| USA Nominal personal income increased 0.3% in February, a bit more than the median economist forecast calling for a 0.2% gain. Amid a labour market that remains healthy, the wage/salary component of income progressed 0.3% in the month, while income derived from government transfers progressed 0.5%. Personal current taxes, for their part, fell 0.6%. All this translated into a 0.5% monthly gain for disposable income. Nominal personal spending, for its part, expanded 0.2% on an increase in the services segment (+0.2%). Outlays on goods remained more or less flat. As disposable income advanced at a faster pace than spending, the saving rate rose from 4.4% to a 13-month high of 4.6%. This remains significantly below the levels observed before the pandemic Adjusted for inflation, disposable income grew 0.2%, whereas spending edged down 0.1%. The latter decline, which came after a massive gain the prior month (+1.5%, revised upward from +1.1%), reflected decreases in both the services (-0.1%) and the goods (-0.1%) categories. Within services, the largest contributor to the decline was food services and accommodations, while spending on goods suffered from a decline in the motor vehicles/parts segment The headline PCE deflator came in at 5.0% YoY, down from 5.3% the prior month and one tick below consensus expectations. This was also the lowest level recorded in 17 months. The core PCE measure, meanwhile, eased from 4.7% to a 16-month low of 4.6%. Again, this was one tick below economists’ forecasts. On a monthly basis, both the headline and the core price indices were up 0.3% The Conference Board Consumer Confidence Index rose 0.8 point from 103.4 in February to 104.2 in March. The median economist forecast had the index sinking to 101.0. The improvement was due exclusively to the long-term expectations gauge, which sprang 2.6 points after declining for two straight months. Still, at only 73.0, this index remained well below its pre-pandemic level. Meanwhile, assessment of the current situation dropped 1.9 points to 151.1. Notably, the gap between the Present Situation Index and the Expectations Index remained high at 78.1, indicating that consumers still foresaw a worsening of the economic environment The third estimate of Q4 GDP growth came in at 2.6%, a tick lower than the previous estimate and the median economist forecast (2.7%). The drop was due in part to a downward revision to the contribution by exports, which more than offset the upward revision to the contribution by imports. Consumer spending’s contribution was revised down as well and was one reason that the contribution of domestic demand was ultimately revised down from 0.8% to 0.7%. On the inflation front, the quarterly increase in the Personal Consumption Expenditures Price Index excluding food and energy was revised up a tick to 4.4% According to the S&P CoreLogic Case-Shiller 20-City Index, home prices fell a seasonally adjusted 0.43% in January, marking the seventh consecutive decline for this indicator. Of the 20 cities included in the index, 14 were down in the month, led by Seattle (-1.5%), Las Vegas (-1.1%), and Denver (-1.0%). YoY price appreciation slowed from 4.62% to 2.55%, sinking further more below the historical average of 5.32%. Given the rapid rise in borrowing costs and the sharp drop in home sales, price growth is expected to decline further in the coming months The Pending Home Sales Index rose 0.8% in February instead of dropping 3.0% as per consensus. This was the indicator’s third consecutive monthly increase after six consecutive declines. As a result, the index climbed to 83.2, its highest level since August but still historically low. This development is in line with other indicators suggesting a stabilization of the housing market following a spectacular decline in activity. Increases were observed in every region but the West (-2.4%), which had registered a massive 10.1% jump the prior month. The regional gains came, in decreasing order of magnitude, from the Northeast (+6.5%), the South (+0.7%), and the Midwest (+0.4%). YoY, pending home sales were still down 21.1 In testimony before the Senate Banking Committee, Michael Barr, vice chair for supervision at the US Federal Reserve, called Silicon Valley Bank a textbook case of mismanagement. Barr said the Fed is considering whether its bank supervisors have the tools to mitigate threats they see to a firm’s safety and soundness and said the central bank is looking at whether “the culture, policies and practices of the board and Reserve Banks support supervisors in effectively using these tools.” The Fed is also assessing whether, if it had imposed stricter regulatory requirements, SVB would have had higher levels of capital and liquidity that would have prevented its failure or made it more resilient, he said. Failures took place among management, regulators and supervisors, Barr testified Bloomberg reports that the FDIC is considering making large banks shoulder a larger-than-usual portion of the $23 billion in costs associated with the failures of SVB and Signature Bank via a special assessment in an effort to shield community banks from unduly sharing in the burden. The reasoning being large banks have been the main beneficiaries of the deposit outflows from small- and medium-sized banks The major equity indexes posted solid gains in a relatively quiet week for economic data releases and financial news. Small-caps outperformed large-caps, and value stocks advanced modestly more than growth stocks. Rising oil prices boosted energy stocks, which make up a significant part of value indexes. U.S. benchmark West Texas Intermediate crude oil rose more than 9% for the week, climbing back above the USD 70 per barrel level From its December lows, the tech-heavy Nasdaq 100 Index has rallied more than 20% as of Wednesday’s close as the sharp decline in interest rates since the failure of Silicon Valley and Signature Banks set off a slide in US Treasury yields and set the stage for the US Federal Reserve to hasten the end of its tightening cycle. However, the index’s advance has been extremely narrow, led by a relative handful of mega-cap tech and communications stocks, which were among last year’s biggest losers. Most other groups are lagging far behind ISM Manufacturing & Services prints are out on Monday and Wednesday. The survey indices may not have been late enough in the month to pick up financial uncertainty and credit conditions tightening in the middle of the month. In February, the ISM manufacturing index came in flashing contraction for a fourth straight month The service sector has fared better with February’s ISM services index in expansion for a second month after briefly dipping below 50 in December. February saw the strongest read on hiring in the service sector since 2021, as the employment index rose four points to 54.0. Still, paying up for workers adds to price