| USA Nonfarm payrolls rose 275K in February, a lot more than the median economist forecast calling for a +275K. However, this upside surprise was more than compensated by a -167K cumulative revision to the prior months’ data. Employment in the goods rose 19k as a 23K gain in construction was only partially offset by a 4K decline for manufacturing. Mining/logging employment, meanwhile, remained unchanged. Jobs in services-producing industries, for their part, expanded 204K, with notable increases for health/social assistance (+91K), leisure/hospitality (+58K), transportation/warehousing (+20K) and retail trade (+19K). The temporary help services category, on the other hand, saw payrolls decrease 15K, marking a 23rd consecutive de-cline in that segment. In total, 223K jobs were created in the private sector, compared with 52K in the public sector, the latter split between federal (+9K) and state/local (+43K) administration. Average hourly earnings rose 4.3% y/y in February, down from 4.4% the prior month and in line with consensus expectations. Month on month, earnings progressed 0.1%, the least in two years The household survey painted a much less upbeat picture of the situation prevailing in the labour market, with a reported 184K drop in employment. This decline, combined with an unchanged participation rate (62.5%) and a 150K expansion in the labour force translated into a two-tick increase in the unemployment rate to a 25-month high of 3.9%. Full-time employment contracted 187K, while the ranks of part-timers swelled 51K. As has so often been the case in recent months, the two job re-ports sent contradictory messages, with the establishment survey showing strong jobs gains and the household poll reporting a fourth decline in employment in the past five months. The trade deficit widened in January, moving from $64.2 billion to $67.4 billion. This was due mainly to a $3.1-billion increase in goods imports (to $263.4 billion), led by capital goods (+$3.1 billion) and autos/parts (+$2.0 billion). Goods exports, for their part, grew $0.2 billion (to $171.8 billion) on increases for autos/parts (+$1.4 billion), consumer goods (+$0.6 billion), and capital goods (+$0.6 billion). As imports increased at a faster pace than exports did, the goods trade deficit widened from $88.6 billion to $91.6 billion. Country by country, the U.S. goods deficit widened with China (from $22.1 billion to $23.7 billion), Japan (from $5.3 billion to $6.8 billion), and Canada (from $5.6 billion to $7.0 billion) but narrowed with Mexico (from $12.8 billion to $11.6 billion) and the Euro Area (from $15.0 billion to $14.3 billion). The services surplus, meanwhile, edged down from $24.5 billion in December to $24.2 billion in January, as exports grew $0.2 billion (to $85.4 billion) while imports swelled $0.5 billion (to $61.3 billion). Travel exports continued to recover but remained slightly below their pre-pandemic level. On the flip side, travel imports, which serve as a proxy for the number of Ameri-cans travelling abroad, increased by $0.5 billion in the month According to the latest edition of the Fed’s Beige Blook, 8 of the 12 Federal Districts reported slight- to-modest growth in economic activity in the run-up to the February 26 survey deadline. Three others signaled no change, and one reported a slight softening of activity. (Three Districts reported a decline in activity in the previous iteration of the sur-vey.) Fed contacts signaled sensitivity to prices for consumption spending with a shift away from discretionary goods. Activity in the lei-sure and hospitality sectors was mixed while air travel remained strong. Supply bottlenecks in manufacturing normalized although de-lays in deliveries due to disruptions in the Red Sea were extended. Even though prospects of falling interest rates were fueling optimism in the real estate sector, concerns about the office market remained. The outlook for the economy was positive, with respondents expecting financial conditions to improve and demand to pick upThe Job Openings and Labor Turnover Survey (JOLTS) showed that the number of positions waiting to be filled decreased from 8,889K in Decem-ber (initially estimated at 9,026K) to 8,863K in January. With the number of people looking for a job remaining steady, the ratio of job offers to unemployed persons stayed at 1.4, its lowest point since September 2021 but still well above this indicator’s pre-pandemic level ( -1.25) Recent upticks in inflation readings did not cause US Federal Reserve Chair Jerome Powell to alter his view that it will likely be appropriate to cut interest rates later this year. He said that while inflation has eased notably, it remains elevated. The economy, Powell said in his semiannual testimony to lawmakers, is on a good path and the Fed is not far from having enough confidence that inflation is falling toward its 2% goal to begin rate cuts. Markets breathed a sigh of relief after the testimony as Powell, rather than adopting a more hawkish approach, reiterated much of what he said after the January FOMC meeting which took place before hotter-than-expected US inflation data were released in February rather than adopt a more hawkish approach. Regarding banking regulations, Powell indicated, that after heavy lobbying efforts, the Fed is prepared to redo its plan to force big banks to hold more capital. The US banking system, the Fed chair said, can withstand threats posed by commercial real estate Congress passed half of the federal spending bills for fiscal year 2024. With funding for six federal departments set to expire on Friday – legislated by the fourth continuing resolution of this cycle passed last week – the House passed a package of appropriation bills on Wednesday for the departments subject to the deadline. Senate approval and the President’s signature is expected ahead of the midnight deadline on Friday. The other six appropriations bills will need to be passed ahead of their March 22nd deadline, but aggregate spending levels are expected to be consistent with the limits previously agreed to by Congress. Removing the near-term risk of a government shutdown is undoubtedly positive, but ongoing structural deficits leave the sustainability of the national debt a long-term risk, which was also noted by Chair Powell in Congress this week By a vote of three to two, the US Securities and Exchange Commission on Wednesday approved a new climate-disclosure rule that left out a proposed requirement that companies report emissions from their supply chains and customers use of their products. The agency dropped reporting requirements