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By HaleStewart May 25, 2014 8:36 am
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International Week in Review: Slow But Steady Growth Continues Edition

     Perhaps the biggest news last week was the release of meeting minutes and policy analysis from four major central banks: the BOJ, BOE, RBA and the Federal Reserve.  All noted that financial markets had been relatively stable over the last 4-6 weeks -- a calm which some found oddly disquieting.  They all also confirmed that most major world economies are expanding slowly with at best equal downside and upside risks.  The political situation in Ukraine has emerged as a potential trouble spot as has the real estate situation in China.   

     The UK continues to print very strong economic numbers.  Business investment increased 2.7% Y/Y, while retail sales increased 6.9% Y/Y.  As this chart form the ONS report shows, retail UK retail sales are increasing at a smart clip:

Inflation has bounced back, somewhat removing the specter of deflation with CPI increasing 1.8% Y/Y.  Finally, the second estimate of 1Q GDP came in at 3.1%, further confirmiing the recent solid trend in UK economic news.  However, despite the spate of good news, the BOE sees the current increased pace of activity as being caused by pent-up demand; they are expecting an economic slowdown in the second half of the year.

     More Japanese news adds weight to the argument we'll see a 2Q slowdown, if not a contraction.  First, the PMI index printed at 49.9.  While this number was a clear stabilization after the previous month's drop, it does indicate a contraction.  In addition, consider the long time series of this chart:

Not only has the overall number dropped, so has the overall production and new business sub-components. Finally, Japan's trade deficit woes continue, with the latest numbers printing at a little over 800 billion yen.

     Australian news continues to be mixed.  The Conference Boards LEIs printed at 0.  And while the Westpac consumer survey did increase slightly, it is down 9.6% since November, as shown in this chart:

Finally, the RBA issued the minutes from their latest policy meeting, where they expressed the following expectations for the Australian economy:

Members discussed the staff forecasts for the domestic economy, noting that average GDP growth over the forecast period was little changed from the February Statement on Monetary Policy. Over 2014/15, GDP growth was expected to be a bit below trend, with the effects of monetary stimulus partly offset by the downturn in mining investment and planned fiscal consolidation. Growth was subsequently expected to pick up to an above-trend pace over 2015/16, with both non-mining business investment and LNG exports forecast to contribute to growth. Although employment growth was anticipated to strengthen, this was not likely to exceed population growth consistently for some time as the improvement in the labour market was expected to be relatively protracted.

     The best news for the EU continues to be the Markit manufacturing, service and composite figures.  The latest batch of news was no exception.  While the numbers dipped a bit they were the strongest the region has seen in three years.  The overall composite reading is clearly on the upswing:

  The trade balance also continues its run of positive news, with the latest figures printing an 18.8 billion euro surplus.  But a large amount of the strength continues to come from Germany, which saw a 52.1 manufacturing number and 56.4 service number.  France -- the second largest economy in the EU -- is showing a contraction in its numbers: French manufacturing was 49.3 and French services were 49.2.

    There was good news from the US housing market: new home sales increased 6.4% and existing home sales were up 1.3%.  However, as the charts below (from the blog Calculated Risk) show, both of these statistics are either declining (existing home sales) or moving sideways (new home sales):

The good news for the US was rounded out by a .4% increase in the Leading Economic Index and a 56.3 print from the Markit manufacturing number.

     The overall world situation is one of slow but persistent growth.  Nothing this week takes away from that general conclusion.  While Japan is expecting a 2Q slowdown, the overall stimulative nature of current policy should make that a temporary development.  The EU's primary areas of strength -- exports and manufacturing -- continue to support the region.  While the US' housing market is clearly slowing down, other economic areas are doing well.  And the UK continues to be the real winner, with pent-up demand moving the ball forward.

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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