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More unpredictability to come in 2014?

November 6, 2014 in Economy

In hindsight, last week’s chaotic run for the markets looks almost inevitable.

The sustained lull in forex in volatility, overinflated stocks in the US and beyond, and an almost fanatical belief that key economies were on an unimpeded journey towards health all combined in spectacular fashion, and panic set in. The view held by many – that forex volatility would remain dormant until a rate rise in the US, possibly before year-end, reawakened it – proved incorrect as a far less positive catalyst brought life back to currency markets.

Of course, the catastrophic spread of the Ebola virus and bubbling international conflict were unforeseen developments and 2014 has been, if anything, a hugely unpredictable year so far. For now though, we have a new status quo, and the chance to examine what  the last couple of months of the year may bring.

In business, the picture still looks troubled. Several key industries are facing a big struggle for the rest of the year, amongst them pharmaceuticals, UK retail and mining. At the moment, it looks likely that the current situation amongst major players in each section will change, with mergers and acquisitions, or alternatively liquidations.

For pharmaceuticals, the two huge plays of the year – AbbVie/Shire and Pfizer/AstraZeneca – both now look either troubled or dead in the water. The tax ‘inversion’ loophole that made such mergers a priority has been closed, but the poor years suffered by many major players like GSK, Pfizer and Bristol-Myers  could bring mergers back to the table.

2014 has been reported as huge for M&As, but so far it appears that it could be remembered more for those that didn’t happen than those that did. There are many companies trading cheaply though: Tesco, Ford, IBM and Rio Tinto to name a few. With that in mind, plus struggling indices – the FTSE 100 has been a notable straggler recently – and many notable earnings season misses, some big moves in the M&A field could well materialise.

The current state of the markets might be of concern to those stocks trading at inflated levels. Amazon, Tesla, Twitter and Netflix have all suffered over the past month and could do with avoiding any negative headlines in the run to Christmas.

It’s not all negativity though, and several companies have defied the market malaise. Indeed, the overreaction by many traders to last week’s problems will almost certainly see many  stocks rebound at least a little in the coming weeks: the question for traders is ones were justifiably shunned, and which were harshly treated.

Over in forex, the return of volatility and a little bit more unpredictability should be welcomed. The ongoing saga of USD dominance at the expense of all other currencies has been halted, if not exactly subverted, and GBP/EUR has shown little sign of conforming to any particular trend.

Nationalism and separatism, a political story that played out across currency movements during both the Scottish referendum the European elections should remain largely inconsequential for traders until next year. Beyond that, political objections to the European Union may well flare up and cause problems once more.

In truth, the most likely course we will see until January is probably the continued primacy of the US in the face of other economies. What is almost certainly true is that the undying scrutiny of every economic release for any signs of a delayed or early rate rise will continue well into the New Year.

That the ongoing problems with economic instability, global conflict and elsewhere have not yet translated fully onto gold – the precious metal failed to regain the losses made in early September, and is now on the way back down once more – is perhaps the most telling indicator of the state of global markets.  For Silver, the picture is even worse, and Oil has not yet managed to claw its way higher again.

2014 has been a remarkable year so far; for some positively so but for many more a year to forget. 12 months ago, many were predicting that this would be the year that broad health returned to global markets. To make the same prediction again would be foolish: the main lesson from the past 10, surely, is that our road away from the recession has a few twists in it yet.

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US Dollar To Be Driven By Labor Market Data

May 23, 2014 in Economy

For the most part, forex markets have had a relatively slow week but when we look at the data calendar in the closing session on Friday, there is little reason to expect that this lack of volatility will continue.  The March Non farm Payrolls number will be the final highlight of the week, and the implications for its results will likely be seen in most of the major asset classes.  In precious metals, and for those trading assets like the SPDR Gold Trust ETF (GLD) and the iShares Silver Trust ETF (SLV).  So far this year, we have witnessed a rather meager rally in the metals space and in order for this to continue we will likely need to see a round of risk aversion and a flock to historical safe haven protection.  This essentially means that we would need to see a weaker than expected result in the Non Farm Payrolls release.

