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By HaleStewart February 8, 2014 9:01 am
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International Week in Review: A Busy Week For Central Banks Edition

Last week was a very busy week for central banks as we had three different interest rates decisions from the ECB, BOE and RBA.  All kept rates steady (see commentary at this link on the ECB decision).  The BOE has a policy dilemma on their hands.  In previous statements, they said their unemployment rate threshold was 7%.  However, with the unemployment rate approaching that level and the economy still freshly coming out of its doldrums, they are probably recalibrating their policy.  The RBA is also in a bit of a policy bind.  There is increased talk of a housing bubble (at least in certain sections of Australia), as the country becomes a haven for Asian rim long-term investing.  At the same time, the economy is growing below potential and probably in need of lower rates – which would spur the housing bubble on.

The US had a mostly negative news week.  The biggest disappointment was another weak jobs report (see commentary here).  But the ISM manufacturing index also dropped sharply from 57-51.3 and the pace of auto sales also decreased from an annual rate of 15.4 million to 15.24 million.  Some of this drop and overall weakness is due to the unseasonably cold weather the country is currently experiencing.  And the anecdotal information in the ISM reports was in fact very positive (see commentary here).  However, it is once again appearing as though the promise of stronger US growth is becoming a fleeting promise.

Australian numbers still indicate the economy is growing below potential.  The PMI index dropped to 46.7 and has only been positive in two months since June 2011 as shown in this chart:

The services index printed at 49.3 – which was an increase, but was also the 24th straight month of contraction.  On the plus side, retail is strong coming in at a 4.6% Y/O/Y increase.

The UK continues to show strength.  Its PMI number dropped from 57.2 to 56.7.  But this is still a very high reading indicating strong growth.  The services number was unchanged at 58.3 – again, a very bullish reading.  Additionally, industrial production was up 1.8% Y/Y and the trade balance improved.

News from the EU was mostly positive.  The manufacturing PMI increased from 53.9 to 54.  In addition, most of the economies are now printing solid expansionary numebrs (see here).  In contrast, the services number dipped slightly from 51.9 to 51.6 – a drop that can be classified as statistical noise.  The retail PMI was also positive and is currently at a 33 month high.

Finally we have Canada, where the news was mostly positive.  The best news came on the employment front, where the unemployment rate dropped from 7.2%-7% thanks to an increase of 29,000 jobs.  This was welcome news considering the drop in employment in the previous report.  Industrial prices are also well-contained, with a slime 1.4% increase over the previous 12 months.  This chart shows an extended series further showing that inflationary pressures are under control:

The negative news came from manufacturing, where the PMI decreased from 53.5 to 51.7, printing at a nine month low. 

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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