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By HaleStewart December 7, 2013 7:41 am
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Inernational Week In Review: Central Banks' Holding Pattern Continues

Last week saw a great deal of central bank action.  The following central banks left rates unchanged: Australia (2.5%), Canada (1%) and the Bank of England (.5%).  None of these moves were unexpected.  All three economies are growing, albeit it below potential.  And none are suffering from inflation (thereby granting the central backs a great deal of policy-making latitude) as shown in the following charts:



More number from the EU indicate the region is expanding, although the rate of expansion is hovering just above positive territory.  While the quarter to quarter rate of growth is expanding, it is doing so at a mere .1% rate, which would just as easily be considered statistical noise.  And retail sales are still soft, with the latest monthly number printing at -.2%.  Markit also released their bevy of manufacturing indicators, as shown in the following chart:

Of the larger economies, Greece, Spain and France are all printing below 50 indicating their respective economies are contracting.

The US had a series of solid reports.  First, the ISM numbers all printed above the 50 level, indicating the economy is expanding.  The manufacturing report was exceedingly strong, possibly pointing to far stronger growth over the next few quarters (see here and here).  And employment appears to be strengthening, with the latest monthly survey showing total establishment job creation of 203,000.  However, the overall US employment report remains weak (see here).

Brazil’s 3Q GDP printed at a -.5% rate, indicating the county’s problems continue.  While agricultural output decreased 3.5% from the preceding quarter, gross fixed capital formation dropped 2.2%.  This is one of the biggest problems the country faces: a low level of governmental investment has led to low levels of corporate investment.  In short, Brazil continues to struggle, and it does not appear they are doing enough to find alternate means of growth.

And finally, Australia grew .6% Q/Q, 2.3% YOY.  Australia continues to be one of the countries best weathering the current economic environment.  While a drop in corporate investment is a prime reason for their slow growth, this is actually the result of the country moving from one dominated by raw material exports to one more balance in its growth sources. 

The biggest surprise this week was the series of US reports that indicated the next two quarters of growth could be stronger than anticipated.  The EU continues to struggle at barely positive growth levels and other coutries are still coping with below trend growth.  The best news is inflation continues to be a non-issue, granting central banks plenty of policy lee-way.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer





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