“Market expectations are calling for a monthly increase of 196K new jobs for March,” said Rick Bartlett, markets analyst at CornerTrader, “which would be a relatively encouraging number as it would mark an improvements from the 175K new jobs that were posted during the previous month.”  But a weaker than expected number here would likely bring a drag on the US Dollar and assets like the PowerShares DB US Dollar Index Bullish ETF (UUP).

By extension we could also be likely to see declines in stock markets and the SPDR S&P 500 Trust ETF (SPY), as investors would be encouraged to take some gains in stock market longs while market valuations would still be trading at elevated levels.  Oil markets would also meet some selling pressure in a negative scenario, with the United States Oil Fund LP ETF (USO) avoided on the prospects of weakening demand in both consumer and industrial sectors.

Market News to Dictate Direction

For all of these reasons, it will be highly important to monitor upcoming developments in the latest forex news, as this will be the key driver of sentiment not only on Friday but likely for the following week as well.  Investors and traders alike are still looking to obtain an accurate gauge on how exactly the US Federal Reserve is likely to proceed in its tapering programs.  This continues to be one of the central factors in determining what the likely growth prospects will be for the US economy.

Any indication that the economy remains under pressure will weigh on the Dollar, despite its already cheap levels when compared to near term averages.  If these prospects to play out to the downside on Friday, traders will need to have some sense of which assets to buy and which to avoid.  Expect market volatility to slow into the US session but this will all end once the Non farm payroll release is made public.  Keep a close watch to the national unemployment rate, as well, as this has been one of the major focal points for the Fed in determining its next likely direction.

Australian Dollar’s fall – Was it just the employment numbers?

January 16, 2014 in Australia & New Zealand

Today’s weaker than expected employment data brought a strong fall for the Aussie. AUD/USD fell to 0.8796 before going into a sideways mode. AUD/JPY fell to 92.17 after failing at 93.33.

Australian employment data

Today’s released data showed that the employment numbers fell by 22,600 in December 2013 after the rise of 15,400 in December. The results were much weaker than even the consensus for an addition of 7,500 employed persons.

The latest seasonally adjusted data as per the Australian Bureau of Statistics is as follows:

  • Employment decreased 22,600 to 11,629,500. Full-time employment decreased 31,600 to 8,067,700 and part-time employment increased 9,000 to 3,561,800.
  • Unemployment increased 8,000 (1.1%) to 722,000. The number of unemployed persons looking for full-time work increased 13,300 to 532,400 and the number of unemployed persons looking for part-time work decreased 5,300 to 189,600.
  • The unemployment rate increased 0.1 points to 5.8%, based on the estimates before rounding off.
  • The participation rate decreased 0.2 points to at 64.6%.
  • Aggregate monthly hours worked increased 0.6 million hours to 1,634.0 million hours.

Note about subsequent revisions: The data was revised subsequently as follows:

  • Total employment change: Revised to 23,000 from previously reported 22,600.
  • Full-time employment change: Revised to 32,100 from the previously reported 31,600.
  • Part-time employment change: Revised to 9,100 from previously reported 9,000.

AUD/USD breaks the key support

AUD/USD’s fall resulted in a decisive break of the key support level of 0.8848. The pair had tried to break this support level during the week of December 15, 2013 but had found support immediately to bounce back to 0.9086. The pair could not break above the psychological ranges of 0.9000 to enter the 0.9100 territory, however.

AUD/USD weekly chart with break of support level

With a pure price-action perspective a support may come at or above 0.8770. This level had proved to be a strong support during August 2010. However, any break below this may extend the fall towards 0.8633.

What is the overall trend?

AUD/USD historical chart for past 12 years

The above chart shows the price-action of AUD/USD since August 2001 i.e. for over past 12 years. It is clear that the pair has been in an overall long-term uptrend. A deep consolidation had come during the Lehman crisis in 2008 but the subsequent recovery had overcome the temporary bearish sentiments to take the pair to a new high of 1.1080 during the week of July 25, 2011.

Considering the overall uptrend the recent fall can only be considered as a consolidation from a price-action perspective.

