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Keeping up with the facts
International Perspective - May 4, 2018
By Anne D. Picker, Chief Economist


Global Markets

Between extensive holidays in Asia and Europe and key economic events in the US, it was a tough week for investors to do much except to be cautious. Globally, investors paid especially close attention to the trade talks between China and the U.S. at week’s end and of course the deluge of earnings reports. All vied for investors’ attention along with central bank announcements and the U.S. employment report.


Trade talks between the U.S. and China were a major focus for investors. After the talks wrapped up on Friday, a statement described the meeting led by Chinese Vice Premier Liu He and U.S. Treasury Secretary Steven Mnuchin as “frank, efficient and constructive.” The statement, however, also said there remained “significant disagreements over certain issues.” The talks over two days followed months of threats and counter threats from both sides in a series of disputes over trade practices. The two sides agreed to continue talking, while reaching no breakthrough over trade as their meetings ended in Beijing.


The Trump administration asked China to decrease its trade surplus with the U.S. by at least $200 billion by the end of 2020, the kind of demand that Chinese officials had already warned against. Away from the talks, the standoff between the two countries is already hurting global commerce with traders in the Asian nation canceling shipments of U.S. soybeans. The U.S. delegation had earlier presented Chinese officials with a lengthy list of demands aimed at reducing the trade imbalance. Worries about heightened trade tensions have rattled financial markets throughout this year.  


Both the Reserve Bank of Australia and the Federal Reserve maintained their policy interest rates but both spoke of interest rate increases in their respective future.


Reserve Bank of Australia

The Reserve Bank of Australia left its main policy interest rate unchanged at 1.50 percent where it has been since August 2016. In the accompanying statement, the decision again pointed to stronger global growth and the associated withdrawal of policy stimulus by some central banks. The assessment of the domestic growth outlook remained broadly positive with growth expected to pick up and average a bit above 3.0 percent in 2018 and 2019, supported by stronger exports and non-mining business investment. Uncertainty remained about prospects for consumer spending. However, there appeared to be a bit more confidence that ongoing gains in employment will eventually translate into stronger wages growth and spending.


The inflation outlook was little changed, with recent data considered to be in line with expectations. The RBA expects price pressures to remain subdued and to strengthen only gradually as economic conditions improve, with the central forecast for headline CPI inflation to be a bit above 2.0 percent in 2018.


Reflecting this assessment, the Board again saw no case for a change in policy settings for now. RBA Governor Philip Lowe in recent public comments has noted that if unemployment falls and inflation rises in line with current RBA forecasts over the coming year then he believes "at some point it will be appropriate to have less monetary stimulus and for interest rates in Australia to move up".


Federal Reserve

As widely expected, the FOMC kept its policy fed funds interest rate range unchanged at 1.50 to 1.75 percent. But the FOMC noted that its 2 percent inflation target is symmetric, adding a note of overshoot risk. Job growth was once again described as strong but growth in overall activity as moderate. However, consumer spending was once again said to be moderating. Business investment was upgraded to strong. The vote was 8 to 0.


The committee acknowledged inflation has moved close to their 2 percent objective but still characterized market-based inflation measures as low. At the same time, it provided little indication that committee members are worried about a sudden, rapid escalation in prices or an abrupt slowdown in economic growth that could alter its gradual pace of rate increases.


