| USA The ISM Non-manufacturing PMI remained in expansion territory in March but lost considerable vigor (from 55.1 to 51.2). Growth in business activity decelerated (from 56.3 to 55.4) on the heels of new orders (from 62.6 to 52.2). New export orders, for their part, recorded a massive decrease, diving 18 points from their highest level in five months (61.7) into contraction territory (43.7). Amid this decline in demand, the backlog of orders contracted (from 52.8 to 48.5, its lowest level since May 2020). As a result, the employment sub-index expanded at a slower pace (from 54.0 to 51.3), while the supplier deliveries sub-index contracted at a faster one (from 47.6 to 45.8). All this translated into the lowest prices paid subindex reading since July 2020 (from 65.6 to 59.5 The ISM Manufacturing PMI slid from 47.7 in February to 46.3 in March, marking a fifth straight contraction in factory activity. Output (from 47.3 to 47.8) shrank for a fourth consecutive month, while new orders (from 47.0 to 44.3), too, remained below the 50-point mark separating expansion from contraction. As a result, the backlog of orders remained in contraction territory (from 45.1 to 43.9). Consequently, the employment gauge (from 49.1 to 46.9) indicated a second consecutive contraction in payrolls Construction spending dipped 0.1% in February after climbing 0.4% in January. Consensus expectations were for a flat print in the month. The drop was due to a 0.2% decline in public spending, while construction spending in the private sector was essentially unchanged. Lower public outlays reflected a decrease in the non-residential segment (-0.2%), while the residential segment saw a slight increase (+0.1%). Relative to their pre-crisis levels, public outlays were still up 5.0%. In the private sector, residential outlays slipped 0.6% while non-residential spending increased 0.7%. Relative to their pre-pandemic levels, private outlays were still up 40.3% in the former segment and 15.2% in the latter. After outperforming during the pandemic, residential construction seems to be running out of steam, as it has now declined for nine consecutive months The trade deficit widened from $68.7 billion in January to $70.5 billion in February. The expansion was due to a 4.8% decrease in exports (to $169.2 billion) while imports declined at a slower pace (-2.2% to $262.2 billion). On the exports side, the main contributors to the decline included industrial supplies/materials (-$2.6 billion), automotive vehicles/parts (-$1.9 billion), and consumer goods (-$1.4 billion). The decline in goods imports was led by consumer goods (-$3.6 billion) and automotive vehicles/parts (-$2.9 billion). Because exports declined more so than imports, the goods trade deficit went from $90.3 billion to $93.0 billion According to the Job Openings and Labor Turnover Survey (JOLTS), the number of positions waiting to be filled dipped from 10,563K in January to 9,931K in February. This was the second consecutive monthly decrease for this indicator, which came in below consensus calling for a 10,500K print. As a result, the ratio of job offers to unemployed person fell from 1.86 to 1.67, its lowest level since November 2021. The monthly decline was led by professional/business services (-278K), transportation/warehousing (-145K), and health services (-150K). Alternatively, job postings increased in construction (+129K). Total separations went from 5,900K to 5,820K as a decrease in layoffs (from 1,719K to 1,504K) was only partially offset by an increase in the number of people who quit their jobs voluntarily (from 3,878K to 4,024K). The quit rate (i.e., number of voluntary separations as a percentage of total employment) increased a tick to 2.6%, which suggests that workers looking to change jobs remained confident about their prospects and that employers continued to face stiff competition for talent For many months, asset markets rallied each time the market sensed the US Federal Reserve was preparing to pause or pivot its tightening cycle. However, while evidence implying pause from the Fed may be approaching piled up this week, equities lost ground, suggesting bad news for the economy is likely to be bad news for stocks in the near term. The Atlanta Fed GDPNow model shows that Q1 US GDP likely slowed to a 1.5% growth rate from a 3.5% rate two weeks ago. A sharp drop in the Institute for Supply Management’s nonmanufacturing PMI, a fall in the manufacturing PMI to recessionary levels and a larger-than-expected decline in the number of US job openings in February were among the higher-profile data misses this week. As of Thursday morning, futures markets show only a 44% probability of an additional quarter-point hike from the Fed at its next meeting on 3 May Speaker of the US House or Representatives Kevin McCarthy said this week that investors have a right to be worried about the lack of progress over raising the nation’s debt limit. The speaker said that though President Joe Biden has been unwilling to negotiate, he will not move a bill to raise the ceiling without spending cuts. The Department of the Treasury is expected to run out of borrowing capacity sometime this summer The major benchmarks were mostly lower over a holiday-shortened week that was characterized by light and choppy trading. U.S. markets were shuttered on Friday, along with most of the other markets in the Americas, in observance of the Good Friday holiday, while Passover started on Wednesday evening. Investors also seemed to take a pause following the previous week’s quarter-end “window dressing,” in which some institutional investors adjusted their holdings in advance of their quarterly public disclosure In terms of data release, CPI is out on Wednesday. There were only a few positive developments in the February CPI data. Prices at the grocery store rose just 0.3%, the smallest increase since March 2021. Used auto prices continued to come back down to Earth and fell another 2.8% in the month. But beyond these pockets of improvement, core CPI inflation remained entrenched at uncomfortably high