A review of the fundamentals

The driving force for the fall was not just the unemployment  numbers. AUD/USD had been in a very volatile sideways mode for close to 3 years till June 2013. The pair had broken below that sideways channel when the central back had cut down the interest rate from 2.75% to 2.50% on June 8, 2013. The bearish sentiments which had come into the picture, since then, could not be overcome.

The recent economic data

Aussie’s strength has a very strong positive correlation with Chinese economic data. The recent data from China has not been very encouraging.

Recent economic data from China

Consumer price Index: The year on year change in the Chinese CPI saw an unexpected drop in December 2013. The CPI drop was 3.0% as compared to December 2012 data while the markets were expecting a change to 2.7%.

Producer Price Index: The year on year change remained same at -1.4% but even when there was no drop the data remains negative in general and was also weaker than the consensus i.e. -1.3%.

Exports and Imports: December 2013 witnessed a major hit on Chinese exports. The year on year change was 4.3% against the corresponding month of 2012’s 12.7%. Not only that but it was also less than 4.9% which the economists were expecting. The imports improved to 8.3% from 5.3% on year-on-year basis and that made the picture of the trade balance a bit messy by causing a drop from 33.801 billion to 25.600 billion U.S. dollars.

What else on fundamental levels?

Australian exports

A rapid growth was seen in the Australian resource exports in 2013. It is attributed to the investments in production capacities but should also be attributed to the continued depreciation of the Aussie which is helping the exports.

Commodity prices

Though on SDR (Special Drawing Rights) terms i.e. in the terms of an artificial currency used by International Monetary Fund (IMF) and is defined as the basket of national currencies, the index of commodity prices declined by 4% during 2013 but in terms of the Australian dollar the index has risen by 11.7% during the past year. This certainly goes in favor of the Aussie.

What can be expected from the Australian dollar?

Some more weakness is certainly expected if the pair breaks below 0.8770. However, as mentioned above, a strong support should come at or above 0.8633. This level does not only represent one of the key support level of July 2010 but the psychological support of approaching 0.8500 ranges should start coming into the picture here. If the near-term bearish sentiments still continue and AUD/USD manages a break of 0.8633 expected support then a very strong support would be expected in the range of 0.8316 to 0.8360. The first hint for bearish sentiments for a longer -term would only start coming into the picture if the pair fails the support of 0.8316 but in that case also a confirmation of the same would only come if a break below 0.8067/0.8060 takes place. Till such time even when the near-term outlook is bearish the longer-term outlook stays bullish for the pair.

For your ease, the short URL of this post is

You may also wish to keep an eye on the weekly updated AUD/USD outlook.

Latvia adopts euro – Let’s revisit eurozone divergence and convergence

January 6, 2014 in Euro Zone, Historical and Research

Eurozone flagLatvia became the 18th country to enter the euro-zone and that brings  one more country with negative inflation under the umbrella of the single currency i.e. the euro. On the other hand this new addition takes the leadership position as far as the real GDP growth is considered. With the expected GDP growth of 4%, Latvia comes at the number 1 position in the euro zone. Euro has always attracted it’s fair, and many times unfair, share of criticism. The main arguments have always been same even if the words might have been different that those have been about  the economic diversity of the member states, or countries in this regard.

Criticism about the euro project

The main argument against the euro project has been whether or not the member countries meet the requirements to make this as an Optimum Currency Area (OCA) or Optimum Currency Region (OCR). The main requirements for an  Optimum Currency Area is flexibility to adopt to the changes in the economic situations and the convergence of the economic models and approaches.

Optimum Currency Area

  • Smooth flow of labor (labour) and capital with the changes in demand and supply situation.
  • Efficient fiscal flow mechanism with the openness for the government revenues to flow from stronger economic areas to the weaker ones in the times of crisis.
  • Not too much diversity and barriers which prevent the adoption to strategic, proactive and uniform monetary policies.

