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Trump said, Xi said
International Perspective - April 6, 2018
By Anne D. Picker, Chief Economist


Most global equity indexes retreated on the holiday shortened week. Economic data were decidedly mixed indicating that global economic growth appears to be easing. However, as always with first quarter data, the impact of weather has to be factored in.


The early weakness in the week came amid renewed trade war concerns after China issued a list of 106 U.S. products that could be subject to additional tariffs. The announcement came shortly after the U.S. Trade Representative published a proposed list of tariff targets for Chinese goods. But many investors viewed U.S. President Donald Trump's latest tariffs plan as part of his negotiation strategy, rather than his final policy which eased concerns. However, on Friday, rhetoric picked up again with the U.S. president escalating his tariff calls and reviving fears of a trade war.


Reserve Bank of Australia

The Reserve Bank of Australia left its cash rate unchanged at 1.5 percent where it has been since August 2016. In his statement, Governor Philip Lowe said the RBA's central forecast was for faster growth in 2018 than the 2.4 percent achieved in 2017. The next set of growth forecasts will be released on May 6 with the quarterly Statement on Monetary Policy. The Governor noted that the tightening in financial conditions associated with the increase in U.S. short term interest rates has flowed through to higher short term rates in some other countries including Australia.


The commentary around the real economy was largely unchanged. The lift in consumption growth in late 2017 was noted, although the Governor still describes consumption as "one continuing source of uncertainty". Lowe said the labour market continues to be ebullient. However he did note that the fall in the unemployment rate seemed to have stalled. The rate declined from 5.9 percent in February 2017 to around 5.6 percent in February 2018.


There were some changes in the Board's view of the world economy. Most notably, equity market volatility has increased partly because of concerns about the direction of U.S. international trade policy. Prospects for rising inflation were also alluded to due to tightening labour markets.


The RBA board again saw no case for a change in policy for now. RBA Governor Philip Lowe has in recent public comments noted that if unemployment falls and inflation rises in line with current RBA forecasts over the coming year then he believes "at some point it will be appropriate to have less monetary stimulus and for interest rates in Australia to move up". Stronger wage growth, however, will likely be required to convince officials that such a move is warranted.


Reserve bank of India

The Reserve Bank of India held its benchmark interest rate steady at 6 percent as expected, but sharply reduced its predicted inflation rates for the new financial year. The cut to the RBI's inflation estimates took many analysts by surprise. The RBI said it now expects prices to rise between 4.7 to 5.1 percent in the first half of the fiscal year, which started on April 1. It predicted inflation would fall to 4.4 percent in the second half of the financial year.


The reduction in the RBI's inflation expectations followed two months when inflation averaged 4.8 percent, amid a decline in vegetable prices and a softening of petroleum prices. But some analysts suggested the cut in inflation expectations may be over-optimistic given the potential for renewed increases in petroleum prices and other factors.


The accompanying statement noted that recent data indicated that domestic demand is strengthening, but it has been partly offset by weaker external demand. Looking ahead, the RBI expects business investment to improve and exports to rebound. Reflecting this assessment, economic growth is forecast to pick up from an estimated 6.6 percent in the fiscal year just ended to 7.4 percent in the new fiscal year, up from a previous forecast of 7.2 percent.


After some volatility over 2017, price pressures have moderated in recent months, with headline CPI inflation falling from a 17-month high of 5.2 percent in December to 4.4 percent in February, which is closer to the mid-point of the RBI's target range of 2.0 percent to 6.0 percent. This decline since the start of the year has mainly been due to smaller gains in food and fuel prices, with inflation excluding these two factors steady in recent months.