levels. With core CPI up 0.5% in February, it is rising at an annualized rate of more than 5% whether measured on a 1-month, 3-month or 12-month basis Retail sales is out on Friday, The print exploded to start the year, rising 3.2% in January (a stunning 46.3% annualized rate). Some payback in the subsequent months seemed all but assured, and sure enough, retail sales dropped 0.4% in February. Retail sales will likely post a similar decline in March. If realized, softness in next week’s report can be interpreted as some continued normalization in sales following January’s outsized surge. UK Bank of England (BoE) Chief Economist Huw Pill indicated that policymakers face a close decision on whether to raise interest rates for a 12th consecutive time in May, a sign that monetary policy tightening in the UK might be near an end. Speaking in Geneva, he said: “On balance, the onus remains on ensuring enough monetary tightening is delivered to see the job through and sustainably return inflation to target.” He added, however, that policymakers also need to remain vigilant on tightening financial conditions and any dislocation to credit markets that might influence the inflation outlook British house-building fell at the sharpest pace since May 2020 last month as the cost of higher interest rates outweighed an easing in supply chain difficulties that bolstered other types of construction, according to a survey released on Thursday. The S&P Global/CIPS construction Purchasing Managers’ Index (PMI) fell to 50.7 in March after jumping to 54.6 in February, a bigger drop than the fall to 53.5 forecast in a Reuters poll of economists. Even so, the reading still indicated modest growth and was the second-highest since October, when the “mini-budget” crisis under former Prime Minister Liz Truss’s government caused borrowing costs to leap. “Despite worries about the near-term outlook for housing activity, expectations for total construction output during the year ahead were relatively upbeat in March,” said Tim Moore, economics director at S&P Global Market Intelligence. EU European Central Bank (ECB) President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane indicated that inflationary pressures would require further interest rate hikes. While several other policymakers, including Bank of France Governor François Villeroy de Galhau, Bank of Lithuania Governor Gediminas Šimkus, and Bank of Greece Governor Yannis Stournaras, echoed the view that rates might rise, they also said they believed rates were nearing a peak European Union home prices fell in the fourth quarter of last year for the first time since 2015, dropping by a record amount, Eurostat data showed. House prices declined 1.5% sequentially, as higher interest rates curbed demand for houses. Meanwhile, eurozone producer prices fell for a fifth consecutive month and by more than expected in February, due mostly to subsiding energy prices. Strong demand for heavy vehicles and autos fueled an unexpected monthly increase in Germany’s industrial production, which ticked up 2.0% in February. Manufacturing orders, meanwhile, surged 4.8%. A marked pickup in industrial activity and in business confidence since the start of the year prompted Germany’s economics ministry to say signs of an economic recovery were now evident Shares in Europe rose as fears of a banking crisis abated. In local currency terms, the pan-European STOXX Europe 600 Index finished the five days ended April 6 with a 0.90% gain. Major stock indexes were mixed. CHINA China’s new home sales rose 55.7% in March, up from 31.9% in February, according to a private survey of 14 cities, Reuters reported. Increased demand was attributed to an array of stimulus measures that China’s central and local governments rolled out at the end of 2022 to bolster homebuying sentiment. While sales growth is expected to improve for the rest of 2023, many analysts believe that the longer-term outlook for China’s property market remains subdued China Evergrande Group, once the country’s largest real estate developer and the highest-profile casualty of the liquidity crisis hitting the property sector, signed a deal with creditors to restructure most of its outstanding debt. Evergrande was declared to be in default in late 2021, marking the start of a nationwide property crisis that periodically shook international financial markets. Evergrande’s debt restructuring, which still faces months of negotiations with creditors, could serve as a reference for other Chinese developers in default that are trying to restructure their debt The Caixin/S&P Global Manufacturing PMI went from 51.6 in February to 50.0 in March, signaling unchanged factory conditions. New orders continued to expand during the month, albeit at a softer pace than the month before. Worsening foreign demand conditions dragged the new exports gauge into contraction territory. All in all, output continued to grow, but the pace of the expansion significantly moderated since February. As a result, firms slimmed their payrolls in the month as retirements and resignations were not systematically replaced. The report also showed that supply chains continued to fluidify but that companies were looking to use up their inventories rather than purchase new inputs. As a result, input prices remained unchanged while output prices fell back into contraction territory. Finally, year-ahead optimism remained elevated among firms as they expected demand to grow further Chinese stocks advanced in a holiday-shortened week as a recovery in services activity and the property sector bolstered investor sentiment. The Shanghai Stock Exchange Index gained 1.22% and the blue chip CSI 300 rose 1.13% in local currency terms. Markets in Hong Kong and China were closed on Wednesday in observance of the Qingming festival, also known as Tomb Sweeping Day, when Chinese people honor their ancestors by cleaning and placing offerings on their tombs. |
| Sources: T. Rowe Price, MFS Investments, Wells Fargo, Handelsbanken Capital Markets, National Bank of Canada, Reuters, M. Cassar Derjavets |
