2016 Economic Calendar
POWERED BY  econoday logo
U.S. & Intl Recaps   |   Event Definitions   |   Today's Calendar

ARTICLE ARCHIVES

INTERNATIONAL PERSPECTIVE

Equity rally continued
International Perspective - July 22, 2016
By Anne D. Picker, Chief Economist

  

Global Markets

Most equity indexes advanced last week, lifted in part by early earnings reports and positive economic data from the U.S. The rally took off after a new UK prime minister (Theresa May) was okayed much sooner than expected. However, the rally began to fade as this week ended. We do know that the infamous Article 50 that spells out the formal notification Britain must give to the European Union to declare its intention to withdraw from the bloc will not be submitted prior to the first of the year.

 

All U.S. and European equity indexes advanced for the week but were mixed in the Asia Pacific.


 

European Central Bank remains on hold

As expected, the European Central Bank kept its monetary policy unchanged. The benchmark refi rate remains at zero percent while the deposit rate was held at minus 0.4 percent and the rate on the marginal lending facility at 0.25 percent. The ECB also reaffirmed that its quantitative easing program would run through at least March 2017. It left its forward guidance unchanged stating that it expects interest rates to stay low or go lower. As the minutes of its previous meeting indicated, the ECB continues to be in a wait and see mode and while the Brexit vote may have increased the likelihood of another ease at some point, there have been insufficient data since June 23 vote to justify any immediate action. The ECB's corporate sector purchase program (CSPP) only began on 8th June and the first of its new round of targeted longer-term repo operations (TLTRO II) was conducted just four weeks ago.

 

Still, while offering little new, Mario Draghi's press conference was suitably dovish. A range of factors, including the Brexit vote, were seen ensuring that risks to the Eurozone economy remained on the downside and probably paves the way for a more gloomy economic prognosis when the official forecasts are updated in September. As such, speculation about still lower interest rates or, more likely, a new boost to QE will probably grow unless the economic data in the interim prove unexpectedly firm.

 

The ECB's task has been made more complicated by the flight to safety that has dominated bond markets in 2016, a move now underpinned by the uncertainty prompted by the Brexit vote. Yields collapsed and, in many instances, rendered potential assets ineligible for central bank purchase because they are below the minus 0.40 percent lower limit defined by the deposit rate. Should yields continue to decline, the central bank could run into a serious scarcity problem which would jeopardize its €80 billion per month purchase target. Possible changes to the eligibility criteria were not discussed but could yet be forced upon the monetary authority sooner rather than later.


 

Global Stock Market Recap

  2015 2016 % Change
Index Dec 31 July 15 July 22 Week 2016
Asia/Pacific
Australia All Ordinaries 5344.6 5510.1 5574.33 1.2% 4.3%
Japan Nikkei 225 19033.7 16497.9 16627.25 0.8% -12.6%
Hong Kong Hang Seng 21914.4 21659.3 21964.27 1.4% 0.2%
S. Korea Kospi 1961.3 2017.3 2010.34 -0.3% 2.5%
Singapore STI 2882.7 2925.4 2945.35 0.7% 2.2%
China Shanghai Composite 3539.2 3054.3 3012.82 -1.4% -14.9%
India Sensex 30 26117.5 27836.5 27803.24 -0.1% 6.5%
Indonesia Jakarta Composite 4593.0 5110.2 5197.25 1.7% 13.2%
Malaysia KLCI 1692.5 1668.4 1657.42 -0.7% -2.1%
Philippines PSEi 6952.1 8030.1 8025.35 -0.1% 15.4%
Taiwan Taiex 8338.1 8949.9 9013.14 0.7% 8.1%
Thailand SET 1288.0 1492.0 1509.13 1.1% 17.2%
Europe
UK FTSE 100 6242.3 6669.2 6730.48 0.9% 7.8%
France CAC 4637.1 4372.5 4381.10 0.2% -5.5%
Germany XETRA DAX 10743.0 10066.9 10147.46 0.8% -5.5%
Italy FTSE MIB 21418.4 16748.6 16778.67 0.2% -21.7%
Spain IBEX 35 9544.2 8531.0 8599.90 0.8% -9.9%
Sweden OMX Stockholm 30 1446.8 1372.8 1377.47 0.3% -4.8%
Switzerland SMI 8818.1 8156.3 8194.73 0.5% -7.1%
North America
United States Dow 17425.0 18516.6 18570.85 0.3% 6.6%
NASDAQ 5007.4 5029.6 5100.16 1.4% 1.9%
S&P 500 2043.9 2161.7 2175.03 0.6% 6.4%
Canada S&P/TSX Comp. 13010.0 14482.4 14600.66 0.8% 12.2%
Mexico Bolsa 42977.5 46713.4 47537.280 1.8% 10.6%

 

Europe and the UK

Equities in Europe and the UK advanced for the week. For the FTSE, it was the fifth consecutive weekly gain beginning with the week ending June 24. European markets have gained only in the past two weeks. For the week, the FTSE was up 0.9 percent, the DAX added 0.8 percent, the SMI gained 0.5 percent and the CAC was up 0.2 percent. Once again trading on a Friday was lackluster.