pressures, which have weighed on profits The trade balance print is out on Wednesday. The trade balance widened for the first time in five months at the start of the year, as growth in imports outpaced exports. A further widening is expected on February and look for a trade deficit of -$70.5B, down from -$68.3B previously. The advance international trade data on goods, showed a smaller slowdown in imports than exports, leading to a $0.5B widening in the advance goods deficit to $91.6B. There was a decrease in trade values across all but one category: other goods exports. The automotive industry remains an area of volatility, as imports of vehicles fell 7.1% and exports of vehicles fell 11.9%. UK The Nationwide House Price Index has recorded its seventh consecutive monthly decline in March. Average prices were down 0.8% MoM, a considerably sharper drop than consensus had expected (just 0.3%). House prices are down 3.1% YoY. Average prices peaked at GBP 273,751 in August last year and are now registering at GBP 257,122, representing a peak to trough fall of around 6% (4.6% after taking seasonal effects into account). On an annual basis, house prices in Scotland saw the largest correction, while the West Midlands was the strongest performing region The Halifax House Price Index had shown an unexpected jump in February m-o-m, but this latest March reading from Nationwide appears to confirm that this was a blip. Indeed, latest mortgage approval data from the Bank of England, which is a forward-looking indicator, would suggest that the correction in UK-wide house prices still has some way to go. While mortgage approvals ticked up in February, they only registered at 43,500, which is down by about 40% y-o-y. Furthermore, the tightening in financial conditions following recent market turbulence is likely to reinforce the current downward trend in prices. The peak to trough fall in UK house prices could end up being in the region of 10% Revised official data showed that the UK avoided a recession last year, helped by government subsidies for energy bills. Gross domestic product in the fourth quarter grew 0.1% sequentially, instead of being flat, and shrank by only 0.1% in the third quarter—less than the 0.2% contraction initially estimated. Meanwhile, the housing market remained weak. Mortgage lender Nationwide said house prices fell in March at the fastest annual rate since the great financial crisis, while Bank of England data showed a big drop in net mortgage lending in February BoE Governor Andrew Bailey said in a speech that recent problems in the banking industry would not sway the central bank’s focus on inflation. He acknowledged that there were “big strains” in the global banking system but added that UK lenders were resilient and able to support the economy. EU Eurozone inflation in March decreased more than expected to 6.9 percent YoY, compared to 8.5 percent the month before. The negative energy inflation, as base effects started to kick in, was the main reason that headline inflation slowed down. Food, alcohol & tobacco is expected to have the highest annual rate in March (15.4 percent, compared with 15.0 percent in February), followed by non-energy industrial goods (6.6 percent, compared with 6.8 percent), services (5.0 percent, compared with 4.8 percent) and energy (-0.9 percent, compared with 13.7 percent). Meanwhile, core inflation came in in line with expectations rising to 5.7 percent compared to 5.6 percent the month before. The HICP releases in March (February) for major eurozone countries were as follows: France 6.6 percent (7.2), Germany 7.8 percent (9.3), Italy 8.2 percent (9.8) and Spain 3.1 percent (6.1) Households received some welcome relief as headline inflation moderated in March. However, the core inflation reached a new record high, indicating that the ECB will have to continue to raise policy rates. The banking turmoil seen in recent weeks has lowered, for example, the price of crude oil, but price pressures still remain high and therefore there is a need for higher policy rates by the ECB. The labour market situation remained tight in the eurozone with unemployment rate at 6.6 percent in February. The March eurozone PMIs, released last Friday, also painted a better-than-expected economic development for the first quarter The French government said that about 740,000 people participated in nationwide demonstrations on March 28 against pension reforms, although unions put the figure at 2 million. The protests were smaller than the nationwide mobilization the previous week, and there were fewer violent clashes. Unions have called for an 11th day of national strikes on April 6. The government rejected union calls for “mediation” on the changes, but Prime Minister Elisabeth Borne is set to hold talks with unions in the next few days Shares in Europe rallied as fears of financial instability waned. In local currency terms, the pan-European STOXX Europe 600 Index ended 4.03% higher. Major stock indexes also posted strong gains, with France’s CAC 40 Index rising 4.38%, Germany’s DAX adding 4.49%, Italy’s FTSE MIB increasing 4.72%, and the Swiss Market Index (SMI) gaining 4.41%. CHINA China’s official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 51.9 in March, while the nonmanufacturing PMI rose to 58.2, the highest reading since May 2011. Index readings above 50 indicate expansion from the previous month Industrial profits fell 22.9% in the first two months of 2023 from a year earlier, following a 4% decline for all of 2022, according to the National Bureau of Statistics. The drop in profits came despite earlier data showing that industrial output rebounded in the first two months of the year and indicated that some factories were cutting prices amid weak demand International Monetary Fund (IMF) Managing Director Kristalina Georgieva forecast that China’s rebound would account for approximately one-third of global growth this year amid increased risks to economic stability following banking sector turmoil. The IMF projected that China’s economy would grow 5.2% this year, while global growth would slow to below 3.0%. Last year, China’s GDP grew 3.0%, one of its lowest levels on record Chinese e-commerce giant Alibaba Group announced a plan to break itself up into six units that can independently raise capital or even seek initial public offerings. Many analysts believe that the company’s overhaul may appease regulators and could mark the end of China’s yearslong crackdown on private enterprise Chinese stocks advanced as strong economic data coupled with supportive comments from Beijing boosted confidence in the country’s growth outlook. The Shanghai Stock Exchange Index rose 0.22%, and the blue-chip CSI 300 added 0.59% in local currency terms. In Hong Kong, the benchmark Hang Seng Index gained 2.43%. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, National Bank of Canada, M. Cassar Derjavets |