With Latvia’s inclusion, it’s time to revisit the divergence and convergence in the euro-zone, especially after a period of severe crisis situation in the euro-zone when the serious question were being raised about the survival of the euro. The following table highlights some of the economic factors like gross domestic product (GDP), GDP per capita, GDP growth rate, inflation rate, unemployment rate, minimum wages, and governments’ debt to GDP ratio. Please note that the minimum wages are not applicable in some of the countries. Germany is supposed to declare minimum wage of euro 8.50 per hour from the year 2015. It is estimated that 17% of the workforce in Germany earns less than this amount.

Key economic data of Euro zone member countries

Country Member since GDP in billion euro –
Population in millions
Latest data during the years 2012 and 2013
GDP per capita
(Prices- Year 2012)
Real GDP growth – expected in 2013 Inflation (Yearly basis)
Year – end of 2013
Average Inflation (Yearly basis)
Year 2000
(harmonized) end of the year 2013
Minimum wages applying Purchasing Prices Parity Debt to GDP – end of 2012
Austria 1-Jan-1999 € 323.28 8.44 € 36,400 0.40% 1.40% 2.34% 4.80% N.A. 74.00%
Belgium 1-Jan-1999 € 391.31 11.14 € 34,000 0.10% 0.97% 2.54% 9.00% €1501.82 99.80%
Cyprus 1-Jan-2008 € 18.59 1.13 € 20,000 -8.70% -2.13% 4.86% 17.00% N.A. 86.60%
Estonia 1-Jan-2012 € 17.68 1.34 € 12,700 1.30% 1.50% 4.01% 8.80% €320 9.80%
Finland 1-Jan-1999 € 202.25 5.41 € 35,600 -0.60% 1.40% 3.04% 8.40% N.A. 53.60%
France 1-Jan-1999 € 2,113.92 65.7 € 31,100 0.20% 0.70% 1.69% 10.90% €1430.22 90.20%
Germany 1-Jan-1999 € 2,750.60 81.89 € 32,299 0.50% 1.34% 1.44% 5.20% N.A. 81.00%
Greece 1-Jan-2001 € 201.52 11.28 € 17,200 4.00% -2.90% 3.15% 27.40% €683.76 156.90%
Ireland 1-Jan-1999 € 170.13 4.59 € 35,700 0.30% 0.30% 5.55% 12.60% €1461.85 117.40%
Italy 1-Jan-1999 € 2,488.26 60.92 € 25,700 -1.80% 0.66% 2.54% 12.50% N.A. 127.00%
Latvia 1-Jan-2014 € 22.95 2.03 € 10,900 4.00% -0.40% 2.64% 11.90% €284.74 70.00%
Luxembourg 1-Jan-1999 € 46.21 0.53 € 83,600 1.90% 1.20% 3.15% 5.90% €1874.19 21.70%
Malta 1-Jan-2008 € 7.06 0.418 € 15,300 1.80% 0.30% 3.04% 6.40% €697.42 71.30%
Netherlands 1-Jan-1999 € 624.71 16.77 € 35,800 -1.00% 1.47% 2.31% 6.90% €1477.8 71.30%
Portugal 1-Jan-1999 € 171.91 10.53 € 15,600 -1.80% -0.20% 2.85% 15.70% €565.83 124.10%
Slovakia 1-Jan-2009 € 74.12 5.41 € 13,200 0.90% 0.50% 12.17% 13.90% €337.7 52.40%
Slovenia 1-Jan-2007 € 36.79 2.06 € 13,200 -2.70% 0.70% 8.87% 10.10% €783.66 54.40%
Spain 1-Jan-1999 € 1,091.34 47.27 € 22,700 -1.30% 0.20% 3.43% 26.70% €752.85 86.00%

Sources: EuroStat (European commission), TradingEconomics and IndexMundi and world Bank.

There were 11 countries which joined the hands when the Euro came into the existence on January 1, 1999. The physical currency came into the existence much later in the year 2002. The virtual euro existed by pegging the exchange rates of the currencies of the member nations within a margin during 1st January 1999 to 2002 when the physical euro banknotes and coins were launched. The zone expanded to it’s current status of 18 countries under the umbrella.

