US
Disappointing trade data from China briefly reignited concerns about global growth. Exports slumped by 25.4% year-on-year in February in US dollar terms, marking the largest decline since May 2009. Imports also fared poorly, falling by a larger than expected 13.8% year-on-year.
The FOMC meeting next week is expected to be less contentious. The Fed is expected to hold interest rates unchanged. However, improved data flow and labor market strength should enable the Fed to maintain its gradual tightening bias.
Small business confidence eroded in February, with the NFIB small business optimism index falling 1.0 point while the initial jobless claims fell in the first week of March, bringing the four week average to its lowest level since November.
Prices for imported goods continued to decline in February, but the pace has slowed. Import prices fell 0.3% last month, which was less than expected, as non-food and fuel prices rose for the first time in nearly two years.
EU
Policymakers continued to take steps to prop up economic growth and inflation. The ECB unleashed a powerful monetary policy stimulus package. While the measures exceeded market expectations, the euro and bond yields ended the week higher following press conference comments from the ECB president Mario Draghi.
The ECB has shifted from targeting the exchange rate to supporting the credit/bank lending channel. That is sensible but it remains to be seen how effective the new measures will be. Its measures are positive for risky assets, particularly equity and credit markets, and support the view that EUR/USD will head higher in 2016.
UK
Industrial production started this year slightly better off than it ended 2015. Industrial production increased by 0.2% in January compared to the same period last year while manufacturing output was estimated to have decreased by 0.1% compared with January 2015. Output decreased in 7 of the 13 manufacturing sub-sectors compared with a year ago.
The UK’s deficit on trade in goods and services was estimated at GBP 3.5 billion in January, a narrowing of GBP 0.2 billion from December last year. The narrowing is attributed to trade in goods where the deficit has narrowed. In the period November 2015 to January 2016, the UK’s deficit on trade in goods and services was estimated to have been GBP 11.8 billion, a widening of GBP 3.5 billion from the three months to October 2015.
The construction sector declined in January. Compared with January last year, output in the construction industry decreased by 0.8%. There were decreases in both all new work and repair and maintenance. New orders for the construction industry in Q4 2015 were estimated to have decreased by 0.5% compared with Q3 2015 and increased by 1.4% compared with Q4 2014.
China
Given the shifting date of the Chinese New Year, the monthly activity data for January and February are usually consolidated. The important figures to watch are industrial production, urban fixed-asset investment, and retail sales. Consensus expects industrial production to slow down further to 5.6% year-on-year from 5.9% in December.
Fixed asset investment activity is reported only in year-to-date terms, and in this case consensus anticipates a decrease in the year-on-year growth rate to 9.5% from 10.0%. The retail data are reported in real and nominal terms, but consensus estimates are collected for the nominal data only. However, the difference between the two has been unimportant in recent months due to the low inflation.
In contrast to the production and investment data, retail growth has held up quite well and is expected to show growth of 10.9% year-on-year in January-February, up slightly from 10.7% in December. This difference is consistent with the gradual transition in the Chinese economy from investment-driven to consumption-driven growth.
Sources: Danske Bank, TD Economics, BNP Paribas, Handelsbanken, Wells Fargo.
