| USA · Nonfarm payrolls rose 311K in February, more than the median economist forecast calling for a +225K print. The previous months’ data. meanwhile were revised downward a cumulative 34K. Employment in the goods sector advanced 20K as a 4K drop in manufacturing was more than offset by a strong gain in the construction segment (+24K). Jobs in servicing-producing industries, meanwhile, expanded no less than 245K, with notable increases for leisure/hospitality (+105K), health/social assistance (+63K), retail trade (+50K) and professional/business services (+45K). Minor declines were observed for transportation (-22K) and finance/insurance (-1K). Employment in the public sector jumped 46K, with gains at both the federal (+7K) and state/local (+39K) levels. Average hourly earnings rose 4.6% YoY in February, up from 4.4% the prior month but still one tick below consensus expectations. MoM, earnings progressed 0.2%, again one tick below consensus expectations and the smallest gain recorded in a year · Household survey painted a slightly less upbeat picture of the situation prevailing in the labour market, with a reported 177K increase in employment. Despite this gain, the unemployment rate rose from 3.4% to 3.6%, reflecting a one-tick increase in the participation rate (to a of post-pandemic high of 62.5%). Full-time employment surged 607K, while the ranks of part-timers thinned 311K. The deceleration in wage growth was perhaps the best news of all and will come as a relief for the Fed, which is looking to bring inflation closer to its target. Average hourly earnings progressed just 0.2% in February and were tracking a 3.6% annualized gain over the past three months, the weakest in nearly 2 years · The trade deficit widened from $67.2 billion in December to $68.3 billion in January. The expansion was mostly due to services. The services surplus narrowed from $23.5 billion to $21.8 billion, as exports pulled back (-2.0%) and imports inched forward. On the goods side, a 3.7% surge in goods imports (to $267.9 billion) was led by consumer goods ($4.1 billion) and automotive vehicles and parts ($3.1 billion). Goods exports, meanwhile, grew 6.0% (to $177.8 billion) on increases for consumer goods (+$4.1 billion) and capital goods (+$1.9 billion). Seeing how exports outpaced imports slightly in the month, the goods trade deficit narrowed from $90.7 billion to $90.1 billion · According to the Job Openings and Labor Turnover Survey (JOLTS), the number of positions waiting to be filled fell from 11,234K in December to 10,824K in January. The decrease followed the first rise in three months and landed slightly higher than consensus forecast calling for a decrease to 10,546K. As a result, the ratio of job offers to unemployed person fell from 1.96 to 1.90, which was still high. The monthly decline was led by construction (-240K), accommodation and food services (-204K), and finance and insurance (-100K). Alternatively, job postings increased in transportation and warehousing (+94K) and manufacturing (+50K). Total separations were relatively stable (5,902K vs. 5,906K the prior month) as an increase in layoffs (from 1,475K to 1,716K) was offset by a decline in the number of people who quit their jobs voluntarily (from 4,091K to 3,884K). The quit rate (i.e., the number of voluntary separations as a percentage of total employment) fell one tick to 2.5%, which suggests that workers looking to change jobs felt a little less confident about their prospects although the level still suggests that employers continued to face competition for talent · Speaking before the Senate Banking Committee and House Financial Services Committee earlier this week, Chair Powell delivered the semiannual monetary policy testimony where he explicitly signaled the Fed’s willingness to ratchet up rate increases to combat persistently elevated inflation. In his prepared remarks, Chair Powell noted that “the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.” That explanation was likely an admission that an upward revision to the FOMC dot-plot forecast is possible when it is released at the March 22 meeting. In both testimony days, Chair Powell repeated that no decision has been made regarding the March meeting, and that the decision would be dependent on the data—a theme the Fed has reiterated for some time. Powell also stated that “if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.” · Financials came under pressure on Thursday afternoon after two specialist banking companies made headlines. The first was Silvergate, a crypto-focused bank, which announced it would wind down operations due to the fallout from the implosion of FTX. The second was SVB, a Silicon Valley–based lender focused on technology startups. Shares in SVB fell more than 60% on Thursday and another 63% on Friday morning before its shares were halted as the bank was forced to book losses on securities sold to cover a rise in deposit outflows and then seek a buyer for the business after failing to raise capital on Friday. SVB’s woes, while unique to its business model, have nevertheless caused investors to take a closer look at large unrealized losses being carried on the books of US banks generally. These losses are usually excluded from earnings unless an institution is forced to sell securities to offset lost deposits. Yields on US Treasuries tumbled late in the week on growing concerns that the aggressive Fed tightening cycle may be beginning to have undesirable economic side effects, raising financial stability concerns. Lately, SVB was placed into receivership by the Federal Deposit Insurance Corporation · The White House unveiled its fiscal 2024 budget proposal on Thursday. If enacted, the plan is forecast to reduce the budget deficit by $3 trillion over the next 10 years while raising taxes by $2 trillion. US President Biden’s proposal would increase capital gains taxes on those earning more than $400,000 a year to 45% while increasing the corporate tax rate to 28% from 21%. With Republicans in control of the House of Representatives, however, the odds of the package passing in its present form are close to zero · In terms of data release, the CPI is out on Tuesday. The PCE deflator may be the Fed’s preferred inflation gauge, but February PCE inflation data will not be available until the end of March, more than a week after the FOMC’s March 22 meeting. That means all eyes will be on the February CPI report due out on Tuesday of this coming week. The