| USA The U.S. Consumer Price Index edged up 0.1% in March, one tick less than the median economist forecast calling for a +0.2% print and the least in eight months. Prices in the energy segment retreated 3.5% on declines for fuel oil (-4.0%), gasoline (-4.6%), and utility gas services (-7.1%). The cost of food remained unchanged in the month, breaking a streak of 27 consecutive increases in that segment. The core CPI, which excludes food and energy, advanced a consensus-matching 0.4% Prices for ex-energy services rose 0.4% (the least in eight months) as another big gain for shelter (+0.6%) was only partially offset by a 0.5% drop for the medical care segment. Motor vehicles maintenance (+0.3%) and insurance (+1.2%) continued to advance, as did airline fares (+4.0%). The cost of core goods, meanwhile, progressed 0.2% on gains for tobacco/smoking products (+0.8%), medical care commodities (+0.6%), new vehicles (+0.4%), and apparel (+0.3%). Alternatively, the price of used vehicles (-0.9%) declined for the ninth consecutive month. YoY, headline inflation clocked in at a 22-month low of 5.0%, down from 6.0% the prior month and one tick below consensus expectations. The 12-month core measures, meanwhile, edged up to 5.6% from a 14-month low of 5.5%, in line with the median economist forecast The Producer Price Index for final demand dipped 0.5% in Mars instead of only 0.1% as per consensus. Goods prices fell 1.0% on a 6.4% decline for energy, while food was up 0.6%. Prices in the services category, meanwhile, edged down 0.3%, marking only the second monthly drop in this segment in more than two years. The core PPI, which excludes food and energy, decreased 0.1% in the month; economists had anticipated a 0.2% gain. YoY, the headline PPI sank from 4.9% to 2.7%, its lowest level since January 2021. Excluding food and energy, it tumbled from 4.8% to a 24-month low of 3.4% The Import Price Index (IPI) decreased 0.6 MoM in March, which was more than expected by economists (-0.1%). The IPI excluding petroleum also decreased by 0.6% as petroleum import price declined 1.2%. On a 12-month basis, the headline IPI remained into deflation territory, plunging from -1.1% to -4.6%. The less volatile ex-petroleum gauge slid from 0.2% to a 39-month low of -1.5% After decreasing 0.2% in February (revised upward from -0.4%), retail sales contracted by 1.0% in March, twice the decline expected by the consensus. Sales of motor vehicles and parts fell 1.6%, after a 1.3% decrease the previous month. Without autos, retail outlays decreased 0.8% as increases for non-store retailers, (+1.9%), health and personal care items (+0.3%), sporting goods (+0.2%), and miscellaneous item (+0.2%) were more than offset by declines for gasoline station (-5.5%), general merchandise (-3.0%), building material (-2.1%), and electronics (-2.1%) among others. In all, sales contracted in 8 of the 13 categories surveyed. Core sales (i.e., sales excluding food services, auto dealers, building materials, and gasoline stations), which are used to calculate GDP, decreased 0.3% and were still tracking a robust 4.0% annualized gain in Q1 as a whole. This suggests that goods consumption will contribute strongly to GDP growth in the first quarter of the year, but a negative hand-off suggest weak prospects for Q2 Industrial production increased 0.4% on a monthly basis in March, a result stronger than the median economist forecast calling for a +0.2% print. This surprise was also accompanied by an upward revision of the previous month’s result, from +0.0% to +0.2%. After advancing 0.6% the prior month, manufacturing output decreased 0.5% in March on losses for both durable (-0.9%) and non-durable (-0.2%) goods. Production in the motor vehicles segment slipped 2.3%. Utilities output, meanwhile, jumped 10.2% on 16.5% gain for natural gas and a 7.0% increase for electricity. Finally, production in the mining sector fell 0.5% The University of Michigan’s headline index ticked to 63.5, up from 62.0 in March, as both the current and future conditions components inched up. Short-term inflation expectations (one-year ahead) unexpectedly jumped a full percentage point to 4.6%, but long-term expectations (5-10 years ahead) held steady at 2.9%, remaining within the range that many policymakers would consider well-anchored The NFIB Small Business Optimism Index edged down 0.8 point in Mars to a still depressed 90.1. The net percentage of firms that expected the economic situation to improve remained deep in negative territory at -47%, one of the lowest prints ever recorded. Net sales expectations, on the other hand, worsened from -9% to -14%, as hiring intentions declined to 15%, their lowest level since June 2017 The US budget deficit for March nearly doubled from year-ago levels, rising to $378 billion from $193 billion. That brings the fiscal year-to-date deficit to $1.1 trillion, up 65% over the same period a year ago. Amid unresolved debt ceiling negotiations, the cost of insuring against a default on US government debt rose to 0.47% on Friday, the highest level in more than a decade. For context, credit default swaps cost 0.84% during the depths of the global financial crisis and 0.62% in 2011 after a debt-ceiling standoff cost the US its AAA credit rating from Standard and Poor’s The latest move by the Federal Reserve occurred during the recent regional banking crisis, which ultimately forced the FOMC to rethink its trajectory for the federal funds rate. The uncertainty was on full display in the minutes of the FOMC’s March 21-22 meeting, where they delivered a 25-bp rate increase. While the decision had been expected by the consensus, there had been tremendous uncertainty leading up to the meeting in light of the recent banking sector turmoil. The meeting minutes reflected that uncertainty. Several participants ‘considered’ holding the target range steady to better assess the impact of banking sector developments and the cumulative tightening of policy. Ultimately though, a still-too-tight labor market and unacceptably high inflation led to the unanimous decision to raise the target range 25 bps. It is worth noting also that, in the absence of recent developments, “some” participants would have considered raising the target range 50 bps. On the outlook for the economy, members noted that data on inflation, employment, and economic growth generally came in “stronger than expected” although banking sector developments introduced greater downside risks to growth and employment. This led “many” participants to lower their assessments of the terminal