Global Stock Market Recap

  2017 2018 % Change
Index Dec 29 March 30 April 6 Week 2018
Australia All Ordinaries 6167.3 5868.9 5886.87 0.3% -4.5%
Japan Nikkei 225 22764.9 21454.3 21567.52 0.5% -5.3%
Topix 1817.56 1716.30 1719.30 0.2% -5.4%
Hong Kong Hang Seng 29919.2 30093.4 29844.94 -0.8% -0.2%
S. Korea Kospi 2467.5 2445.9 2429.58 -0.7% -1.5%
Singapore STI 3402.9 3428.0 3442.50 0.4% 1.2%
China Shanghai Composite 3307.2 3168.9 3131.11 -1.2% -5.3%
India Sensex 30 34056.8 32968.68 33626.97 2.0% -1.3%
Indonesia Jakarta Composite 6355.7 6189.0 6175.05 -0.2% -2.8%
Malaysia KLCI 1796.8 1863.5 1837.01 -1.4% 2.2%
Philippines PSEi 8558.4 7979.8 7945.66 -0.4% -7.2%
Taiwan Taiex 10642.9 10906.2 10821.53 -0.8% 1.7%
Thailand SET 1753.7 1776.3 1739.92 -2.0% -0.8%
UK FTSE 100 7687.8 7056.6 7183.64 1.8% -6.6%
France CAC 5312.6 5167.3 5258.24 1.8% -1.0%
Germany XETRA DAX 12917.6 12096.7 12241.27 1.2% -5.2%
Italy FTSE MIB 21853.3 22411.2 22929.87 2.3% 4.9%
Spain IBEX 35 10043.9 9600.4 9682.80 0.9% -3.6%
Sweden OMX Stockholm 30 1576.9 1535.4 1511.37 -1.6% -4.2%
Switzerland SMI 9381.9 8741.0 8671.04 -0.8% -7.6%
North America
United States Dow 24719.2 24103.11 23932.76 -0.7% -3.2%
NASDAQ 6903.4 7063.4 6915.11 -2.1% 0.2%
S&P 500 2673.6 2640.9 2604.47 -1.4% -2.6%
Canada S&P/TSX Comp. 16209.1 15367.3 15207.41 -1.0% -6.2%
Mexico Bolsa 49354.4 46124.9 47926.1 3.9% -2.9%


Europe and the UK

Despite the turbulent four day trading week, most European equity indexes advanced. The FTSE and CAC added 1.8 percent each and the DAX was 1.2 percent higher. The SMI however, slid 0.8 percent. Equities ended the week on a down note thanks to a weaker than anticipated U.S. employment report. Another escalation in the war of words between the U.S. and China dented investor sentiment.


President Donald Trump threatened China with $100 billion of additional tariffs, renewing recent trade war worries. Responding to the threat from Trump, the Chinese Commerce Ministry declared it would "not hesitate" to retaliate with new tariffs "at any cost."


Germany's key manufacturing orders and industrial production data tumbled at the fastest pace in two-and-a-half years in February, leading to worries about a possible slowdown in Europe's growth engine. Manufacturing orders edged up just 0.3 percent after falling a revised 3.5 percent in January. Industrial output dropped 1.6 on the month, in contrast to a revised 0.1 percent rise seen in January.


Asia Pacific

With many indexes closed for holidays during the week, equities were mostly lower thanks to the rhetoric from the U.S. and China surrounding tariffs. Shares declined when the dialogue escalated and they advanced when it appeared to be a 'negotiating tactic'. The Sensex was the best performing index by far, gaining 2.0 percent on the week. The Nikkei added 0.5 percent thanks to the decline of the yen. The Hang Seng lost 0.8 percent in its three day week while the Shanghai Composite was 1.2 percent lower also in a shortened trading week. Markets here had closed for the week prior to the release of the weaker than expected U.S. March employment report.


President Donald Trump on Thursday directed U.S. trade officials to identify additional tariffs on $100 billion of Chinese imports. China responded within hours, saying it would take new comprehensive measures to safeguard the country's interests if the United States sticks to its protectionist behavior.



The U.S. dollar advanced against most of its major counterparts for the week. It was up against the Australian dollar, the euro, Swiss franc and the yen. It was down against the pound sterling and Canadian dollar. However, the currency retreated Friday as investors worried about the escalating dialogue between the U.S. and China along with a surprisingly weak employment gain in March.


The pound sterling retreated to near six week lows Friday following a general U.S. dollar rebound. The British economy was hit by a cold weather bout that tested optimism about the British currency. Brexit concerns have abated with the signing of a transition agreement for leaving the EU last month. Investors changed their focus to the state of the UK economy before a Bank of England policy meeting on May 10 when the monetary policy committee is expected to increase its policy bank rate by 25 basis points to 0.75 percent. Equities mostly ignored disappointing survey data and searched for real signs of weakness that perhaps would deter the Bank of England from monetary tightening.