The above data shows that out of 18 member countries, 8 countries are having negative growth of GDP i.e. the economies are shrinking, 4 are having negative inflation rate, 4 countries have a government debt to GDP ratio well over 100% with Spain expected to join that club soon and 10 countries have an unemployment level of over 10% with Spain and Greece well over 25%. GDP per capita has a wide range with Latvia at the bottom with euro 10,900 to Luxembourg at the top with euro 83,600. Latvia is also at the bottom as far as the minimum wages are concerned with a monthly minimum wage of 284.74 euro while Luxembourg again tops in this category with a minimum wage of 1874.19 euro per month. Belgium follows with 1501.82 euro per month with Ireland and France close behind with respectively euros 1461.85 and 1430.22 per month respectively.

Diversities are always there even in any single country but the easy flow of workforce and capital are much simpler in case of a single government and no issues about geographical barriers etc. The fiscal transfers or governmental aid to geographies in need are also simpler and efficient when there is one single country and single central government. Another major factor which comes as another strong barrier is lack of single language which again prevents easy flow of labor even if other hurdles are taken care of. Considering all these an economic zone with a group of nations would always have  challenges in becoming an efficient “Optimum Currency Area”.

While we are talking about the individual countries, let’s also check into some the comparison of euro-zone as a whole and the United States.

Euro zone and the U.S. Key Economic Data Comparison

Economic region GDP in billion euro –
Population in millions
Latest data during the years 2012 and 2013
GDP per capita
(Prices- Year 2012)
Real GDP growth – expected in 2013 Inflation (Yearly basis)
Year – end of 2013
Average Inflation (Yearly basis)
Year 2000
(harmonized) end of the year 2013
Debt to GDP – end of 2012
US 15,680 314 49966 1.60% 1.20% 3.38% 7.00% 101.60%
EU 12195 337 31949 -0.40% 0.90% 2.03% 12.10% 90.60%

Please note that there may be some minor differences in the data because of rounding off to a whole number at some places where it does not matter much e.g. population etc and also some minor differences because of compilation of historical data from various sources even when the sources are authentic.

Main Highlights of The RBA Meeting’s Minutes

September 17, 2013 in Australia & New Zealand

Review of Economic conditions of the major trading partner – Overall Average


  • Overall growth of the major trading partners in the second quarter as been in line with the average of the last decade.
  • China: GDP Growth in the second quarter was close to the target of 7.6%. Demand for property continued to rice but at a slower pace. Strong growth in infrastructure management.
  • Japan: Economic activities were slower than expected during the second quarter but the overall growth has been relatively strong during the first 6 months of 2013.
  • U.S.: The pace of the economic expansion has been moderate. Housing market strengthened further and employment has been rising moderately since the beginning of the year.
  • Euro zone: After 6 quarters of negative growth the second quarter of 2013 saw a positive growth. Overall consumer and business sentiments improved slightly and unemployment levels have been steady.
  • Export prices: Spot prices for iron ore had increased, consistent with further growth in Chinese steel production. Crude oil and base metals prices had also risen over the past month.

Domestic Economic Conditions of Australia – Mixed


  • It’s expected that the economic growth was slightly below the trend. National account are scheduled to be released the day after the Board meeting.
  • Household consumption growth appeared to have been below the average of recent years.
  • Overall business investment seems to have increased, especially in buildings and structures in the mining sector. In other areas the investments have been soft.
  • Exports growth remained relatively strong.
  • Mining profits had increased in the June quarter owing in part to higher prices for iron ore.
  • Non-mining profits had dipped in the quarter.
  • Businesses still appeared averse to taking on risks associated with new investment projects.
  • Iron ore exports had continued to grow strongly in the June quarter.
  • Coal export volumes were also higher than the past year but coal prices had declined. M
  • Rural exports remained at a high level, following generally good rainfall in recent years.
  • Indicators suggested that growth of household consumption in the June quarter had been below average.
  • The retail sales growth had been only modest in recent months.
  • Sales of motor vehicles to households declined in July, after a strong growth in the second quarter.
  • consumer sentiment had moved higher and were a little above long-run average levels.
  • Housing market improved because of the lower interest rates.
  • Labor market conditions remained somewhat subdued and employment had been little changed since earlier in the year, while the population had continued to expand, resulting in a decline in the employment-to-population ratio and a gradual rise in the unemployment rate.
  • There were further signs that wage growth had eased over the year.
  • The Australian banking system remained in a relatively sound position.