overall CPI shot up 0.5% in January, the biggest monthly move since October. Over the past three months, the core CPI rose at a 5.6% annualized pace and upward revisions revealed higher inflation than previously reported. An upshot of a resilient labor market is that it may keep inflation stubbornly above the Fed’s 2% target for price growth · Retail sales blew the doors off expectations to start the year, rising 3% in January after declining in three of the prior four months. The data pointed to consumer resilience and upside risk to Q1-2023 spending. While sales in January were strong overall, low base effects do appear to be flattering this blowout gain. That is, retail spending fell in both November and December. Relative to October, total retail sales in January were up only 0.7%. Cutting through the recent monthly volatility shows that sales growth slowed in recent months from its breakneck pace earlier in 2022. Wednesday’s retail sales report for February will show whether January’s surge was a one-off anomaly or the start of yet another stretch of consumer spending resilience UK · Monthly GDP rose by 0.3% in January, which exceeded more modest market expectations of just 0.1%. This figure was aided by one-off factors dragging down December 2022’s monthly GDP number such as cold weather and industrial action. January’s positive monthly GDP figure was driven by the services sector growing by 0.5%; other parts of the economy saw contraction. Industrial production was down 0.3%, manufacturing down 0.4% and construction output down 1.7% on a MoM basis · January’s better than expected GDP growth comes on the back of other UK economic indicators performing better-than-expected. In particular, February’s Composite PMI number registered at 53.1, firmly above 50 and therefore indicating private sector expansion. The Composite PMI does, of course, exclude the construction and retail sectors but nonetheless this GDP release reinforces the view that the UK economy’s short-term growth prospects are not as bleak as forecasters were predicting a few months ago EU · Eurozone economic growth in the fourth quarter was revised down to 0% from an initial estimate of 0.1%. Consumer demand weakened in January. Retail sales grew 0.3% sequentially—much less than expected—and dropped 2.3% from year-ago levels · German industrial production rebounded 3.5% sequentially in January, recovering from the 2.4% decline registered in December. Increased output in energy-intensive industries and construction provided an uplift. Manufacturing orders also rose, instead of falling as forecast, thanks to increased demand from non-European countries. But domestic and eurozone orders fell sharply. Retail sales, however, fell 0.3% sequentially · Bank of Italy Governor Ignazio Visco criticized European Central Bank (ECB) colleagues for making statements about future increases in borrowing costs when policymakers had apparently agreed not to give such guidance. The outburst, at the end of a speech in Rome, may hint at rising tensions among policymakers in advance of next week’s policy decision. “Uncertainty is so high that the Governing Council of the ECB has agreed to decide ‘meeting by meeting,’ without ‘forward guidance,’” Visco said. “I therefore don’t appreciate statements by my colleagues about future and prolonged interest rate hikes.” Over the week, a kettle of hawks, including ECB Chief Economist Philip Lane and Dutch central bank chief Klaas Knot, pressed for the ECB to continue raising interest rates after its March meeting to control inflation · Shares in Europe fell along with global markets amid worries about stress in the banking system and the potential effects of a prolonged period of elevated interest rates. In local currency terms, the pan-European STOXX Europe 600 Index ended 2.26% lower. Major stock indexes also fell. Germany’s DAX Index weakened 0.97%, France’s CAC 40 Index declined 1.73%, and Italy’s FTSE MIB Index dropped 1.95% CHINA · China reported that its consumer price index rose 1% in February from a year earlier, trailing forecasts, down from a 2.1% rise the previous month. Core inflation rose 0.6% in February from 1% in January, while producer prices also fell more than expected due to lower commodity costs. The latest data affirmed that China’s inflation remains muted, unlike in the U.S. and Europe, and raised expectations that the central bank would maintain its supportive policy stance · Chinese exports and imports extended declines in the first two months of the year as the global economic slowdown hit trade activity. Exports fell 6.8% in January and February from the prior-year period, improving from December’s 9.9% drop. Imports contracted 10.2% over the two-month period, greater than the 7.5% decline in December. China combines trade data for the first two months of the year to smooth out distortions arising from the weeklong Lunar New Year holiday · At the NPC, Premier Li Keqiang said that China would seek to ensure economic stability and expand consumption this year and strive to become a mid-level developed economy by 2035. Premier Li also said that China would prioritize stable development in the real estate sector and guard against risks to top property developers as consumer sentiment remains cautious · China’s parliament approved a plan for a sweeping reform of central government institutions under the State Council, the country’s cabinet. Reforms include the formation of a financial regulatory body and national data bureau and a revamp of the country’s science and technology ministry. The changes mark the biggest bureaucratic restructuring in years and come as China seeks to accelerate the development of critical technologies, such as advanced semiconductors, to reduce its reliance on U.S. technology amid rising bilateral tensions · Chinese equities retreated as signs of weakening demand and a lower-than-expected 2023 growth target unveiled by Beijing tempered concerns about the country’s outlook. The Shanghai Stock Exchange Index declined 2.95%, the worst weekly loss in more than two months, and the blue-chip CSI 300 fell 3.96% in local currency terms. In Hong Kong, the benchmark Hang Seng Index plummeted roughly 6%, its biggest weekly loss in over four months, according to Reuters. Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started Sunday, March 5, and ends Monday, March 13 |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, National Bank of Canada, M. Cassar Derjavets |