Global Stock Market Recap

  2017 2018 % Change
Index Dec 29 April 27 May 4 Week 2018
Australia All Ordinaries 6167.3 6042.9 6155.37 1.9% -0.2%
Japan Nikkei 225 22764.9 22467.9 22472.78 0.0% -1.3%
Topix 1817.56 1777.23 1771.52 -0.3% -2.5%
Hong Kong Hang Seng 29919.2 30280.7 29926.50 -1.2% 0.0%
S. Korea Kospi 2467.5 2492.4 2461.38 -1.2% -0.2%
Singapore STI 3402.9 3577.2 3545.38 -0.9% 4.2%
China Shanghai Composite 3307.2 3082.2 3091.03 0.3% -6.5%
India Sensex 30 34056.8 34969.7 34915.38 -0.2% 2.5%
Indonesia Jakarta Composite 6355.7 5919.2 5792.35 -2.1% -8.9%
Malaysia KLCI 1796.8 1863.5 1841.83 -1.2% 2.5%
Philippines PSEi 8558.4 7721.0 7546.19 -2.3% -11.8%
Taiwan Taiex 10642.9 10553.4 10529.37 -0.2% -1.1%
Thailand SET 1753.7 1778.0 1779.87 0.1% 1.5%
UK FTSE 100 7687.8 7502.2 7567.14 0.9% -1.6%
France CAC 5312.6 5483.2 5516.05 0.6% 3.8%
Germany XETRA DAX 12917.6 12580.9 12819.60 1.9% -0.8%
Italy FTSE MIB 21853.3 23927.6 24335.02 1.7% 11.4%
Spain IBEX 35 10043.9 9925.4 10104.10 1.8% 0.6%
Sweden OMX Stockholm 30 1576.9 1580.8 1577.08 -0.2% 0.0%
Switzerland SMI 9381.9 8843.0 8903.83 0.7% -5.1%
North America
United States Dow 24719.2 24311.19 24262.51 -0.2% -1.8%
NASDAQ 6903.4 7119.8 7209.62 1.3% 4.4%
S&P 500 2673.6 2669.9 2663.42 -0.2% -0.4%
Canada S&P/TSX Comp. 16209.1 15668.9 15729.40 0.4% -3.0%
Mexico Bolsa 49354.4 48284.6 46992.170 -2.7% -4.8%


Europe and the UK

Europe’s equity indexes advanced in the holiday shortened week. The FTSE was up 0.9 percent, the CAC added 0.6 percent, the DAX rallied 1.9 percent and the SMI was 0.7 percent higher. Traders closely monitored the highly anticipated trade talks between the U.S. and China. So far, the talks have resulted in agreements on some issues, although China's state-run Xinhua news agency noted considerable differences still exist. The report from Xinhua on Friday said both sides recognize the remaining differences and said continued hard work is required for more progress.


The first estimate of flash first quarter gross domestic product eased to a quarterly increase of 0.4 percent after rising 0.6 percent in the fourth quarter of 2017. The annual rate of expansion eased from 2.8 percent to 2.5 percent. There were no details of expenditures however. But national statistics already released suggest that domestic demand was relatively soft and net exports probably made a smaller contribution too. Another key data point — April flash harmonized index of consumer prices also disappointed. Eurozone April HICP inflation provisionally slipped to just 1.2 percent from the final March reading of 1.3 percent.


According to the European Commission in its spring forecast which was released Thursday, the euro area is set to log strong growth this year, but the momentum may moderate slightly as monetary stimulus is gradually withdrawn and global trade growth eases somewhat. The executive arm of the European Union predicted gross domestic product to be 2.3 percent this year, before easing to 2 percent next year. While these are the same growth rates as projected in the winter interim forecast, the growth drivers behind them have changed somewhat and the balance of risks has shifted meaningfully to the downside according to the EU. Domestic upside risks have faded and downside risks to the global outlook have increased significantly in both the short and the medium term.


Asia Pacific

Most equity indexes retreated in the holiday strewn week. The All Ordinaries (1.9 percent) did manage to increase a respectable amount while the Shanghai Composite gained 0.3 percent, the SET edged up 0.1 percent and the Nikkei added 4.91 points. Losses ranged from 0.2 percent (Sensex and Taiex) to 2.3 percent (PSEi). Shares ended the week on a down note Friday as investors monitored the trade talks between the U.S. and China and waited for the U.S. employment report for April — it would be released after markets here were closed for the week.


According to reports from China’s Xinhua news agency on Friday, top officials from China and the United States reached a consensus on some aspects of the countries’ trade row, but disagreements over other issues remain relatively big. The two sides, though, committed to resolving their trade disputes through dialogue.




The U.S. dollar advanced against all of its major counterparts with the exception of the yen. The currency was up against the euro, pound sterling, Swiss franc and the Canadian and Australian dollars. The yen was virtually unchanged on the week. The dollar reached its highest levels this year against a basket of currencies on Friday despite disappointing April employment data. The U.S. economy added fewer jobs than expected and although the unemployment rate dropped to near a 17-1/2-year low of 3.9 percent, this was because some jobless Americans left the labor force. The annual increase in average hourly earnings was 2.6 percent. The dollar has gained as investors bet that the Federal Reserve will continue raising rates while other central banks including the European Central Bank will act more slowly.


