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By HaleStewart August 8, 2014 4:54 pm
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International Week in Review: The ECB Blows It, Edition


The biggest news this week was the ECB’s interest rate decision, where the central bank voted to keep rates at .15% without engaging in any other action.  This despite an economy clearly teetering on the brink.  Retail sales printed conflicting numbers: retail sales increased 2.4% Y/Y, but the EU retail index printed at 47.6, indicating the sector is in a technical recession.  That overall index has struggled for the last year.

Finally, PPI was -.8% Y/Y.  This data series has been negative for the last year.

     The UK kept their rates on hold this month.  The service sector continues to be doing very well, with a reading of 59.1:

The housing market may be leading the BOE to have some concern as housing prices increased 10.2% Y/Y.  And the manufacturing sector continues to grow, with production up 1.2% Y/Y and manufacturing up 1.9% for the same period.

     Canada’s trade balance was 1.86 billion – its strongest reading since February 2012.  Canada’s IVEY PMI was 54.1 – the first positive reading in two months.

Finally, the unemployment rate dropped to 7%.  However, this indicator has been at 7% for the last few months, indicating progress may have stalled for now:

     The US’ ISM non-manufacturing index was 58.7. 

Just as important, the anecdotal comments to the report point to a stronger second half of the year:

◾"Conditions are improving." (Construction)
◾"Slight improvement in the economy, but still experiencing delays in client project start-ups. Expecting some improvement in 4th quarter." (Professional, Scientific & Technical Services)
◾"Animal proteins seeing impact of drought, PEDv [Swine virus], thinning of herds and supply and demand issues. Produce pricing is going up due to drought and crop yields." (Accommodation & Food Services)
◾"Second half of the year is looking promising for increased orders versus last year." (Information)
◾"The area continues to benefit from a solid economy bolstered by the tourism and a rebuilding construction sector." (Public Administration)
◾"Business is still very good. Expecting continued growth in the 2nd half of the year." (Retail Trade)
◾"Business has been strong this summer after a late start due to the poor spring weather." (Wholesale Trade)

     The main news out of Japan was the BOJ keeping interest rates at .1%.  They offered the following assessment of the Japanese economy in their policy statement:

Japan's economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed. Overseas economies -- mainly advanced economies -- have been recovering, albeit with a lackluster performance still seen in part. Exports have shown some weakness. Business fixed investment has increased moderately as corporate profits have improved. Public investment has more or less leveled off at a high level. With the employment and income situation improving steadily, private consumption and housing investment have remained resilient as a trend, and the effects of the decline in demand following the front-loaded increase have gradually begun to wane on the whole. Reflecting these developments in demand both at home and abroad, industrial production has continued to increase moderately as a trend, although it has recently shown some weakness

     Finally there is Australia.  While they kept interest rates at 2.5%, they saw a big increase in unemployment to 6.4%:

     The worst news of the week came from the EU, where the ECB has decided to twiddle its thumbs while the region slowly slips into a lost decade.  In contrast is the UK which is now growing at a strong clip.  The growth in Canadian exports was a welcome bit of news, as that economy is very export dependant.  The US saw good news from the service sector which should point to a good 3Q.  Australia, on the other hand, had very concerning news on the unemployment front.

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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