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By HaleStewart August 15, 2014 4:49 pm
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International Week in Review: Storm Clouds On the Horizon Edition

          For the last few year, the overall tenor of the news has been positive.  Although some reported numbers have been negative, it was easy to look at them as statistical noise.  And, most of these numbers rebounded within a few months. 

          But this week legitimate concerning data emerged, starting with Japan.  Y/Y GDP was reported at a -6.8% drop.  Although analysts expected this due to the sales tax increase in the spring, the breadth of the negative internals was deeply concerning.  Also consider that, despite over two years of Abenomics, real GDP hasn’t meaningfully grown.  While there was a big bump in the 1Q14, this quarter’s number wiped out all gains, leaving the economy at ground zero.

Industrial production was also negative with a 3.4% M/M drop.  On the plus side, CGPI did increase to 4.3%. 

     The EU’s economic news was also very concerning, starting with the .3% M/M drop in IP.  However it was the 0% Q/Q GDP number that really quieted any positive talk.  Real EU GDP is still below pre-recession peaks, and the recent news does not provide any cause for optimism.

And, just to add to the EU’s problems, Y/Y CPI was .4% sending that data point continually lower.

     US news was mixed.  On the negative side was the 0% M/M increase in retail sales (for more on this, see NDD’s piece here).  Real retail sales are hitting stall speed in the last few readings:

On the plus side, industrial production (a concurrent indicator) was up .4% and capacity utilization increase 1/10 of a percent to 79.2%. 

          UK news continues to be the best of the bunch.  Average earnings ex-bonus increased .6% and the second reading of 2Q GDP showed a 3.2% increase.  But the best news was the continued drop in unemployment, which is now at 6.4%.  This data series’ progress is very encouraging:

     Canada released a revised look at employment and which dropped 1/10 of 1% to 7%.  However, this data point is still at high levels and appears to be stalling:

     The news from the EU is becoming dire.  The continued slow downward march of inflation to the point of deflation has become a constant drumbeat of bad news.  The near 0 rate of growth doesn't help.  And while a contraction was expected in Japan, the severity of the latest numbers is very concerning.  Combine this with the sunned jump in Australian unemployment from last week, and the overalll picture is becoming concerning.

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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