Strength in Sterling a negative for UK Equities

August 14, 2013 in UK

Sterling has been remarkably strong in recent weeks rising from 1.48 USD to the current level of 1.55 USD. Economic data has been better than expected with PMI (Purchasing Manager’s index) figures the best for 6 years, GDP second quarter figures double the 0.3% expected growth surprising the market with 0.6% and subsequently increased growth forecasts for 2014. The UK economy is performing much better than expected as recent economic data shows and this has led to a stronger pound especially against the US dollar. However, there are inflation concerns and unemployment is still very high. Carney’s comments on forward guidance stating that interest rates will remain at 0.5% for the next 3 years has also acted as a catalyst in supporting Sterling. However, figures out today show that unemployment is still at 7.8% which is much better than much of Europe but is still on the historic high side.

With Sterling above $1.55 and a number of UK blue chip companies major dollar earners, strength in the pound is going to have a detrimental impact on profits for  a number of major dollar earner companies such as BAE Systems, Barclays, BP, Glaxo, HSBC,  Rio Tinto and Vodafone. In recent weeks both Barclays and BP have underperformed the FTSE 100 and are barely changed from the level at the start of the year.

If Sterling continues to strengthen this is going to make it difficult for the FTSE 100 to make much further headway as a number of the UK’s largest companies (especially heavyweight mining and oil companies) derive a majority of their profits in US dollars.

Is the FTSE 100 running a little ahead of itself above 6600?

July 26, 2013 in UK


Equity prices are beginning to look toppy again, the FTSE 100 has been struggling to make much headway above 6600 this week. Results in the UK have been generally good but a lot of this has been factored into prices– this week ARM holdings had results which the market initially liked but with the shares on a p/e ratio of 70 the share price has since weakened as the share price factors in a lot of good news. Similarly, yesterday aero-engine maker Rolls Royce announced good results but with the shares having had a spectacular run over the last few years, the share price seems rather high above £12 a share.  Similarly, EasyJet had much better than expected results yesterday and the shares rose sharply  on the back of the excellent results.  With the share price so high after the 140%  rise in the last year, the share price has come into profit-taking today.  The financials have had a great run in the last few weeks with Lloyds market capitalisation currently £47 billion. The shares are up more than 35% since the start of the year. Results due next week will need to be better than expected for the shares to maintain their current share price but obviously those that bought before 2007 will disagree when the share price was many times above the current level. Similarly Royal Bank of Scotland have had a very strong run since the first week of July rising from 270p to 340p yesterday – a rise of 25% within a month! Have fundamentals changed that much to justify a rise of more than a quarter in such a short period of time?


With interest rates so low and other asset classes giving very low yields,  UK equities are still sought but some share prices seem to be running a little ahead of themselves. There are still some FTSE 100 companies that yield above 5% (Astra Zeneca, Aviva and National Grid for example) and those may still be sought for their income generation. The London market has had a tremendous run since the end of the May with the FTSE 100 rising from  6000  to the current 6600 level. Over confidence and over exuberance may spoil the party in the short-term, be careful, share selection is going to prove more difficult in the weeks ahead with some share prices discounting a lot of good news!

US Non-Farm Payroll Data – January 2013

February 4, 2013 in U.S.


Total non-farm employment in the U.S.A during the month of January was better by 157,000 jobs, as reported by the Bureau of Labor Statistics.

Significantly, most of that growth was contributed by private employers (+166,000) whereas government employment (-9,000) fell. (See the above charts for the trend).

The Bureau also revised the NFP change in the months of November and December by 86,000 and 41,000 respectively. The positive job number change in these months therefore now stands at +247,000 and +196,000; in comparison, the January change of +157,000 points to a slowdown in job creation.