fed funds rate but, as noted in the press release, participants anticipated that “some additional policy firming [might] be appropriate”. To determine whether more firming was required and how much, “it would be particularly important to review incoming information regarding changes in credit conditions and credit flows as well as broader changes in financial conditions” The major benchmarks ended the week higher, as investors weighed slowing growth signals against signs that inflation pressures were receding a bit more than expected. Materials and industrials shares outperformed within the S&P 500 Index. Technology shares lagged, weighed down in part by a decline in graphics and artificial intelligence chipmaker NVIDIA, which continued a recent retreat from a 52-week high In terms of data release, housing starts will be published on Tuesday. New residential construction ended a five-month streak of declines and jumped 9.8% to a 1.45-million-unit pace during February. The improvement was broad-based, although mostly driven by a surge in multifamily construction. Building permits also rose in February, with notable increases in both single-family and multifamily permits The Leading Economic Index is out on Thursday. It declined 0.3% in February, the 11th-consecutive monthly drop. The trend down in the LEI over the past year is a clear warning sign that economic growth is nearing an inflection point. Consumer expectations, building permits and ISM new orders have been the largest drags on the top-line index since the LEI began to turn down, although many of the underlying components have also weighed on the index throughout the year. UK Monthly GDP MoM saw no growth in February by registering at 0%. This was roughly in line with consensus (0.1%). The services sector saw a marginal fall in growth of 0.1% after showing more promising expansion in January of 0.7%. Teacher strikes in February saw output from the education sector fall by 1.7%, which was the largest contributor to services showing a negative print. Were it not for industrial action, February probably would have posted a marginally positive GDP monthly figure. The disappointing services numbers were offset by more encouraging news elsewhere: for example, the construction sector grew by 2.4% in February, driven by growth in both repair and maintenance and new work The underlying lackluster growth performance of the UK in February could signal that Q1’s quarterly GDP figure comes in marginally negative. Even if this were to happen, the UK would not be in a technical recession as Q4 2022’s growth figure was not in negative territory. Looking ahead to the rest of 2023, there are reasons to suggest that the growth outlook has somewhat improved in recent months. The latest UK Composite PMI number remains above 50, indicating private sector expansion, and a slight easing of fiscal policy at the Budget will help provide a boost to short-term growth prospects. This means the UK will in all likelihood, avoid a technical recession in 2023 (defined as two consecutive quarters of negative growth), yet the base case scenario remains for the UK economy effectively to flatline over the calendar year. Households will continue to face a challenging environment and business investment will struggle to pick up given that the capital allowances announced at the Budget are not as generous as the super-deduction that has recently been phased out. EU On a seasonally adjusted basis, eurozone industrial production in February rose 1.5% sequentially and 2.0% year over year, which was stronger than expected. Higher output of capital goods and nondurable consumer goods were key drivers. However, in March, retail sales volumes fell 0.8% sequentially, matching forecasts, official data showed. Meanwhile, a Sentix index of investor morale rose in April, resuming an upward trend that was interrupted in March France’s Constitutional Council, the equivalent of the U.S. Supreme Court, ruled that a law to increase the pension age was valid, raising the prospect of more public protests The German government has rejected calls to extend the operating life of its three remaining nuclear power plants. A spokesperson for German Chancellor Olaf Scholz said the phaseout by 15 April is a “done deal” Stocks in Europe rose as recession fears waned. In local currency terms, the pan-European STOXX Europe 600 Index advanced 1.74% over the five trading days ended April 14. Major stock indexes also posted gains. Germany’s DAX added 1.34%, Italy’s FTSE MIB tacked on 2.42%, and France’s CAC 40 Index gained 2.66%. CHINA The latest data trailed the government’s consumer price index target of around 3% growth this year and raised expectations that the People’s Bank of China (PBOC) would step up stimulus measures to support the economy. The yield on China’s 10-year government bond dropped to the lowest level since last November as traders priced in the possibility of further monetary easing. Many economists predict that the PBOC may cut the policy rate for its short- and medium-term lending facilities to boost loan growth and spur investment, Bloomberg reported. New bank loans totaled RMB 3.89 trillion in March, more than double February’s RMB 1.81 trillion, according to PBOC data, reflecting higher credit demand after Beijing’s unwinding of COVID restrictions led to a pickup in economic activity. New loans totaled an all-time high of RMB 10.6 trillion in the year’s first quarterChina’s exports unexpectedly rose 14.8% in March from a year ago, surprising analysts who had forecast a decline and marking the first increase since September. Imports fell a less-than-expected 1.4% Inflation eased for the second straight month in March. China’s consumer price index rose 0.7% in March from a year earlier, down from a 1% rise the previous month. Core inflation, which excludes volatile food and energy prices, rose to 0.7% in March from 0.6% in February. The producer price index slid 2.5%, the lowest since June 2020 and its sixth straight monthly decline, according to Reuters Chinese stocks were mixed after a volatile week as softer-than-expected inflation dampened investor sentiment. While new loans and trade data surprised to the upside, it was not enough to offset broader concerns about the strength of the economic recovery. The Shanghai Stock Exchange Index advanced 0.32% while the blue-chip CSI 300 fell 0.76% in local currency terms. In Hong Kong, the benchmark Hang Seng Index gained 0.53%. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, National Bank of Canada, M. Cassar Derjavets. |
