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.
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.