Selected currencies — weekly results

2017 2018 % Change
Dec 29 April 27 May 4 Week 2018
U.S. $ per currency
Australia A$ 0.779 0.758 0.753 -0.7% -3.4%
New Zealand NZ$ 0.709 0.709 0.702 -1.1% -1.0%
Canada C$ 0.796 0.780 0.778 -0.3% -2.3%
Eurozone euro (€) 1.194 1.213 1.195 -1.4% 0.1%
UK pound sterling (£) 1.344 1.378 1.354 -1.8% 0.7%
Currency per U.S. $
China yuan 6.534 6.332 6.363 -0.5% 2.7%
Hong Kong HK$* 7.816 7.848 7.849 0.0% -0.4%
India rupee 64.081 66.661 66.870 -0.3% -4.2%
Japan yen 112.850 109.070 109.110 0.0% 3.4%
Malaysia ringgit 4.067 3.920 3.940 -0.5% 3.2%
Singapore Singapore $ 1.338 1.324 1.334 -0.7% 0.3%
South Korea won 1070.630 1076.700 1077.150 0.0% -0.6%
Taiwan Taiwan $ 29.775 29.631 29.715 -0.3% 0.2%
Thailand baht 32.696 31.510 31.740 -0.7% 3.0%
Switzerland Swiss franc 0.979 0.9876 1.001 -1.3% -2.2%
*Pegged to U.S. dollar
Source: Bloomberg


Indicator scoreboard


April manufacturing PMI flash estimate was revised a couple of ticks higher to a final reading of 56.2. This confirmed a slightly reduced pace of expansion from March (final 56.6) but leaves a still relatively healthy rate. The latest headline decline was attributable to smaller gains in new orders (domestic and exports) and employment. However, production expanded at a slightly faster rate. The rise in new business was the weakest since November 2016 and the increase in headcount the least significant since last August. However, expanding backlogs suggest that supply constraints may have hampered output as the lengthening in delivery times was one of longest on record. Business confidence was down, touching a 16-month low. Inflation developments were mixed with significant gains in both input costs and factory prices leaving a lower rate of inflation for the former but a higher rate for the latter. Regionally, the best performer was the Netherlands (60.7) ahead of Germany (58.1) and Austria (58.0). Ireland (55.3) and Spain (54.4) were some way behind but still above France (53.8), Italy (53.5) and Greece (52.9).


First quarter preliminary flash estimate of real gross domestic product confirmed a significant slowdown in the rate of Eurozone economic growth at the start of the year. At 0.4 percent, the quarterly rise in total output was little more than half the upwardly revised 0.7 percent rate posted in the fourth quarter and among the smallest in the last four years. It was also the first deceleration in quarterly growth since the second quarter of 2016. The annual rate of expansion eased from 2.8 percent to 2.5 percent. There are no details of the GDP expenditure components or a geographical breakdown in the flash report.


April flash harmonized index of consumer prices was up 1.2 percent on the year, down from 1.3 percent in March. The deceleration would have been sharper but for a pick-up in the more volatile components. Energy inflation climbed 0.5 percentage points to 2.5 percent while the food, alcohol and tobacco rate gained 0.4 percentage points also to 2.5 percent. The narrowest core measure, which excludes energy, food, alcohol and tobacco, clocked a 0.7 percent yearly rate, down three ticks from the final March to equal its lowest reading since April 2015. At the same time, omitting just energy and unprocessed food, the rate shed 0.2 percentage points to 1.1 percent. A hefty decline in services (1.0 percent after 1.5 percent) did most of the damage as non-energy industrial goods saw a minor gain (0.3 percent after 0.2 percent).



First quarter gross domestic product provisionally expanded a modest 0.3 percent from the previous three months. It was the weakest reading since the third quarter of 2016. The annual expansion rate eased from 1.6 percent to 1.4 percent, the worst performance since the end of 2016. Being the flash report, no details of the GDP expenditure components were provided. However, it was indicated that domestic demand expanded on the quarter while foreign demand made a negative contribution. In addition, industrial production was only flat leaving the gain in total output attributable to advances in agriculture and services.




