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By HaleStewart February 21, 2014 3:25 pm
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International Week in Review: A Flood Of Central Bank Meeting Minutes Edition

The worse news of the week came from Japan, where the Y/Y change in GDP was only 1%.  We also saw a trade deficit increase caused by a huge 25% Y/Y surge in imports, which was hardly offset by a mere 9.5% increase in exports.  While the Japanese consumer is still very vibrant, the falling yen is not translating into a strong enough increase in exports.  According to the analysis of the Japanese economy reported in the latest BOJ meeting minutes, the economy continues to increase at a moderate pace.   Here is their assessment of the Japanese consumer who has been powering the current recovery:

Private consumption remained resilient, with improvement in the employment and income situation, and a front-loaded increase in demand prior to the consumption tax hike had also been observed. As for durable consumer goods, the number of new passenger-car registrations had turned upward since around summer 2013 with the introduction of new models, and had recently shown considerably strong movements. In addition, sales of household electrical appliances had been steady, albeit with fluctuations. It was likely that such movements in durable consumer goods had been reflecting to some extent the front-loaded increase in demand prior to the consumption tax hike, including its ripple effects of an increase in housing investment. Meanwhile, indicators related to consumer confidence -- which had continued on an improving trend, albeit with fluctuations, after rising at a rapid pace since the start of 2013 -- had been relatively weak since October. Private consumption was expected to remain resilient as a trend, sup orted mainly by improvement in the employment and income situation, albeit with some fluctuations caused by the front-loaded increase and subsequent decline in demand prior to and after the consumption tax hike.

The main news from China this week was the release of the HSBC manufacturing index, which was again negative.  And, as the following tables show, the other numbers in the index are decreasing as well:


News from the EU was encouraging.  The manufacturing PMI printed at 53 and the service PMI was reported at 51.7.  The only concern in these numbers was France, whose PMI numbers showed a slight contraction.  In addition, the current account was reported at 21.3 billion, indicating exports are at least holding their own in the current economy.

Perhaps the best news of the week was announced for the UK.  First, CPI’s Y/Y percentage change came in at 1.9% -- thereby giving the BOE some room to maneuver.   While core retail sales decreased 1.5% M/M, they did increase 4.3% Y/Y.   The latest BOE meeting minutes showed an economy doing well.  They also offered this insight into UK consumer behavior:

With activity in the UK’s main trading partners recovering only slowly, the upturn in the domestic economy had so far been characterised by a reduction in private savings. This reduction in savings had been supported by a revival in confidence and reduced uncertainty. This was evident in the GfK consumer confidence survey responses, which had indicated households’ reduced fears of unemployment and rising optimism about their financial situation twelve months ahead. The fall in savings might also have reflected an easing in credit conditions, which were expected to continue to improve, supporting a further pickup in credit growth.

The US economy’s housing rebound hit choppy seas this week.  The National Association of Homebuilders index decreased 10 points from 56-46.  Building permits dropped 5.4%, housing starts decreased 16% and existing home sales increase a disappointing .7%.  About the only saving grace in these numbers is (again) the inclement US weather which has literally frozen activity in half the country.  On the plus side, inflation is clearly well-contained with CPI printing at 1.6% Y/Y and CPI coming in at 1.2% Y/Y.   Finally, the Federal Reserve issued the meeting minutes for their latest meeting, offering the following overview of the US economy:

The information reviewed for the January 28-29 meeting indicated that the rate of economic growth picked up in the second half of 2013. Total payroll employment increased in December, but at a slower pace than in previous months, and the unemployment rate declined but was still elevated. Consumer price inflation continued to run below the Committee's longer-run objective, while measures of longer-term inflation expectations remained stable.

This week’s news shed some concerning light on the future and vitality of the Japanese economy.  Ultimately, this weakness has been reflected in the Japanese ETF, which has broken support as traders show their concern through net sales.  And the news from China also adds to the concern for the region.  Granted, the manufacturing numbers have been through a cycle like this before.   But, the weakness in the numbers has lasted long enough to argue we are starting to see a fundamental change in the Chinese economy.  The US numbers are difficult to interpret thanks to the severity of the winter.  The best news came from the UK and the EU which continued to show some basic improvement. 

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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