 

Expectations for central bank stimulus seemed to be punctured. So far, the Banks of England and Canada and the European Central Bank have left their respective monetary policies unchanged. Expectations for the Federal Reserve and the Bank of Japan are expected to follow their peers this week. Another source for cautious trading was the Group of 20 finance ministers meeting in China over this weekend where the global economic situation is expected to be discussed.

 

Expectations are that the Bank of England will do more next month to stimulate growth especially after special manufacturing and services PMI surveys indicated that Britain's economy appears to be shrinking at the fastest rate since 2009.

 

Most economic data disappointed with only UK consumer and producer price indexes and jobless rate positive. However, the flash July composite, services and manufacturing PMIs were softer along with the ZEW. In the UK, June retail sales, jobless claims and average weekly earnings disappointed. And the special manufacturing and services PMIs fell below the 50 breakeven level into contraction.

 

The International Monetary Fund lowered its forecast for a pickup in global growth on Tuesday, citing Britain's decision to leave the European Union as its reason. It now sees the economy expanding 3.1 percent this year, down from April's 3.2 percent projection


 

Asia Pacific

Equities were mixed on the week after central banks disappointed investors' hopes for further easing. The European Central Bank made no changes to its monetary policy in its first governing council meeting since the Brexit vote and ECB President Mario Draghi gave no hints of future action, disappointing investors hoping for more easing measures in September. Draghi said that it is too early to determine the impact of the UK's leaving on the Eurozone. He noted that the financial markets had shown "encouraging resilience" in the aftermath of the vote.

 

Bank of Japan stimulus expectations also faded, weighing on sentiment. The yen eased somewhat after a rally in New York trading sparked by comments from Bank of Japan Governor Haruhiko Kuroda that he saw no need to use "helicopter money" to combat deflation and boost Japanese growth. However, the BBC later said its interview with Kuroda aired Thursday was recorded prior to the UK referendum vote.

 

The Nikkei advanced 0.8 percent for the week after soaring 9.2 percent in the preceding week. Gains ranged from 0.7 percent (Taiex) to 1.7 percent (KLCI). Losses ranged from 0.1 percent (PSEi) to 1.4 percent (Shanghai Composite).

 

Chinese shares lost ground on fears of possible capital outflows, a day after the yuan slipped below the psychologically important level of 6.7 to the dollar for the first time in more than five years. The spectre of a slowing housing market and doubts over the nature of economic growth in the county also dented investor sentiment.


 

Currencies

The U.S. dollar advanced against all of its major counterparts including the euro, yen, pound sterling, Swiss franc and the Canadian and Australian dollars. Sterling steadied during the week but was hit by the release of the special flash manufacturing and services PMIs which indicated that the economy was contracting. The special PMI surveys were conducted to get a quick reading on the post-Brexit economy.


 

Selected currencies — weekly results

2015 2016 % Change
Dec 31 July 15 July 22 Week 2016
U.S. $ per currency
Australia A$ 0.7288 0.760 0.747 -1.8% 2.4%
New Zealand NZ$ 0.6833 0.715 0.700 -2.1% 2.4%
Canada C$ 0.7231 0.773 0.761 -1.6% 5.2%
Eurozone euro (€) 1.0871 1.107 1.098 -0.8% 1.0%
UK pound sterling (£) 1.4742 1.322 1.310 -0.9% -11.2%
Currency per U.S. $
China yuan 6.4937 6.694 6.680 0.2% -2.8%
Hong Kong HK$* 7.7501 7.754 7.758 0.0% -0.1%
India rupee 66.1537 67.071 67.081 0.0% -1.4%
Japan yen 120.2068 105.500 106.080 -0.5% 13.3%
Malaysia ringgit 4.2943 3.946 4.061 -2.8% 5.8%
Singapore Singapore $ 1.4179 1.346 1.359 -0.9% 4.4%
South Korea won 1175.0600 1133.660 1134.430 -0.1% 3.6%
Taiwan Taiwan $ 32.8620 31.854 32.019 -0.5% 2.6%
Thailand baht 36.0100 34.920 34.930 0.0% 3.1%
Switzerland Swiss franc 1.0014 0.9828 0.9873 -0.5% 1.4%
*Pegged to U.S. dollar
Source: Bloomberg

 

Indicator scoreboard

Germany

July ZEW current conditions index fell 4.7 points to 49.8. This was its steepest drop since last October and its lowest level in three months. However, much more dramatic was the slide in expectations which tumbled 26 points to minus 6.8. This is its sharpest decline since June 2012 and its first sub-zero print since November 2012. Its long-run average is 24.3. The results show that the Brexit vote has had a significant impact on how analysts see the German economy developing over coming months. In terms of trade, Germany is particularly exposed to UK markets so the potential hit here may be rather more marked than in some of the other Eurozone states. However, the German economy is one of the better performers within this group and today's broader survey, which encompasses the entire EMU area, showed a massive 34.9 point drop in Eurozone expectations.


