A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

March 9, 2015

"If we had the money we would pay...they know we don't have it"

— Greek Finance Minister Yanis Varoufakis, on the €6.7 bn ($7.5 bn) in Greek government bonds maturing this summer held by the European Central Bank (Reuters)

The week in review...

EUROPE

ECB: Euro-optimism Described by one observer as "Mr. Draghi at his chest-thumping best", two notable features of this months' ECB meeting: First, the confident upward revision in the Bank's forecasts, GDP to 1.5% growth this year, and 1.9% and 2.1% in 2016 and 2017 respectively. Inflation was seen as reaching the ECB's near-2% target by 2017.

Second, QE bond buying will start on March 9 – with post-bailout Greek bonds included, as well as negative-yielding bonds (e.g., German 2-year "Schatz"), down to the ECB's -0.20% negative deposit rate. Market reaction was considered positive: the euro dropped to as low as $1.0993 (March 5, lowest in 12 years); the yield on ten-year Bunds fell to 0.348%, a record wide 1.76 percentage point spread below 10-year Treasuries; and the Euro Stoxx Index continued to move higher, up 14.99% since the end of the year (up 4.78% in US dollar terms).

UNITED STATES

Jobs: Slackening pace? Employers added 295k workers to the payrolls in February, stronger than expectations, and the unemployment rate fell to 5.5%. Unit labor costs, reported earlier in the week, rose 4.1% in 4Q2014, also a bigger jump than consensus expectations.

Growth: Mixed week Manufacturing and services PMIs both reflected continuing expansion, but other measures were less positive: February domestic vehicle sales rose at a lower-than-expected 12.87 mn annual pace; January personal income rose 0.3%, less than expected, while personal spending fell -0.2%, more than forecast – is the reluctance to spend new income a reflection of new consumer prudence?

CHINA

Growth: Resetting expectations Premier Li Keqiang announced a lowering of China's growth target to "around 7%" for 2015 – a level not seen since 2004, 0.5 percentage points lower than 2014, and the country's weakest annual expansion since 1990. The new target reflects "what is needed and what is possible", with Li acknowledging "formidable difficulty" in 2015 in achieving balanced growth. Symptoms of the challenge: producer process down -4.3% year-on-year in January, worse than expected; money supply declined 17.6% year-on-year in January.

Initiatives: Fiscal as well as monetary Steps designed to boost growth, also announced at the People's National Congress, include raising the fiscal deficit target to 1.62 tn yuan ($263 bn), 2.3% of GDP, up from the planned 1.35 tn yuan (2.1% of GDP) in 2014. Railway construction and water conservation will each get 800 bn yuan ($127.6 bn). On the monetary side, the People's Bank of China (PBoC) announced 0.25 percentage point cuts in lending and deposit rates, described as ways "to relieve financing pressure and to fend off deflationary risk". Rates were last cut in November, and the reserve requirement ratio for banks was cut in early February.

Signs of the times:

U.K. Manufacturing Growth Accelerates to Fastest Since July – Bloomberg

French consumer spending data fuels hope for recovery – Reuters

German industrial orders plunge, darkening first quarter growth outlook – Reuters

Americans Spend Some of Fuel Boon as Savings Also Rise – Bloomberg

Sources: Bloomberg, Wall Street Journal, Financial Times, New York Times, China Daily, Xinhua, Deutsche Welle

...And the week ahead:

GLOBAL ECONOMIC CALENDAR: March 8–14, 2015

 

U.S.

Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Sun
Mar 8

Daylight Savings Time begins

 

 

New Zealand: Cricket World Cup
China: exports, imports

Mon
Mar 9

 

 

ECB: QE sovereign bond purchases begin
Germany: exports
Spain: housing prices

Japan: GDP

Tue
Mar 10

Job openings (JOLTS), wholesale inventories

 

Portugal: bank status data

China: inflation, aggregate financing

Wed
Mar 11

 

 

France: industrial production

China: industrial production, retail sales

Thu
Mar 12

Retail sales, jobless claims, business inventories

 

France: inflation
UK: housing prices

 

Fri
Mar 13

Consumer sentiment, producer prices

 

Russia: central bank decision

 

Sat
Mar 14

 

 

 

 


Definitions:

Money supply measures the total amount of money in circulation in a country.

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. PMI greater than 50 indicated economic expansion; below 50, contraction.

The Euro Stoxx 50 Index provides a representation of 50 stocks from 12 Eurozone countries. Please note that an investor cannot invest directly in an index.

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

Quantitative easing (QE) refers to a monetary policy implemented by a central bank in which it increases the excess reserves of the banking system through the direct purchase of debt securities.

Schatz refers to short-term debt securities issued by the German Federal Government, with terms of 1.75 to 2.25 years.


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Previous Editions

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Poll

Will the current wave of central bank easing jump-start the world's economies?








Poll

Will the current wave of central bank easing jump-start the world's economies?

No - The real issues are structural - real progress on labor reform and regulatory excess will have more impact
(31%)
No - Deflation is already taking hold, making monetary policy changes ineffective
(2%)
Yes - The US model shows that monetary easing can help economies heal in the medium term
(16%)
Yes, but it will take even  longer than it did in the US, and the delay will have a negative political impact
(51%)



Previous month Poll

What would be the best news for markets for the remainder of the year?

Strong US corporate earnings validate US economic expansion
(33%)
Strength in the US dollar convinces the Fed to keep short rates low longer
(9%)
European Central Bank bond buying rekindles growth in European Union countries
(45%)
Growth in China strong enough to leave room for financial system and structural reform
(13%)