March merchandise trade surplus widened from a revised A$1.349 billion in February to A$1.527 billion — the largest surplus since May 2017. In seasonally adjusted terms, the value of exports advanced 1.4 percent on the month after increasing by a revised 0.7 percent in February. Exports of rural goods recorded solid growth in March on the month, with moderate gains also recorded for exports of non-rural goods and services. There was also a sharp rebound in exports of non-monetary gold, which can be volatile from month to month. On the year, growth in total exports picked up slightly from a revised 4.2 percent in February to 4.3 percent in March. Seasonally adjusted imports rose 0.9 percent on the month. The increase was largely driven by a very sharp rebound in imports of non-monetary gold, with imports of intermediate and other merchandise goods also rebounding after a decline in February. Other major categories of imports — consumption goods, capital goods and services — all fell in March. Total imports increased 7.5 percent on the year, slowing from a revised increase of 10.5 percent in February.




February monthly real gross domestic product rebounded from a decline of 0.1 percent in January and increased 0.4 percent on the month. Fifteen of 20 industrial sectors increased. Growth was led by a rebound in the mining and oil and gas extraction sector. On the year, monthly GDP was up 3.0 percent. Manufacturing and construction rose in addition to a rebound in mining and oil & gas extraction. Services producing industries edged up as increases in most sectors more than offset declines in wholesale trade and in the real estate and rental and leasing sector. The finance and insurance sector rose along with financial investment services, funds and other financial vehicles. Wholesale trade declined but the retail trade sector advanced after three consecutive monthly declines.


March merchandise trade deficit swelled to a record C$4.1 billion from C$2.9 billion in February. Imports were up a monthly 6.0 percent while exports increased 3.7 percent. In real (or in volume) terms, imports rose 5.3 percent and exports were up 3.0 percent. Imports in nine of 11 sections increased with motor vehicles & parts, at an 8-year high, along with consumer goods the strongest. On the year, imports were up 9.2 percent. Exports of aircraft and other transportation equipment and parts; farm, fishing and intermediate food products; and energy products contributed the most to the widespread increase. Exports excluding energy products rose 3.6 percent. In March, Canada's total trade with countries other than the United States reached a record C$31.2 billion, with imports increasing 11.5 percent and exports up 11.4 percent. Canada's trade deficit with countries other than the United States widened from C$5.2 billion in February to C$5.8 billion in March. After rising 3.8 percent in February, imports from the United States increased 3.1 percent in March mainly due to higher imports of passenger cars and light trucks. Exports to the United States rose 1.2 percent, led primarily by higher exports of crude oil.


Bottom line

Both the Reserve Bank of Australia and the Federal Reserve chose to leave their monetary policies unchanged as anticipated. Key economic data in the Eurozone disappointed especially the first estimate of first quarter gross domestic product and the flash April estimate of the harmonized index of consumer prices. In the U.S., the employment report was weaker than expected.


The Reserve Bank of New Zealand and the Bank of England are next to hold policy meetings. Both are expected to keep current policies. The Bank of England had broadly been expected to increase rates prior to the release of first quarter GDP which was extremely weak. Data in Europe primarily updates industrial output data. China begins to release its April economic data starting with the consumer and producer price indexes.


Looking Ahead: May 7 through May 11, 2018

Central Bank activities
May 10 New Zealand Reserve Bank of New Zealand Policy Announcement
May 10 UK Bank of England Policy Announcement
Bank of England Quarterly Inflation Report
The following indicators will be released this week...
May 7 Germany Manufacturing Orders (March)
May 8 Germany Industrial Production (March)
Merchandise Trade Balance (March)
May 9 France Industrial Production (March)
May 10 Italy Industrial Production (March)
UK Industrial Production (March)
Merchandise Trade Balance (March)
Asia Pacific
May 8 Australia Retail Sales (March)
China Merchandise Trade Balance (April)
May 10 China Consumer Price Index (April)
Producer Price Index (April)
May 8 Canada Housing Starts (April)
May 11 Canada Labour Force Survey (April)


Anne D Picker is the author of International Economic Indicators and Central Banks.


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