Selected currencies — weekly results

2017 2018 % Change
Dec 29 March 29 April 6 Week 2018
U.S. $ per currency
Australia A$ 0.779 0.768 0.768 -0.1% -1.5%
New Zealand NZ$ 0.709 0.723 0.728 0.7% 2.7%
Canada C$ 0.796 0.777 0.783 0.8% -1.5%
Eurozone euro (€) 1.194 1.230 1.229 -0.2% 2.9%
UK pound sterling (£) 1.344 1.403 1.409 0.4% 4.8%
Currency per U.S. $
China yuan 6.534 6.290 6.303 -0.2% 3.7%
Hong Kong HK$* 7.816 7.848 7.848 0.0% -0.4%
India rupee 64.081 65.178 64.975 0.3% -1.4%
Japan yen 112.850 106.480 106.880 -0.4% 5.6%
Malaysia ringgit 4.067 3.869 3.872 -0.1% 5.0%
Singapore Singapore $ 1.338 1.311 1.316 -0.4% 1.7%
South Korea won 1070.630 1065.930 1069.620 -0.3% 0.1%
Taiwan Taiwan $ 29.775 29.171 29.271 -0.3% 1.7%
Thailand baht 32.696 31.241 31.280 -0.1% 4.5%
Switzerland Swiss franc 0.979 0.9561 0.959 -0.3% 2.1%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


March flash harmonized index of consumer prices was up 1.4 percent on the year. However, note that the early Easter this year is likely to have provided a temporary boost as retailers and service providers lifted prices in anticipation of the holiday period. Any such effects should be unwound in the April data. The key core HICP measures were much more subdued. The yearly rate for the narrowest gauge, which excludes energy, food, alcohol and tobacco, was only flat at 1.0 percent while omitting just unprocessed food and energy the rate edged only a tick higher to 1.3 percent. Easter distortions almost certainly contributed towards a bounce in services inflation (1.5 percent after 1.3 percent) but the non-industrial goods rate (0.2 percent after 0.6 percent) was sharply weaker. Elsewhere, food, alcohol and tobacco (2.2 percent after 1.0 percent) saw a marked gain but energy (2.0 percent after 2.1 percent) was essentially unchanged.



February manufacturing orders posted a small rebound of 0.3 percent on the month after tumbling 3.9 percent the month before. Annual growth was 3.7 percent, less than half the previous period's 8.6 percent rate. The monthly headline rise was wholly attributable to capital goods, up 0.9 percent. Basics declined 0.5 percent and consumer goods were 2.4 percent lower. Domestic orders were down 1.4 percent after a 2.3 percent slide last time. By contrast, foreign demand was up 1.4 percent as a 4.5 percent surge in orders from the rest of the Eurozone more than offset a 0.6 percent drop elsewhere. On a yearly basis, domestic orders were down 5.2 percent while overseas climbed 10.8 percent.


February industrial production dropped 1.6 percent on the month after an upwardly revised 0.1 percent the month before. It was the worst performance since August 2015. Annual growth more than halved from 5.9 percent to 2.4 percent. Excluding construction, output was down a monthly 1.5 percent and advanced 2.5 percent on the year. However, bad weather probably had some impact as all of the major production categories experienced monthly falls apart from energy where it expanded 4.0 percent. Capital goods (down 3.1 percent) suffered the most but construction (down 2.2 percent) was not far behind. The decreases in consumer goods (1.5 percent) and basics (0.7 percent) were less marked but still significant.




