FEATURED ARTICLE: Voodoo economics of ECB’s QE MARKET STATISTICS: Weekly Change
ECONOMIC STATISTICS:
U.S. Real GDP – Q4 Real gross domestic product remained unchanged at 2.2% annualized in the fourth quarter of last year. The number came in a touch below the median consensus forecast, which called for a slightly stronger increase to 2.4%. Personal consumption expenditures were revised higher (from 4.2% to 4.4%) with the gains concentrated across all three components. Services were revised up to 4.3% (from the previous reading of 4.1%), durables were up 6.2% (from 6.0%) and non-durable goods were up to 4.1% from 3.8%. Net exports were revised down to 1.0%, as exports were revised higher to 4.5% from 3.2%, and import growth fell slightly from 10.1% to 10.4%. The growth for the first half of the year will need to rely on the strength in consumer demand. However, recent retail sales data have been nothing to brag about, with a large portion of the weakness attributed to both bad weather and price effects stemming from lower gasoline prices. Nevertheless, expectations for the first half of this year will be for business investment to struggle, particularly in the oil and gas sector.
U.S. Consumer Price Index – February U.S. consumer prices rose an as-expected 0.2% in February, and were unchanged from a year ago. This is the first monthto-month increase in fourth months, and the biggest monthly increase since last May. Energy prices grew 1% in February, the largest move in a little over a year. Even food perked up 0.2%, although there could be some weather-impact weighing in. Excluding food & energy, prices also climbed for the second straight month, with the latest 0.2% more than expected. Higher costs for cars, tobacco, and rent pushed the core component higher. What does all of this mean for the rate outlook? It is too early to say inflation is turning higher. The USD’s strength takes time to filter through to prices and recent increase will show up in the coming months. So, the Fed would not be “reasonably confident” from this report that inflation is heading back towards 2%.
U.S. New Home Sales – February U.S. new home sales unexpectedly jumped in February. Sales of newly constructed/unlived homes jumped 7.8% in February to a 7-year high of 539,000 units annualized. This marks the 3rd increase in a row and the largest increase since last August. Mother Nature did play a role in this report: sales in the Midwest were down 12.9%, as major winter storms took place; sales rebounded in the Northeast and South. This is a break from the disappointing round of housing numbers as of late, and does suggest some support for starts in the coming months.
U.S. Durable Goods Orders – February U.S. durable goods orders unexpectedly fell in February: -1.4% when compared to a consensus +0.5%. Orders in the auto industry decelerated for the 2nd straight month, while nondefense aircraft orders tumbled 8.9%. Durable goods orders excluding transportation declined 0.4%, the 4th straight move in a southerly direction. Meanwhile, core orders have declined for six consecutive months; however, core shipments were flattish in February. The headwinds for capital spending are blowing. Frankly, there was little goods news on capital spending.
In Europe, failure is no longer an option. If banks are in danger of collapse, in come the bailout loans. If countries have trouble financing themselves, the ECB will buy their sovereign bonds. When inflation falls and growth stalls, they have a cure as well – quantitative easing. QE, as it’s called, was launched on March 9 by the ECB. The $2.8 trillion exercise in printing money began to work its magic well before the first sovereign bonds were bought because every sentient life form on the continent knew it was coming and coming big, as inflation turned negative. Bond yields plummeted and the stock markets climbed, boosting the wealth effect and consumer confidence. The euro sank like a lead balloon, a godsend to exporters. QE is voodoo economics; no two economists will agree why it works or whether it works at all. In Europe, it does seem to be working, but already its negative aspects are taking root. QE could well prove to be temporary balm rather than long-term cure. The bond yields of certain countries already signal that QE’s benefits are overhyped. In Italy, the euro zone’s third-largest economy, the 10-year bonds were trading with a yield of 1.3%; a drop of two full percentage points over a year, allowing it to borrow money more cheaply than Canada, U.S. or U.K. This rate is also lower than its debt crisis in 2010 and 2011; with bond yields close to crisis levels, the urge to reform would have been intense. Another problem with QE is its rather efficient ability to make the rich richer. What QE is supposed to do is propel the wealth effect and help unemployment drop; rather, it seems to be stuck at 10% in the EU. QE may paper over the cracks for a while. What it won’t do is fill them. Post-QE Europe will probably be just as uncompetitive as pre-QE Europe, maybe more so, at this rate.
Canadian Industrial Product Price Index – February - Monday, March 30, 2015 at 8:30am
U.S. Personal Income & Consumption – Feb. - Monday, March 30, 2015 at 8:30am
Canadian Real GDP at Basic Prices – Jan. - Tuesday, March 31, 2015 at 8:30am
U.S. Employment Report - March - Friday, April 3, 2015 at 8:30am
Tuesday, March 31, 2015 at 3:30pm - Team-Wide Meeting
Thursday, April 2, 2015 at 1:30pm - Sector Meetings