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  • Weekly macroeconomic and market update 16 March 2015

Weekly macroeconomic and market update

Read on for an overview of the major market and macroeconomic events for the week ending 13 March. This week’s roundup includes the economic slowdown in China, industrial production figures out of the UK and Europe, and what we can expect from the week ahead.

Economic slowdown continues in China

Data out of China continued to highlight the ongoing slowdown in the world’s second largest economy. Industrial production slowed more than expected, down to 6.8% year-on-year from 7.9% previously (despite expectations for a marginal fall to 7.7%). Retail sales figures also disappointed, and property sales were down 15.8% in value from the same period one year earlier.

Against this, exports rebounded unexpectedly and imports continued to fall as domestic demand subsides, leading to trade surplus far surpassing expectations at US $60.6 billion. Consumer inflation was also higher than expected, but factory-gate prices were still falling, down 4.8% from a year earlier and at the worst level since 2009.

The latest figures from the US

Job numbers continued to improve in the US, with 5 million job openings being chased by just 1.8 unemployed people per opening. However, other data painted a less clear story of recovery. Both US retail and wholesale sales figures fell (-0.6% and -3.1% respectively), while inventories have started to build up and the producer price index fell 0.6% from a year earlier – the fourth consecutive month of decline. The University of Michigan’s initial reading of consumer confidence slipped further to 91.2% from 95.4%, which was disappointing for markets which had expected a slight uptick in the index.

Last week’s other events

  • UK industrial production grew at 1.3% year on year, up 0.8% from last month just as we expected. However, manufacturing production was slightly lower than expected, slipping to 1.9% from 2.6%.
  • Although European industrial production was marginally lower in February than January, it remains 1.2% higher than 12 months ago. This figure is well ahead of expectations and shows a significant acceleration from 0.6% previously.
  • Japanese key machinery orders slowed to 1.9% from 11.4% the month before, but this was ahead of expectations for a contraction. On the back of weaker than expected capex, Q4 GDP growth was also revised down from the initial estimate of 2.2% to 1.5%.
  • The ECB initiated its quantitative easing programme, which will involve purchasing €60 billion of assets every month until at least September 2016.

The markets

Last week saw equities continue to slide on the back of some cooling signals, while bonds tightened to reverse some of the recent price falls.

graph 16-03-2015

Equities – This week has provided a real sense of déjà vu, as once again most equity markets were down on the week and once again Japan bucked the trend. The S&P 500 was down 0.9%, the FTSE All-Share fell -2.2%, Europe (excluding UK) fell -2.0%, but the Topix gained +1.3%. Emerging markets (measured by the FTSE index) also fell 2.5% and the Hang Seng index in Hong Kong was down 1.4% across the week.

Bonds – UK 10 year bonds tightened to 1.7%, reversing much of the weakening over the last month, while US figures also tightened 12 bps to 2.12%. In Europe, German 10-year bund yields fell 13 bps to 0.26%, although there was unease at the short end with everything from 1 month to 3 year yields clustering at -0.22%, just fractionally above the ECBs deposit rate of -0.2%.

Commodities – Worries over inventory levels meant that oil continued to fall through the week – Brent crude was below US$55 per barrel (US$54.67) on Friday. Copper increased to US$2.69 over the week, but gold was softer and closed at US$1,152.70.

Currencies – The euro took a sharp fall as money printing began in Europe, ending the week down 1.2% against sterling. The euro was also down 3.3% against the US dollar, which conversely strengthened against most major currencies, including an increase of 2.1% against the sterling.

The week ahead

Today sees the release of Opec’s monthly oil market report, as well as the latest UK house prices from Rightmove. Tomorrow we get final European inflation readings, along with the ZEW sentiment survey for Germany and Europe as a whole. These are followed by US housing data releases later in the day.

Wednesday is a date for your diary, as here in the UK the Chancellor of the Exchequer will deliver the last Budget before the general election. Over the in the US, the US Federal Reserve meeting will take place and all eyes will be on the ‘patience’ language in the official statement.

After the mid-week excitement, Thursday and Friday offer a much quieter end to the week. Thursday brings us some low-level job numbers and the Philadelphia Fed Manufacturing index, and on Friday we can expect German factory-gate prices and the CBI’s Business Optimism Index in the UK.

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