Slow Growth for the Economy but Weather Effects Fading

Do you believe Putin’s words or actions? Putin continued to say he wanted a diplomatic solution to Ukraine while continuing to mass troops along the Ukrainian border. Meanwhile the International Monetary Fund (IMF) approved a line of credit of up to $18 billion to Ukraine and the Ukrainian parliament passed a law to implement IMF-demanded austerity measures. The “West” cancelled a G8 meeting scheduled for Sochi, and so the G8 reverts to the G7 with the expulsion of Russia.

U.S. Economic data: mixed, consistent with slow growth and fading weather impacts.

  • Q4 Gross Domestic Product growth was revised from 2.4% to 2.6% (annualized) on higher consumer service-sector spending . . . no surprise.
  • The Chicago Fed’s National Activity Index moved back into positive territory in February.
  • The durable goods orders report was mixed: ex-transportation, orders were up 1.5% year over year (y/y).
  • Markit’s March flash manufacturing and services indexes each came in at 55.5.

Housing data: more signs of a flattening out.

  • February new home sales were down 1.1% y/y.  Inventories are moderate, so overbuilding is not yet a concern.  If sales don’t pick up in the spring, though, concern will rise.
  • February pending home sales slipped 0.8% month over month (m/m) . . . the ninth consecutive month of declining volume.
  • Purchase mortgage applications rose week over week but are still down 17% y/y.  The average loan rate rose 6 bps to 4.56%.
  • The median new home price is down 1.2% y/y.

Initial unemployment claims drop again.

  • Initial unemployment claims for the week ending 3/22 came in at 311k . . . close to cycle lows.

The consumer sector remains moderately healthy.

  • Personal income was up 0.3% m/m and 3.1% year over year.
  • Q4 consumer spending was revised upwards from 2.6% to 3.3% and rose 0.3% month over month and 3.0% year over year.
  • Consumer confidence is OK, but not great.  The Conference Board’s consumer confidence index came in at 82.3; the U of Michigan consumer confidence index came in at 80.

Consumer Spending 140328

Inflation remains negligible.

  • Personal Consumption Expenditure (PCE) inflation, the Fed’s preferred measure, was up 0.9% y/y at the headline level, 1.1% at the core level.

Eurozone: the economic news was mixed, which isn’t bad, considering the Ukraine situation.

  • The Eurozone (EZ) March preliminary manufacturing Purchasing Managers Index report came in at 53.0.  Germany (53.8) was weaker than expected; France (51.9) was better (above 50 means expansion).
  • The EZ Services Purchasing Managers Index came in at 52.4 (France was 51.4, Germany 54.0).
  • German business sentiment dropped for the first time in five months.
  • The European Central Bank (ECB) signaled it could ease further if deflation risks increase or the Ukraine becomes a headwind to the Eurozone economy.

China: more evidence of a slowdown, some talk of stimulus.

  • The HSBC/Markit China manufacturing flash PMI fell to 48.1 in March, its third consecutive monthly decline and its lowest level in eight months.
  • The World Trade Organization said China violated trade rules by restricting the export of rare earth materials.
  • Chinese auto manufacturer Dongfeng is buying a 14% stake in French automaker PSA Peugeot Citroen.

Japan: waiting to see the impact of the tax hike.

  • Inflation was up 1.5% y/y; excluding food and energy, it was up 0.8%.
  • The unemployment rate dropped from 3.7% to 3.6%.
  • A number of data series are pointing to improving sentiment.
  • The sales tax (VAT) rises from 5% to 8% on April 1.
  • March 31 is the Japanese fiscal year-end: “window-dressing” may temporarily distort markets.

Last week in the capital markets: International equities rally while the U.S. consolidates; yields are stable.

  • Equities: MSCI Emerging Markets was up 4.3%; MSCI Japan was up 3.7%, and MSCI Europe returned 1.6% last week.  The S&P 500 returned -0.4% last week.
  • Bonds:  The 10-year Treasury yield fell 2 bps to 2.73%; the 10-year TIP yield fell 1 bps to 0.60%.  The OAS of the BoAML HY declined 3 bps to 373, a new cycle low
  • Commodities: WTI oil was up about 2% on lower inventories; gold was down about 3%.
  • Currencies: The dollar gained about 0.5% against the Yen and 0.2% against the Euro.  The Chinese Yuan ended the week up 0.2%, breaking a string of weakness.  EM currencies were generally up against the dollar.

Download this content in PDF format



About Sam Wardwell

Sam Wardwell, CFA, is Senior Vice President and Investment Strategist at Pioneer Investments. He joined Pioneer in 2003.
This entry was posted in Economy, Equity, Markets and tagged , , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s