Economic Comments, week ending March 18

By John W. Davidson | Mar 21, 2011

The magnitude of the human devastation in Japan was beyond comprehension. By week's end, over 8,000 people were known to have lost their lives and more than 12,000 remained missing. These numbers do not include the health impact on the heroes that are fighting to cool down the nuclear reactors to save their country as well as those exposed to radiation due to their proximity to the power plants.

This Sunday's New York Times headlined this "A Crisis That the Markets Can't Grasp." Outside Japan equity markets declined by only low single digit percentages. Government Bond Markets rallied. The U.S. dollar declined; the Yen gained on the dollar even after a coordinated effort efforts on the part of allied Central Banks to sell the Yen. Oil prices were little changed from a week ago. Gold prices closed just over a $1 higher at $1419/oz. Bankrate.com's 30-year mortgage rates slipped 6 basis points to 4.75%.

The Bank of Japan quickly and aggressively provided liquidity to offset some of the negative impact of the crisis on that nation's economy. The fed's statement following this week's FOMC meeting provided a more optimistic assessment of economic growth and acknowledged the inflationary pressures of recent energy price increases, but dismissed them as being "transitory;" the fed's statement suggested that bond purchases (QE2) would continue, but they were unlikely to be extended beyond the June end date. While the "developed" Central Banks followed accomodative policies this week, India and China tightened monetary policy to ward off inflationary pressures.

 

Perspective

As can be seen in the chart below, events in the Middle-East have had more impact on oil prices than the crisis in Japan. Both WTI (green) and Brent (gray) are plotted on a daily basis going back to the beginning of 2010. In February, oil prices rose in fear of supply disruption triggered by protests in the Middle-East. The earthquake-related disaster in Japan last week threatened to derail the economic expansion, cutting expected demand and dropping oil prices. By the end of the week, as the nuclear disaster started to come under control, the price of oil increased with the prospect of allied military invoking a no-fly zone in Libya.


 

Economic Releases

One sector of the U.S. economy that has yet to recovery is housing. This week's Housing Starts (red) and Permits (black) both declined. The chart below shows that Housing Starts and Permits have declined in February by -139,000 to 479,000 and by -46,000 to 517,000 respectively. These statistics peaked in 2005, declined for the next 3+ years, and have been little chanced for the last 2+ years. The decline in Starts could have been weather related, but the decline in Permits reflected negative views on the part of home-builders.

 




The chart below shows that the absolute level of year-over-year CPI has remained low, but has started to increase.  UK's CPI (blue) will be reported next week and is likely to have increased 2 ticks to 4.2%.  The Eurozone's CPI (green) increased a tick to 2.4%.  The US's CPI (red) increased 5 ticks to 2.1%!  France's CPI dropped a tick to 1.7%.



Data Source: Bloomberg LP

Not shown above, the US CPI increased +0.5% in February;  without the more volatile food and energy, the US CPI rose only +0.2%.  US PPI increased +1.6% in February, but without food and energy, PPI increased only +0.2%.  Canada's CPI rose +0.3% in February; their Core rate increased only +0.2%.  France's CPI rose +0.5% in February.  Germany's PPI increased +0.7% in February.

 

 

Other Economic Releases

 

Initial Jobless Claims declined to 385,000 in the week ending March 12th; Continuing Claims declined to 3.706 million, showing a modest improvement in the US labor markets. February Industrial Production declined -0.1% while Capacity Utilization improved two ticks to 76.3. Leading Indicators, the Philadelphia Fed Survey, and the Empire Manufacturing reports showed improvements when they were released this week.

In the fourth quarter of last year Canada's Capacity Utilization rate increased 2 ticks from a downward revised 76.2% in the previous quarter; Labor Productivity rose +0.5%.

Germany's Zew Survey of he Current Situation improved slightly while the Survey for Economic Sentiment slipped.

In Brazil, Retail Sales increased 8.3% in January while the previous month's data was increased a tick to 10.2%. February's Money Supply in China increased by low double digit rates year-over-year.

 

Equities Markets

In spite of a rebound on the last two days of the week, equity markets declined across the globe, especially in Japan where the Nikkei declined over -10% on the week. Energy rich Canada's TSE bucked the trend with a positive return.


 

Bond Markets

 

Government bond markets rallied, especially in North America in 1) a flight to safety, and 2) an acknowledgement that geopolitical events and Japan's tragedy had the potential to disrupt the global expansion.

 



 

Currencies

The Yen and the European currencies rallied in spite of the coordinated efforts of allied Central Banks to counter the rise of the Yen.


 

Economic Sectors

Only Energy and Materials were able to post positive returns on the week. Utilities, users of energy, posted the most negative returns on the week. In the Capitalization space, Small Cap Growth had the least negative returns while Large Cap Growth had the most negative returns.

 



 

 

Comments (0)
If you wish to comment, please login.