Along with the tepid GDP growth figure released recently, this makes for worrisome reading.

It is also a given that debt ceiling concerns and commitments made during the fiscal cliff horse-trading will result in further slowdown in governmental job creation. But will the private sector be able to compensate this?

It might be worthwhile to look at the composition of the job growth in January.


Sectors that contributed to job growth

We note that the following sectors were the chief contributors to the addition of 157,000 jobs in the last month:

  • Retail Trade +32,600
  • Construction +28,000
  • Education & Health +25,000
  • Services +25,000

The addition of 32,600 jobs in the Retail Trade segment was contributed mainly by Automobile Dealers (as fallout of the strong trend in auto sales), Food and Beverage stores and Clothing and Accessories stores.

The Construction sector saw better hiring by the Specialty Trade Sectors (+26,000) during the month. This logically follows better conditions in the housing market.

The ambulatory health care services (comprising chiefly physicians’ offices and outpatient care centers) were the main creators of jobs in the Healthcare industry.

The job losers

The major losers were Transportation (-14,200) and Government (-9,000).

Job losses in Transportation were chiefly due to restructuring among airlines and layoffs amongst Couriers after strong hiring in the holiday season.

Losses in Government jobs are a part of a downward trend in public employment since the financial crisis, and may exacerbate done the line as further budgetary restrictions take force.


Though the last three months have seen a slowdown in the rate of jobs creation, we note that economically significant sectors such as retail trade, healthcare and construction continue to add jobs. An improvement in the fortunes of the manufacturing sector could boost jobs growth, and finally make a dent in the unemployment rate which continues to hover around 8%.


US GDP – 4th Quarter 2012

January 30, 2013 in U.S.

Markets were taken aback by a shock contraction in the U.S. GDP during the fourth quarter of 2012. Gross Domestic Product (GDP) fell by 0.1% year-on-year against the consensus expectation of a growth of 1.1%.

Economists were concerned that the result represented the weakest rate of growth in the GDP since 2009, even though it was driven primarily by a huge cut-back on defence expenditure, inventory de-growth and the result of the Superstorm Sandy.

On a bright note, consumer spending rose by 2.2% and business investment bounced back within the context of slower inflation. Homebuilding grew 15.3%.

All taken, economists view the report as a matter of concern, but are encouraged that the basic fundamentals of the economy are on track to produce a pipeline of growth during 2013.


Meeting of the US Fed – 30 Jan 2013

January 30, 2013 in U.S.

As expected, the first FOMC meeting in 2013 kept up its commitment to the current program of quantitative easing and left interest rates unchanged at 0.25%.

The Committee’s review of economic data released since the previous meeting concluded that economic activity lost some momentum and the unemployment rate remained elevated even though there was improvement in household and business spending as well as the housing market. Inflation expectations over the long term “remained stable.”

The committee’s outlook for the future was clouded by perceived “downside risks to the economic outlook” even though the global financial markets appeared to be breathing easier now.  Inflation would likely remain below the key guidepost rate of 2% over the medium term.

The Committee decided that it would continue purchasing additional agency mortgage-backed securities worth $40 billion every month and longer-term Treasury securities of $45 billion per month.  This would help advance towards the economic objectives of maximum employment, price stability and a stronger economic recovery.

On interest rates, the Committee, as usual, decided to maintain the status quo low rates of 0-0.25% and would continue to do so as long as inflation remained above 6.5%, and inflation in the medium term (one or two years ahead) is projected no higher than 2.5% within the context of benign long term inflation.

The decisions were backed by all the members except Esther L George who remained concerned that long-term inflation could increase and that economic and financial imbalances could result from the high level of monetary stimulus.


Japan Consumer Prices Drop – A Threat To Bank Of Japan’s Price Stability Target

January 25, 2013 in Japan

Jpanese YenToday’s Consumer price index data released by Statistics Bureau, Tokyo showed a drop in the prices again in Japan during December 2012. The national consumer price index dropped by -1.0% against the same during December 2011. November had seen an year on year change of -2.0% and the market consensus were for a same drop during December as compared to the corresponding month of 2011. Though the drop of -1.0% was better than the previous month and also the market expectations but this was the seventh time during past 8 months when Japan saw the prices drop.

