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By HaleStewart March 22, 2014 9:07 am
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International Week in Review; More of the Same Edition

Let's start by looking at the news from the EU, where we learned prices are still very much contained.  Core CPI came in at 1% Y/Y, while total CPI was .7% for the same period.  There is also no wage pressure, as these costs increased a mere 1.4% in 4Q2013.  Looking over the longer term, labor costs are actually very low :

In fact, labor costs are near the low end of their range for the duration of this expansion.  Europe continues to have a strong current account situation, with a net positive influx of 25.3 billion euros in January, with the entire positive amount coming from net portfolio inflows (investment flows were a net negative).  Finally, investor sentiment decreased 9.1 points in the ZEW economic survey which was attributed to the situation in Crimea.

Australian new care sales increased .1% and their leading indicators increased .2%.  The bank also released their latest minutes, where the participants noted the economy was operating below potential.  Most importantly, they made these observations about the Australian labor market:

The unemployment rate had increased to 6 per cent in January, continuing its gradual increase of the past 18 months, while the participation rate had declined significantly since the middle of the previous year, largely because of a decrease in male participation. The level of employment was little changed over the past year, although total hours worked had increased. Members noted the recent high-profile announcements of future job losses against the backdrop of the 400,000 to 450,000 people who leave employment each month and the similar number who take up employment. They discussed the potential for the extensive coverage of these job losses adversely to affect consumer confidence. At the same time, there was evidence that forward-looking indicators of labour demand had stabilised, following earlier declines to low levels.

As the Australian economy continues to re-balance, expect more weak readings from employment numbers.

Canada continues to grow modestly.  Retail sales were up 1.3% M/M and inflation is in check, coming in at 1.1% Y/Y.  While wholesale trade did increase .8%, this figure has in fact been moving sideways as shown in this graph from statistics Canada:

The US had a data heavy week.  Industrial production increased .6% while capacity utilization increased .3%.  The housing market continues to come under some pressure from weather and higher rates.  Housing starts decreased .2% M/M and existing home sales decreased .4% M/M. However, building permits did increase 7.7%.  On the good side, the LEIs increased .5%.  Most importantly, this was Janet Yellen's first Fed meeting.  They offered the following brief assessment of the US economic situation in their policy release:

Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

The UK's unemployment rate was unchanged at 7.2%.  Most important was the release of the latest meeting minutes, which showed the central bank to think the economy was growing.  While they were happy to see the latest GDP revisions show growth coming more from business investment, there was concern the recent drop in inflation was a transitory development.

The news this week continued to show familiar trends: weak growth and low inflation from the EU and Canada, a growing economy with potential inflationary pressures in the UK, a re-balancing in Australia and an economy on the verge of self-reinforcing growth in the US.

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

Overall, the news this week confirmed the general trends of a each region.  The EU has low inflation and weak growth, making it very susceptable to adverse shocks.  The US continues to improve as well, but the housing slowdown may start to have a negative impact on growth.  Australia is still trying to rebalance and Canada continues to tread water. 

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