks to a lower yen that had a positive impact on exporters' shares. The annual meeting of China's top political advisory body, the Chinese People's Political Consultative Conference, is currently taking place with investors waiting to see whether leaders will announce new measures to rein in debt and tighten oversight of financial markets.


Japan's slew of economic releases for January painted a mixed picture. While analysts cheered January's consumer price index report where the core excluding fresh food inched into positive territory for the first time since June 2015, household spending sank for the sixth consecutive month, this time by 1.2 percent on the year. And industrial production surprised and declined 0.8 percent on the month. Elsewhere, Australia's fourth quarter growth beat analysts' expectations. The PMIs were mostly positive across the region. And India's GDP increased 7.0 percent on the year in the fourth quarter, above expectations. In China, both the CFLP and the Caixin manufacturing PMI readings improved while services weakened. In Australia, fourth quarter GDP increased more than expected while the merchandise trade surplus narrowed in January.



The U.S. dollar advanced against all of its counterparts on the week with the exception of the euro. The currency stalled after two days of strong gains Friday, while investors waited nervously for a speech by Federal Reserve Chair Janet Yellen. The dollar was driven higher as more investors decided that the Federal Reserve would increase its fed funds interest rate at its mid-month meeting along with optimism about the new administration in Washington. In Dr Yellen's speech, she all but confirmed that interest rates would be increased at its March meeting. In post-speech trading, the major counterparts increased against the dollar with the euro swinging from a weekly loss to a gain.


Selected currencies — weekly results

2016 2017 % Change
Dec 30 Feb 24 March 3 Week 2016
U.S. $ per currency
Australia A$ 0.7215 0.768 0.759 -1.1% 5.2%
New Zealand NZ$ 0.6948 0.720 0.704 -2.2% 1.3%
Canada C$ 0.7443 0.763 0.748 -2.0% 0.4%
Eurozone euro (€) 1.0534 1.056 1.062 0.5% 0.8%
UK pound sterling (£) 1.2333 1.246 1.230 -1.3% -0.3%
Currency per U.S. $
China yuan 6.9450 6.869 6.904 -0.5% 0.6%
Hong Kong HK$* 7.7533 7.761 7.763 0.0% -0.1%
India rupee 67.9238 66.825 66.805 0.0% 1.7%
Japan yen 116.8100 112.080 113.910 -1.6% 2.5%
Malaysia ringgit 4.4862 4.441 4.454 -0.3% 0.7%
Singapore Singapore $ 1.4465 1.403 1.410 -0.5% 2.6%
South Korea won 1205.8300 1131.090 1156.250 -2.2% 4.3%
Taiwan Taiwan $ 32.3260 30.674 31.050 -1.2% 4.1%
Thailand baht 35.8100 34.870 35.027 -0.4% 2.2%
Switzerland Swiss franc 1.0174 1.0074 1.0088 -0.1% 0.9%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


The EU Commission's January economic sentiment survey showed no significant change in morale this month. Following a slightly weaker revised January reading (107.9) the headline index edged up just 0.1 point to 108.0 — its highest level in almost six years. The relative stability of the overall ESI reflected a decline in consumer confidence (minus 6.2 after minus 4.8), offset by an improvement in industrial sentiment (1.3 after 0.8). Elsewhere, services (13.8 after 12.8) and construction (minus 10.3 after minus 12.9) both registered gains but retail (1.9 after 2.3) declined for a second successive month. Regionally among the larger four economies, the national ESI slipped 0.8 points to 108.3 in Germany but was up 1.1 points at 106.1 in France, 0.2 points at 105.6 in Italy and 1.3 points at 108.7 in Spain. All were again well above the common 100 long-run average.


The February flash reading of the harmonized index of consumer prices climbed to 2.0 percent, up 0.2 percentage points from its final January mark and its highest level since December 2012. However, the increase in the overall rate was not matched by the core measures. Omitting energy, food, alcohol and tobacco and without just energy and unprocessed food, inflation was flat at 0.9 percent for a third month in a row. It was once again food, alcohol and tobacco (2.5 percent after 1.8 percent) and energy (9.2 percent after 8.1 percent) that provided the main boost. Non-industrial goods inflation actually slowed from 0.5 percent to just 0.2 percent while services saw a 0.1 percentage point uptick to 1.3 percent.