Today’s CPI reports of year on year change

Today’s CPI Releases



Previous Month

National Consumer Price Index (YoY) -December




National CPI Ex Food, Energy (YoY) -December




National CPI Ex-Fresh Food (YoY) -December




Tokyo Consumer Price Index (YoY)  January -preliminary data



Tokyo CPI ex Food, Energy (YoY)  January -preliminary data



Tokyo CPI ex Fresh Food (YoY) January -preliminary data




Drop in prices questions the practicality of Bank of Japan’s plans to control the deflation

On January 22nd the Bank of Japan had kept the interest rates same at 0.1% while the policy statement had mentioned that in order to achieve better stability in the prices BoJ has setup an inflation target of 2% on year on year basis. In the same policy meeting BoJ had announced an open-ended asset purchasing method In order to pursue aggressive and targeted monetary easing.

The continuous drop in the consumer prices put a question mark on the inflation target set by BoJ. Unless and until BoJ takes fast steps for an aggressive monetary easing, the targets seem to be farfetched.  On the other hand any drastic steps to weaken the Japanese yen may result in a currency war if other central banks start taking steps to counteract Japan’s initiatives.

Japanese yen weakened against the U.S. dollar further today and USD/JPY went as high as 90.68 during the Asian trading session before the pair went into a sideways mode.

Is Global Manufacturing Back in Fashion? Maybe, Say Better PMIs.

January 25, 2013 in Economy

According to latest PMI data released by Markit for economies around the globe, a recovery in manufacturing is gradually taking hold.

China, Eurozone and the United States together account for 47% of the world’s real GDP (Source: IMF).  Here’s a look at the latest manufacturing PMI surveys for each of these geographies.

China: Flash Manufacturing PMI hits 2-Year High…Again

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) for January shows that operating conditions in manufacturing have improved at the fastest pace since the last two years. This was the fifth month on the trot that the index touched the highest level in a two-year time span.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “Despite the still tepid external demand, the domestic-driven restocking process is likely to add steam to China’s on-going recovery in the coming months.”

Germany: Flash Manufacturing PMI hits 11-Month High

Germany’s Flash Manufacturing PMI for January reported at 48.8 compared to 46.0 in December, touching an 11-month high.

Tim Moore, Senior Economist at Markit said:  “Germany’s private sector has kicked back into gear in January, as output rose at a pace that would deliver a swift recovery in GDP from the ground lost during the final quarter of 2012.”

Eurozone: Flash Manufacturing PMI hits 10-month High

The Eurozone’s Flash Manufacturing PMI for January reported at 47.5 compared to 46.1 in December, nudging a 10-month high. Chris Williamson, Chief Economist at Markit said:  “The January flash PMI data suggest that the Eurozone economic downturn has eased at the start of 2013…Trends also remained worryingly divergent within the single currency area, creating tensions for policymakers. While Germany is reporting a strengthening upturn, France is seeing the steepest downturn since early-2009.” [In France, the Flash Manufacturing PMI fell to 42.9 in January from 44.6 in December.] It appears that German growth is keeping the Eurozone recovery afloat, as declines in productive activity appear to be tapering off.

U.S.A: Flash Manufacturing PMI hits 22-month High

U.S. Flash Manufacturing PMI reported at 56.1 compared to 54.0 in December, scaling a 22-month high. The growth was propelled by improving exports, but more so by strengthening domestic demand. Chris Williamson, Chief Economist at Markit said: “The U.S. manufacturing sector started 2013 on a strong footing. Prospects also look good for the upturn to be sustained in coming months, meaning both growth of GDP and non-farm payroll are likely to accelerate in the first quarter.”


It can be seen in the graph that Manufacturing PMI in the US and China have already recovered enough so as to cross up into positive territory beyond the equilibrium line of 50.

However, the Eurozone is still a laggard, though here too, a semblance of recovery is taking root – judging from the uptick in the graph.