| USA The Consumer Price Index rose 0.4% in March, one tick above the median economist forecast calling for a +0.3% print. This followed another 0.4% gain the prior month. Prices in the energy segment climbed 1.1% as gains for gasoline (+1.7%) and electricity (+0.9%) were only partially offset by a 1.3% decline for fuel oil. Prices in the utility gas services segment remained unchanged. The cost of food, meanwhile, edged up 0.1%, lifted by 0.3% gain in the “food away from home” category. On a 12-month basis, food inflation was at 2.2%, near a three-year low. The core CPI, which excludes food and energy, also came in one tick stronger than expected, rising 0.4% for the third month in a row. Year on year, headline inflation came in at 3.5%, up from 3.2% the prior month and one tick above consensus expectations. This was the highest print recorded in six months. The 12-month core measure, meanwhile, stayed unchanged at 3.8% instead of cooling to 3.7% as per consensus. After recording a first increase in nine months in February (+0.1%), core goods fell back into deflation, cooling 0.2% m/m. This was the ninth decline in 10 months for this segment. Gains for apparel (+0.7%), to-bacco/smoking products (+0.4%), and medical care commodities (+0.2%) failed to compensate for a steep drop in the used vehicles segment (-1.1%). New vehicles prices fell as well (-0.2%), albeit to a lesser extent The NFIB Small Business Optimism Index fell for the seventh time in eight months in March, slipping 0.9 point to 88.5, the mark since November 2012. Net sales expectations deteriorated from -10% to -18% and the net percentage of firms that expected the economic situation to improve remained historically low (from -39% to -36%). Also noteworthy, 8% of firms cited poor sales as their biggest problem, the highest percent-age in 36 months. Moreover, only 4% of firms reported that they felt now was a good time to expand their business. Consequent with the slowdown, hiring intentions slid from 12% to 11.0%, the lowest level since October 2016, excluding the pandemic. Consistent with this deteriorated outlook, only 20% of polled businesses planned any capital outlays in the next three months, a percentage well below the long-term average for this indicator. Although hiring continued to be limited by the difficulty of finding good candidates, the share of businesses that reported not being able to fill one or more vacant positions stayed at its lowest level since January 2021 (37%). It is not clear to us why companies still sought to fill these job postings given the current sales/earnings backdrop. Moreover, only 18% of firms cited quality of available workers as their most important problem, while 8% cited poor sales The University of Michigan Consumer Sentiment index edged down from 79.4 in March to 77.9 in April. The deterioration of sentiment was due to a worse assessment of both longer-term perspectives (from 77.4 to 77.0) and current conditions (from 82.5 to 79.3). Twelve-month inflation expectations rose from 2.9% to 3.1%, while 5/10-year expectations increased from 2.8% to 3.0% The Import Price Index (IPI) progressed 0.4% in March, one tick above consensus expectations. The headline print was positively affected by a 6.0% jump in the price of petroleum imports. Excluding this category, import prices remained unchanged in the month. On a 12-month basis, the headline IPI rose 0.4%, up from the -0.9% annual decline registered in February. The less volatile ex-petroleum gauge moved from -0.9% to -0.2% Minutes of the March meeting of the FOMC show that policymakers judged that the central bank was “well positioned to respond to evolving economic conditions and risks to the outlook, including the possibility of maintaining the current restrictive policy stance for longer should the disinflation process slow.” With the inflation picture darkening since the meeting, markets are taking the Fed at its word that rate cuts are less likely than they were several weeks ago. Officials favored cutting the $60 billion monthly runoff of Treasuries on the Fed’s balance sheet by roughly half “fairly soon,” but expect to maintain the $30 billion monthly cap on mortgage-backed securities The major equity benchmarks retreated for the week amid heightened fears of conflict in the Middle East and some signs of persistent inflation pressures that pushed long-term Treasury yields higher. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities In terms of data release, industrial production is out on Tuesday. The factory sector is showing signs of awakening after stalling out for the better part of last year. Orders of core capital goods (capital goods excluding defense and aircraft) picked up 0.7% in February, indicating some improvement in capex demand. Purchasing managers have taken notice; the ISM manufacturing index broke back into expansionary territory in March for the first time in 16 months as the new orders and current production sub-components improved. Average hours worked in the manufacturing sector have also increased over the past two months, suggesting firms are edging their capacity utilization back up Existing home sales print is out on Thursday. While the pace of home buying is still sluggish, existing home sales popped 9.5% in February to a 4.38 million-unit annualized sales pace, or the fastest since early 2023. Improving supply in the resale market supported the jump in sales. Inventory of existing homes was up 10% on a year-ago basis, as a slight decline in mortgage rates helped pull buyers off the sidelines and encourage existing homeowners to list their properties. UK Monthly GDP numbers for February have been released this morning. January’s monthly GDP figure has been revised up to 0.3% and February’s figure registered in line with expectations at 0.1%. GDP is estimated to have grown by 0.2% in the three months to February compared to the previous three months. The largest contributor to growth in February was the production sector, which grew by 1.1% on the month. Services output saw very marginal growth of 0.1%, while the construction sector was a considerable drag on economic growth: construction output fell by 1.9% in February. Anecdotal evidence would suggest that the construction sector’s poor performance was at least, in part, due to especially heavy rainfall. GDP print confirms that the UK economy continues to see some growth, following the shallow technical recession at the end of 2023. It is especially encouraging that this occurred despite the bad weather, which helped contribute to temporary poor performance of the construction sector Other indicators would suggest that the trend of positive economic growth will continue throughout the rest of this year: for example, the UK’s PMIs remain firmly above 50, real wage growth should help to prop up real household disposable incomes in 2024 and into 2025, and the housing market appears to have turned a corner. Note also that these growth figures are unlikely to have a material impact on interest rate expectations. Expectations for rate cuts have somewhat cooled this week but this is largely due to the higher-than-expected CPI print in the United States. EU Positive outcomes for inflation and wages mean a high probability of a June rate cut, but the ECB communication did not imply any commitment, neither for June nor the path going forward. Lagarde did confirm that the continued decline in inflation was comforting, but conditioned a rate cut on more data to further increase confidence that inflation is converging on the target. On several occasions she stressed that all data is important, and in her final remark she again stressed the importance of wages, profits and productivity. It appears evident that the ECB is not Fed-dependent, and Lagarde underlined the differences between the economic situation in the euro area and the United States Investor confidence in the eurozone rose in April to its highest level in more than two years, according to an index compiled by Sentix. The economic expectations barometer turned modestly positive for the first time since Russia invaded Ukraine In Germany, industrial production in February rose 2.1% sequentially, the second consecutive month of strong gains, due to increased construction output. However, in the three months through February, production was 0.5% lower than in the previous period In local currency terms, the pan-European STOXX Europe 600 Index ended 0.26% lower. Major stock indexes also fell. Germany’s DAX lost 1.35%, France’s CAC 40 Index declined 0.63%, and Italy’s FTSE MIB slid 0.73%. However, the UK’s FTSE 100 Index bucked the downtrend, gaining 1.07%. CHINA China’s exports and imports fell in March and reversed gains from the first two months of the year. Exports shrank a worse-than-expected 7.5% in March from a year ago compared with a 7.1% rise in the January to February period. Meanwhile, imports dipped 1.9%, down from 3.5% growth in the first two months of the year. The latest results dealt a setback to China’s reliance on external demand to bolster its economy and added pressure on Beijing to ramp up stimulus measures as it tries to achieve its 5% annual growth target set at the National People’s Congress in March China’s consumer price index rose a below-consensus 0.1% in March from a year earlier, down from February’s 0.7% rise, as food costs retreated following a brief increase during the Lunar New Year holiday in February. Core inflation rose by 0.6% but was weaker than February’s 1.2% increase. Meanwhile, the producer price index fell 2.8% from a year ago, marking its 18th month of declines and accelerating from February’s 2.7% drop Chinese stocks retreated as weak inflation data underscored the lackluster demand hanging over China’s economy. The Shanghai Composite Index declined 1.62%, while the blue-chip CSI 300 gave up 2.58%. In Hong Kong, the benchmark Hang Seng Index ended nearly flat from last week after apprehensions about the flagging recovery pared earlier gains. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, National Bank of Canada, M. Cassar Derjavets. |