Gross domestic product was up a quarterly 1.1 percent in the three months to December, rebounding from a decline of 0.5 percent in the previous quarter. On the year, GDP was up 2.4 percent after increasing 1.8 percent in the quarter to September. Consumption spending was up 0.9 percent on the quarter and 2.6 percent on the year, while investment spending advanced 2.6 percent on the quarter but slipped 0.1 percent on the year. Net exports made a positive contribution to quarterly growth of 0.2 percentage points.



Gross domestic product in the three months to December slowed to 7.0 percent on the year from 7.4 percent in the three months to September (revised from 7.3 percent). Government statisticians estimate that annual GDP growth will slow to 7.1 percent for the 2016-17 fiscal year ending in March, down from 7.9 percent for the 2015-16 fiscal year. This is close to the forecast of 6.9 percent this fiscal year from the Reserve Bank of India.




Fourth quarter gross domestic product was up 0.6 percent on the quarter following a 0.9 percent increase in the third quarter. On an annualized basis, GDP was up 2.6 percent. When compared with the same quarter a year ago, GDP was 2.0 percent higher. On the quarter, household final consumption expenditure grew 0.6 percent, a slightly slower pace than the previous quarter (0.7 percent). Growth was driven by higher outlays on durable goods and financial services such as mutual funds & stock & bond commissions. Investment in housing increased. Exports rose 0.3 percent, following a 2.3 percent gain in the third quarter. Exports of both goods (0.3 percent) and services (0.5 percent) increased. Imports of goods declined 4.1 percent, leading to a 3.5 percent drop in overall imports. Some of this decline was attributable to the one-time import of a large module destined for the Hebron offshore oil project in the third quarter. Business gross fixed capital formation decreased 2.1 percent, following a 0.5 percent decline in the third quarter. Business investment in non-residential structures fell 5.9 percent following the strong growth in the third quarter (3.5 percent), partly due to a large one-time investment in the Hebron offshore oil project. Investment in machinery & equipment (down 2.7 percent) and intellectual property products (down 1.9 percent) was also down.


Bottom line

Most equity indexes advanced on Friday and were up for the month of February. Investors were inundated with updates on key economic indicators. Fed speakers indicated that a rate increase would occur soon. The news was confirmed by both Vice Chair Stanley Fischer and Chair Janet Yellen Friday afternoon. The Bank of Canada maintained the status quo and left its policy interest rate at 0.5 percent.


The European Central Bank meets Thursday. And ECB President Mario Draghi will be under pressure because February's flash harmonized index of consumer prices was up 2.0 percent on the year thanks largely to increases in energy and food prices. It should be noted that after omitting those items, the core HICP was up only 0.9 percent. In the upcoming week January merchandise trade and industrial output will be released in a number of countries. Japan posts its second estimate of fourth quarter growth. And in the U.S. and Canada, labour force data for February will be released.


Looking Ahead: March 6 through March 10, 2017

Central Bank activities
March 7 Australia Reserve Bank of Australia Monetary Policy Announcement
March 9 Eurozone European Central Bank Monetary Policy Announcement
The following indicators will be released this week...
March 7 Eurozone Gross Domestic Product (Q4.2016 final)
Germany Manufacturers Orders (January)
March 8 Germany Industrial Production (January)
France Merchandise Trade (January)
March 10 Germany Merchandise Trade (January)
France Industrial Production (January)
UK Industrial Production (January)
Merchandise Trade (January)
Asia Pacific
March 6 Australia Retail Sales (January)
March 8 Japan Gross Domestic Product (Q4.2016 second estimate)
China Merchandise Trade (January)
March 9 China Consumer Price Index (February)
Producer Price Index (February)
March 10 Japan Producer Price Index (February)
India Industrial Production (January)
March 7 Canada Merchandise Trade Balance (January)
International Trade Balance (January)
March 8 Canada Housing Starts (February)
March 10 Canada Labour Force Survey (February)


Anne D Picker is the author of International Economic Indicators and Central Banks.


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