First quarter Tankan survey showed business sentiment in both the manufacturing and non-manufacturing sectors were solid but little changed from the previous quarter. Firms in the manufacturing sector expect relatively steady growth in capital expenditure in the fiscal year ending March 2019, but this was outweighed by weaker capex plans by firms in the non-manufacturing sector. Large manufacturers moderated from 25 for the three months to December (their highest level since 2006) to 24 in the three months to March. The equivalent index fell from 20 to 19 for medium-sized manufacturers and was unchanged at 15 for small manufacturers. Aggregating manufacturers of all sizes, the index fell from 19 to 18. Capital expenditure across firms of all sizes in both the manufacturing and non-manufacturing sectors is forecast to decline 0.7 percent in the fiscal year ending March 2019 after estimated growth of 4.0 percent in the fiscal year ended March 2018. Firms in the manufacturing sector forecast capital expenditure to grow by 6.0 percent in the new fiscal year, down slightly from estimated growth of 6.5 percent for the fiscal year just ended. This reflects stronger plans for medium-sized manufacturers, offset by weaker plans for large and small firms in the sector. Firms in the non-manufacturing sector, however, forecast capital expenditure to drop 4.5 percent in the new fiscal year after estimated growth of 2.7 percent in the fiscal year just ended.



February retail sales advanced 0.6 percent on the month after increasing 0.2 percent in January. On the year, sales were up 3.0 percent after 2.1 percent in January. The pickup in sales reflects stronger monthly increases in all but one of the major categories. Food retailing, the largest category, was up 0.3 percent while sales for household retailing, the second largest category, rose 1.1 percent after 0.1 percent previously. The "other retailing" category was the only one to record weaker growth in February. Sales advanced on the month in six of the eight Australian states.




February's merchandise trade deficit widened to C$2.7 billion from a C$1.9 billion deficit in January. Imports rose a monthly 1.9 percent, mainly due to higher imports of energy products. Exports increased 0.4 percent, primarily on higher exports of passenger cars and light trucks. In volume terms, imports rose 1.9 percent and exports were up 0.6 percent. Following a 4.3 percent decline in January, total imports were up 1.9 percent with increases in 8 of 11 sections. Higher imports of energy products and of motor vehicles and parts were partially offset by lower imports of gold. On the year, total imports increased 3.5 percent. Total exports edged up 0.4 percent with increases in exports of motor vehicles and parts, and aircraft and other transportation equipment and parts. These were largely offset by lower exports of farm, fishing and intermediate food products, and of metal and non-metallic mineral products. Following two consecutive monthly decreases, trade with the United States rose in February. As a result, Canada's trade surplus with the United States narrowed from C$2.9 billion in January to C$2.6 billion in February. Exports to countries other than the United States fell 4.2 percent to C$11.3 billion, mainly on lower exports. Imports from countries other than the United States also declined, down 0.6 percent to C$16.6 billion.


March employment was up a greater than anticipated 32,300 that was driven by full-time gains. Full time employment was up 68,300 while part time employment declined 35,900. The unemployment rate was unchanged at 5.8 percent while the participation rate remained at 65.5 percent. First quarter employment was down 40,000 thanks to the decline in January. Over the longer term, employment has been on an upward trend since the second half of 2016. Total employment increased 296,000 when compared with the same month a year ago. Over the same period, total hours worked grew by 2.2 percent.



Bottom line

The Reserve Banks of Australia and India met and left their policy interest rates unchanged at 1.5 percent and 6.0 percent respectively. March PMIs indicated that global growth softened in March, perhaps because of harsh winter weather. Manufacturing in Germany was particularly hard hit. Employment increased less than anticipated in the U.S. but more than expected in Canada.


There are no central bank meetings in the upcoming week. However, both the Federal Reserve and the European Central Bank will publish minutes from their most recent meetings. The Fed met on March 21 while the ECB met on March 8. February merchandise trade and industrial production data dominate the week's data releases. China posts March merchandise trade along with both the consumer and producer price indexes. Japan releases February machine orders. Earnings season begins.


Looking Ahead: April 9 through April 13, 2018

Central Bank activities
April 11 United States FOMC minutes published
April 12 Eurozone ECB minutes published
The following indicators will be released this week...
April 9 Germany Merchandise Trade (February)
April 10 France Industrial Production (February)
Italy Industrial Production (February)
April 11 UK Industrial Production (February)
Merchandise Trade (February)
April 12 Eurozone Industrial Production (February)
April 13 Eurozone Merchandise Trade (February)
Asia Pacific
April 11 Japan Machinery Orders (February)
Producer Price Index (March)
China Consumer Price Index (March)
Producer Price Index (March)
April 12 India Consumer Price Index (March)
Industrial Production (February)
April 13 China Merchandise Trade (March)
April 10 Canada Housing Starts (March)


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