Consumers held back slightly in January; the ECB contemplated another innovation to support Europe's banking sector; Theresa May's Brexit deal was defeated in the House of Commons; Sweden contemplated deficit spending to support its slowing economy.
"It was a simple thing they had to do and they haven't got it right. If there was another war we'd be in trouble with this lot in charge."
U.S. Consumers: Not Feeling it
Consumer purchases, accounting for some 70% of the U.S. economy, disappointed in January, rising 0.1% vs. December 2018, vs. an expected 0.3%. Core consumer inflation was also soft, rising only 0.1% vs December and 1.8% vs. January 2018 – well short of the Fed's often-stated goals of 2%.
Final figures for overall economic growth in Q4 also fell short, at a downwardly-revised 2.2% annualized rate. The downbeat tone of the figures so far suggests that the final growth figures for the just-ended Q1 could disappoint as well. All of which suggests that the Federal Reserve's newly-accommodative stance may be appropriate given current realities – and could become even more dovish should future figures continue to falter.
European Banks: Tiering up?
The current negative rate "paid" by the European Central Bank for deposits from commercial banks (-0.4%) is seen by many as threatening the profitability – and even solvency – of Europe's already-troubled banks. One suggested solution includes "tiered" rates to offer some relief to the more troubled categories of banks. Though discussions on the subject are continuing within the ECB, the conversation so far remains theoretical. But it may be worth remembering that negative interest rates were once also considered unlikely, if not impossible, in practice.
UK- Europe: Brexit Breakdown
With Friday's 344-286 vote against adoption of Prime Minister May’s negotiated agreement between the UK and the EU, which would have delayed implementation until May 22, the timetable for finding any other form of withdrawal agreement has been thrown into disarray. The next key date is now April 12th, by which time the EU requires an agreement with the UK on how to continue discussions. With many believing that requirement won't be met, the prospects for a "no-deal" Brexit by that date have caused the EU to schedule an emergency meeting for April 10.
Sweden: Borrowing Time?
Dependent on global trade for about half its GDP, Sweden's economy is unusually vulnerable to the current slowdown in global trade, even in the context of the generally vulnerable European Union (EU). At the same time, the country's debt load continues to fall, and is now projected to be below the country’s EU-mandated 30% level within the next two years. That’s especially notable given the aggressive government borrowing by many other EU countries.
This unusual situation has prompted the country's largest trade union group to exert pressure on the government to expand its borrowing and social spending – which, counter to some expectations, is being actively considered by the current right-wing majority in Parliament.
Encouragement to borrow from any constituency is all the more notable because of the disastrous debt crisis Sweden faced in the 1990’s, which encouraged all parties to avoid excess government borrowing for the past two decades.
Even former Prime Minister Goran Persson, widely known as a long-standing opponent of deficit spending, acknowledged that current "very low" interest rates make borrowing an attractive option despite Sweden's hard-earned reluctance to increase government borrowing.
All data Source: Bloomberg, March 29, 2019 unless otherwise indicated.
The Federal Reserve ("Fed") is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.