for these so called Scope 3 emissions after many businesses complained about the cost and difficulty of compiling those data Growing hopes that the Federal Reserve might begin cutting interest rates sooner rather than later appeared to help bring the large-cap S&P 500 Index and S&P MidCap 400 Index to new record intraday highs, alongside the Nasdaq Composite before pulling back late Friday. Small-cap and value shares outperformed, while mega-cap tech shares lagged due in part to a decline in Apple following reports about slowing iPhone sales in China. Notably, Danish pharmaceuticals company Novo Nordisk, which has seen robust demand for its diabetes and weight loss drugs, displaced Tesla on Thursday as the 12th biggest public company by market capitalization In terms of data release, CPI is out on Tuesday. January’s CPI data came in hotter than expected and renewed concerns about how quickly inflation could be brought to a heel. Despite the strong start to the year, the disinflation trend remains in place. The February data is expected to show that while inflation remains frustratingly high, the underlying trend is not strengthening Retal sales is out on Thursday. Consumers started the year on shaky footing. Retail sales slipped 0.8% and broader inflation-adjusted personal spending slipped 0.1% in January. Even as a moderation in spending this year is likely, the January slowdown somewhat overstates the near-term pullback in consumption. Households are still benefiting from a real income tailwind that should remain supportive of spending in the near term. A rebound in February is possible spending and forecast retail sales advanced 0.8%. UK The Chancellor set out three basic proposals on the budget. He has set out a new Office for Budget Responsibility (OBR) growth forecast; they are more optimistic than the Bank of England, and are forecasting growth of 0.8% in 2024, 1.9% in 2025 (up from 1.4%). This forecast allows the Chancellor to remain within his fiscal rules, anticipating that Debt/GDP will be falling slowly over the next few years and that the Government budget deficit will be below 3%, which is three years earlier than initially anticipated. Public sector spending is set to rise by 1% in real terms, as originally planned, and, combined with the hope of public sector productivity rising, the intention is to have better provision of public services while growing the size of the state slightly more slowly than the growth anticipated in the overall economy. To help enable productivity, there is to be some investment in information technology, the hope being that these projects are more successful than previous programmes. On tax, the total tax burden continues to rise and the initial calculation by independent forecasters is that the level of tax/GDP will rise to all-time highs in the next couple of years, the biggest driver being the freezing of tax thresholds (set to remain unmoved until at least 2029). The Chancellor did not highlight this, instead focusing on his specific tax reductions, the most significant being the reduction of the rate of National Insurance by 2%. National Insurance is essentially income tax (there is no insurance fund), but it is not levied on pensioners, and the bulk (all bar 2%, which is uncapped) is not levied on earnings above £50,270. Therefore, any reductions are seen as being more effectively targeted on working people and, it is hoped, will underpin the recovery in consumer confidence. EU The ECB saw a definite decline in inflation and is more confident that inflation will reach the target, but not sufficiently confident. The trend was not yet strong enough, and there was broad agreement around the table that there will be a lot more information in June. While there had been no discussions about rate cuts for this meeting, members had begun to discuss the dialling back of the restrictive stance. Lagarde reiterated the data-dependent approach to determine the appropriate monetary policy, and said there will be a particular focus on two components: wages and profits. Although most measures of underlying inflation had eased further, domestic price pressures remained high, in part owing to strong growth in wages and subdued productivity growth. The early signs that wage growth is moderating and that profits are absorbing unit labour costs needed to be confirmed in, for example, wage indicators (the wage tracker and Indeed job postings), national account data on unit labour costs and unit profits (Q4 2023 released tomorrow), and the Corporate Telephone Survey In local currency terms, the pan-European STOXX Europe 600 Index gained ground for the seventh straight week, hitting a record high on the way to a 1.14% gain. Among the major stock indexes, Italy’s FTSE MIB gained 1.43%, France’s CAC 40 Index added 1.18%, and Germany’s DAX ticked up 0.45%. CHINA The Caixin/S&P Global survey of services activity fell to a weaker-than-expected 52.5 in February from January 52.7. However, the gauge remained above the 50 threshold, separating expansion from contraction for the 14th consecutive month Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started March 5 and ends March 11. The target was the same as last year, when China’s economy officially rose 5.2%. However, analysts said it would be hard to match last year’s growth pace, which benefited from a post-lockdown rebound in early 2023 The government set the budget deficit at around 3%—the same target as early last year until it was subsequently raised to 3.8% to accommodate more borrowing—and said it would issue RMB 1 trillion in special ultra-long central government bonds to support growth At the NPC, Premier Li Qiang announced that China will refine housing policies and construct government-subsidized housing to support the property sector, which is mired in a prolonged downturn. Li also stated that the government will step up efforts in big data and quantum computing to enhance technological self-reliance at a time when the U.S. is pushing several countries to further restrict their technology exports to China. However, analysts were underwhelmed by the lack of tangible measures to support Beijing’s economic goals Chinese equities gained as the government’s recent market stabilization measures lifted investor confidence despite an uncertain economic outlook. The Shanghai Composite Index rose 0.63%, while the blue-chip CSI 300 added 0.2%. In Hong Kong, the benchmark Hang Seng Index gave up 1.42%, according to FactSet. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, TD Economics, National Bank of Canada, Marina Cassar Derjavets. |