 

United Kingdom

June consumer prices were up 0.2 percent on the month and 0.5 percent from a year ago. The annual increase was still historically very soft but equaling its strongest mark since November 2014. The main positive contribution to the change in the yearly rate came from transport, where prices rose 1.1 percent on the month after a 0.2 percent gain over the same period in 2015. A record 10.9 percent surge in the cost of air travel had a major impact and higher motor fuel costs were also an issue here. In addition, recreation & culture (0.6 percent after minus 0.1 percent) and communication (0.6 percent after minus 0.2 percent) similarly provided a boost. Helping to keep inflation in check were furniture, household equipment & maintenance (minus 0.3 percent after 0.3 percent) alongside restaurants & hotels (0.1 percent after 0.4 percent). Core CPI was also up 0.2 percent on the month but the annual rate increased from 1.2 percent to 1.4 percent, a 3-month high.


 

June claimant count joblessness rose a smaller than anticipated 400 on the month but May's previously reported 400 decline was revised to a 12,200 increase. The unemployment rate held steady at 2.2 percent, up just a tick from the low seen in January and February. The ILO data were more robust as a 54,000 drop in unemployment in the three months to May reduced its measure of the jobless rate from 5.0 percent to 4.9 percent and its lowest level since the third quarter of 2005. There was also a healthy 176,000 gain in employment (of which 118,000 were in full-time positions), its largest increase since the end of last year. In fact, the only slightly worrying aspect of the ILO statistics were vacancies which dropped 1.3 percent over the quarter and now stand 2.1 percent below their November-January 2016 peak. Meantime, wages also showed some signs of life with average earnings in the three months to May up an annual 2.3 percent but a 0.3 percentage point gain against the previous period and the strongest print since August-October 2015. This was enough to lift real earnings growth from 1.6 percent to 1.9 percent, its highest mark since the start of the year. That said, the improvement was attributable to bonus payments and both regular nominal and real earnings growth actually slipped a tick to 2.2 percent and 1.8 percent respectively.


 

June retail sales declined 0.9 percent on the month, fully reversing May's increase. Annual change was reduced from 5.7 percent to 4.3 percent, its slowest rate since March. Excluding auto fuel the picture was much the same with volumes also declining 0.9 percent from mid-quarter for a yearly gain of 3.9 percent, down from 5.2 percent last time. Weakness was broad-based but particularly apparent in the food sector where sales were off 1.2 percent from May. Non-food demand was down a smaller 0.8 percent, dominated by a (possibly weather-related) 1.8 percent slide in textiles, clothing & footwear and a 1.6 percent drop at non-specialized stores. Household goods and non-store retailing were both flat and the other stores category edged up 0.2 percent. Purchases of auto fuel declined 0.4 percent.


 

Bottom line

The European Central Bank met and decided to leave its monetary policy unchanged. It followed in the footsteps of the Bank of Canada and the Bank of England. U.S. economic data were positive while data from Europe disappointed.

 

Both the Federal Reserve and the Bank of Japan hold monetary policy meetings. Second quarter preliminary gross domestic product data will be reported for the U.S., UK, France and the Eurozone. In Asia, Japan releases its slew of monthly economic data. Australia's second quarter consumer price index will be reported. The CPI is considered to be an important input to the Reserve Bank of Australia's monetary policy decision-making process. The meeting follows the next week.


 

Looking Ahead: July 25 through July 29, 2016

Central Bank activities
July 27 United States FOMC Monetary Policy Announcement
July 29 Japan Bank of Japan Monetary Policy Announcement
The following indicators will be released this week...
Europe
July 25 Germany Ifo Business Survey (July)
July 27 Eurozone M3 Money Supply (June)
Germany Retail Sales (June)
France Producer Price Index (June)
UK Gross Domestic Product (Q2.2016 preliminary)
July 28 Eurozone EC Consumer and Business Sentiment (July)
Germany Unemployment (July)
July 29 Eurozone Gross Domestic Product (Q2.2016 flash)
Harmonized Index of Consumer Prices (July flash)
Unemployment (June)
France Gross Domestic Product (Q2.2016 flash)
Consumption of Manufactured Goods (June)
Italy Producer Price Index (June)
Asia/Pacific
July 25 Japan Merchandise Trade (June)
July 27 Australia Consumer Price Index (Q2.2016)
July 29 Japan Consumer Price Index (June)
Unemployment (June)
Household Spending (June)
Retail Sales (June)
Industrial Production (June)
Australia Producer Price Index (Q2.2016)
Americas
Canada Monthly Gross Domestic Product (May)
Industrial Product Price Index (June)

 

Anne D Picker is the author of International Economic Indicators and Central Banks.


 

powered by [Econoday]