Global economic roundup - Capital Economics | Outlook data
(Insider Stories) - The following is a global economic roundup by London-based research provider Capital Economics.
U.S.
The sharp decline in the monthly trade deficit to $38.8bn in March, from $43.6bn the month before, is largely due to a distortion caused by the timing of the Lunar New Year Holiday in China. There is a good chance this will be reversed in April.
Non-farm payrolls may have risen by around 125,000 in April (13.30 BST)- ECB rate cut won’t be enough to drag the euro-zone out of recession on its own- Faltering PMIs underline challenges facing industry in Asia
Key Market Themes
The ECB’s decision to cut interest rates should provide troubled banks in the region’s periphery with some much needed support. But it will not be enough to drag the euro-zone out of recession on its own and bolder plans to boost lending to small and medium-sized enterprises (SMEs) seem to be in their infant stages to say the least.
The good news is that the 25 basis point reduction in the main refinancing rate should help banks in the periphery that are reliant on ECB funds (which are provided at the average refinancing rate over the period of the loan).
There was not much else to cheer, though. Draghi made much of a “decision” to go on providing three-month loans at a fixed rate until mid-2014. But we doubt very much that anybody had expected the ECB to return to less generous variable rate tenders over this period.
We had hoped that the bank might announce looser collateral criteria or other measures to stimulate lending, particularly to SMEs. But the President made only a vague pledge to begin consultations with the European Investment Bank (EIB) and the European Commission on this topic. Whatever the eventual outcome, the President conceded that the discussion was in its very early stages.
Meanwhile, Mr Draghi continued to stress that the ECB could not engage in monetary financing by buying government’s debt. This leaves the ECB still lagging far behind other central banks in its support for the economy. (Jennifer McKeown)
What to watch for today:
United States
Although the labour market has weakened, we think conditions are not quite as bad as March’s data suggested. We therefore expect a rebound in the monthly increase in payroll employment in April (13.30 BST), to around 125,000 from March’s disappointing 88,000. The sequester government spending cuts were not behind March’s slowdown. Most agencies didn’t put workers on furloughs until late April, which means the cuts are unlikely to affect April’s payrolls either. Instead, some of the slowdown in March was probably due to the unusually cold weather. This may have been behind the more muted gains in construction and leisure payrolls and the fall in employment at building materials stores. January’s tax hikes and the previous surge in gasoline prices probably played a part too. Nonetheless, our econometric model points to a modest rebound in payrolls in April and a stable unemployment rate of 7.6%. Meanwhile, the drop in initial jobless claims to 324,000 last week, from 342,000, also suggests that labour market conditions are not quite as bad as we had begun to fear. (Paul Dales & Paul Ashworth)
The softness of retail spending may have further dampened the ISM non-manufacturing index (15.00 BST) in April. We forecast a drop to 53.5, from 54.4 in March. The three-month-on-three-month growth rate of core retail sales, which tends to lead the ISM index by a month, has recently been trending lower. And according to the Fed’s latest Beige Book, while consumer spending was higher in most districts, a few experienced outright declines. Moreover, the main activity index of the Richmond Fed services sector survey fell into negative territory in April. Nonetheless, construction activity appears to have been strong. (Amna Asaf)
The sharp decline in the monthly trade deficit to $38.8bn in March, from $43.6bn the month before, is largely due to a distortion caused by the timing of the Lunar New Year Holiday in China. (Data released on Thursday.) The bilateral deficit with China fell to $17.9bn, from $23.4bn, echoing the Chinese figures that have already been released, which showed a sharp drop in the bilateral surplus China runs with the US.
Meanwhile, unit labour costs increased by 0.5% annualised in the first quarter and by only 0.6% over the past 12 months. (Data also released on Thursday). That suggests inflation will remain below the Fed’s 2% target.
The FOMC’s assessment of the economic outlook didn’t change much in the statement it issued on Wednesday, but the Committee nevertheless felt it necessary to flag up explicitly that the pace of asset purchases could, in the future, be increased as well as reduced. We still expect the Fed to begin curbing its quantitative easing in the second half of 2013 provided economic growth picks up, but the chances that the pace of asset purchases could be slowed within another few months now looks to be fairly remote. (Paul Ashworth)
Continental Europe
No major data or events scheduled for today.
UK
The CIPS report on services (09.30 BST) has improved modestly since the start of the year. The survey pointed to quarterly services output growth of only about 0.2% in Q1. But actual growth was 0.6%. Admittedly, that was buoyed by the retail sector which the CIPS survey does not cover. And it is possible that services output will be revised down in the coming months. However, we expect the latest services survey to close part of the gap. After all, an improvement in the CIPS survey would be consistent with some other positive evidence from the services sector. Accordingly, we have pencilled in a rise in the headline activity index from 52.4 to 53.0 in April. (Martin Beck)
Japan
No major data or events scheduled for today.
China
No major data or events scheduled for today.
Thursday’s HSBC/Markit manufacturing PMI for April painted a more downbeat picture than the official survey released one day before. The final estimate fell from March’s 51.6 to 50.4, lower than both the flash estimate of 50.5 and the official PMI of 50.6. The fall in headline PMI was largely due to big declines in the components for output and new orders, with the drop in the latter was larger than the flash reading. Meanwhile, the stocks of finished goods component rose to an eight-month high and signalled that inventories are piling up at a fast pace. (Qinwei Wang)
Other Asia-Pacific
We expect the Reserve Bank of India (RBI) to cut its policy rate by 25bp at its meeting today (06.30 BST). India’s wholesale price inflation declined to 6.0% y/y in March from 7.3% at the end of last year. A weak economy, continued fiscal consolidation, and an improving external position are other reasons why the RBI is likely to act. (Aninda Mitra)
Headline manufacturing PMI indices for April rose in only three of the seven countries in Emerging Asia covered by Markit. Aside from the fall in China (see above), there were also drops in Taiwan, India and Australia. The data support our view that weak external demand is weighing heavily on Asia’s industrial sectors. Loose monetary policy should support domestic demand, but a strong recovery looks unlikely anytime soon. (Daniel Martin)
Elsewhere, S&P upgraded the Philippines to investment grade status, becoming the second major ratings agency to do so in just over a month. GDP growth has averaged above 5% over the past 10 years, a big improvement on previous decades. Moreover, a better policy environment and healthy demographics bode well for the future. However, the upgrade is unlikely to have a major impact on government bond yields, which have fallen sharply over the past couple of years and are already at record lows. (Gareth Leather)
Other Emerging Markets
No major data or events scheduled for today.
