Weekly Economic Monitor. January 18, 2015

Transcription

1 Weekly Economic Monitor January 18, 2015

2 Brief Overview International US: Treasurys advance on haven demand amid uncertain global growth outlook; Consumer prices rose at their slowest pace in more than five years; Retail sales disappoint but consumer confidence reached its highest in more than a decade Eurozone: Eurozone government bonds surge on further anticipation of QE announcement next week as the euro area edges closer to deflation UK: Inflation falls to 14-year low, adding to speculation that the BoE will hold off raising interest rates China: Trade data show resilience but policy easing may still be needed Markets overview Major Indices U.S. stocks rallied, brining an end to a 5- seesion run of losses Commodities and Currencies: Euro sinks to 11-year low; Crude oil rallied MENA Region Local Economy Egypt: CBE surprises markets and cuts rates by 50bps GCC News Highlights GCC interbank rates Comparative MENA Markets News and analysis Average annual inflation grew by 2.8% in 2014 FX reserves unchanged at $14.2 billion in November JD deposits at banks up by JD 246 million in November Central Bank Meeting Calendar Interest Rate Forecast The Week Ahead Markets overview Amman Stock Exchange Local Debt Monitor Prime Lending Rates 2

3 International 3

4 U.S. Treasurys advance over the week as haven demand increased amid uncertain global growth outlook U.S. government bonds in the past week posted the biggest price rally in a month as demand for haven bonds climbed amid an uncertain global growth outlook and a deflation scare in Europe. Moreover, a policy shift Thursday from Switzerland s central bank, to abandon its three-year-old cap on the Swiss franc's value against the euro, hammered that country s stock market and generated sharp swings in currencies world-wide, adding to investors anxiety. As of January 16 1 Week Ago A Month Ago 1 Month 0.02% 0.02% 0.01% 3 Months 0.02% 0.02% 0.04% 6 Months 0.07% 0.08% 0.11% 2 Years 0.49% 0.57% 0.56% 5 Years 1.29% 1.42% 1.52% 10 Years 1.84% 1.95% 2.06% 30 Years 2.45% 2.53% 2.69% The yield on the 10-year US Treasury bounced off a 20-month low Friday, up 12 basis points at 1.84%, as that consumer confidence in the U.S. rose to its highest level since Over the week, however, the yield was down 11bp. 4

5 Weak retail sales data cast a cloud on U.S. consumer spending U.S. consumers pulled back in December, indicating that the growth in U.S. economy might not be as strong as many believed. Retail sales decreased by 0.9% in December from a month earlier, the Commerce Department said Wednesday. Lower gasoline prices and weak auto sales weighed on retail sales in December, but even excluding gasoline and autos, retail sales declined 0.3% m/m in December. In addition, November figures were revised down to a 0.4% increase, instead of the earlier estimate of 0.7%. Meanwhile, U.S. industrial production fell slightly in December as warmer-than-usual weather tamped down demand for heating. Industrial production fell 0.1% from the prior month, the Federal Reserve said Friday. That followed a gain of 1.3% in November. However, underlying figures suggest steady economic growth underpinned by rising output from factories and the oil and gas industry. Manufacturing output, which accounts for about three-quarters of overall industrial production, climbed 0.3% in December, the fourth consecutive monthly increase. Disappointing retail sales could temper expectations that consumer spending accelerated sharply in the fourth quarter, leading some economists to slightly downgrade growth projections. 5

6 Data signal uncertain global growth outlook, but U.S. consumer confidence reached its highest in more than a decade But with the labor market strengthening and gasoline prices continuing to fall, December's decline in core retail sales will likely be temporary. Figures earlier this month showed that a further 252,000 jobs were created in in December, while the unemployment rate fell from 5.8% to 5.6% - the lowest rate since June Dec: 5.6% Many economists project growth to maintain at least a 3% pace during the fourth quarter of 2014, despite some disappointing data. That would mark first time in the current expansion that growth stayed above 3% for three straight quarters. Meanwhile, the World Bank cut its outlook for global growth Tuesday, saying a strengthening U.S. economy and plummeting oil prices won t be enough to offset deepening trouble in the eurozone and emerging markets. Q3: 5.0%, revised up from 3.9% The development institution expects the global economy to expand 3% this year, up from 2.6% in 2014, but still slower than its earlier 2015 forecast of 3.4%. On the upside, data showed Friday that consumer confidence in the U.S. rose to its highest level since The University of Michigan consumer confidence survey for January returned a stronger-thanexpected reading of 98.2, compared with 93.6 in December. 6

7 U.S. inflation increase lowest since October 2009; low inflation could complicate fed decision U.S. consumer prices rose at their slowest annual pace last month in more than five years largely due to a plunge in oil prices, a potential complication for the Federal Reserve as it looks to raise interest rates later this year. The consumer-price index declined 0.4% in December from the prior month, the Labor Department said Friday; the largest one-month decline since December Dec: 0.8% Consumer prices rose 0.8% in December from a year earlier, the smallest annual rise in prices since October 2009, when prices fell 0.2% on the year. Inflation in November increased by 1.3%. Excluding food and energy, prices in December rose 1.6% from December 2013, down from a 1.7% annual gain in November. The Federal Reserve has set a 2% target for annual inflation as consistent with its legal mandate to keep prices stable. But the central bank prefers to look at a different broad measure, the Commerce Department s personal consumption expenditures price index. Using that gauge, inflation has undershot 2% for more than two and a half years. Fed officials have indicated they plan to begin raising interest rates later this year as growth and hiring accelerate. But lower inflation could complicate those plans. Fed fund future now signal that markets see the first rise late in the year, closer to December. 7

8 Euro area government bonds surge on further anticipation of QE announcement next week Eurozone bonds surged this week, in further anticipation that that the ECB could begin buying large quantities of government bonds to stimulate economic growth in the eurozone as soon as next week s meeting. Data this week confirmed that eurozone prices fell in the year to December, for the first time in five years. Market uncertainty was also increased ahead of the election in Greece on Jan. 25. Syriza, a far-left, euroskeptic party, is leading in the polls; a Syriza-controlled government could derail Greece s bailout program. Markets were also caught off guard Thursday when the Swiss National Bank (SNB) canceled its policy pegging the exchange rate of the euro buying 1.20 Swiss francs, a policy put in place more than three years ago to keep the currency from getting too strong and hurting the economy. Market uncertainty led to a "safe-haven" rally, pushing demand of German bunds. The yield on the 10-year German Bund hit a record low of 0.42% on Wednesday, before recovering to 0.45% Friday, but was down 4bp over the week. Meanwhile, the yield on the 10-year Italian and Spanish bonds, fell 22bp over the week, to end Friday at 1.66% and 1.50% respectively. 8

9 Eurozone consumer prices fall in December for first time in five years, edging closer to deflation Consumer prices in the eurozone fell annually for the first time since the depths of the global financial crisis more than five years ago, opening a new chapter in Europe s struggle to emerge from a lengthy economic slump. Eurostat confirmed on Friday that consumer prices fell 0.2% in December from year-ago levels - driven largely by falling energy prices. ECB inflation target: just below 2% Dec: - 0.2% Sixteen EU members experienced an annual decline in consumer prices during December, up from just four in November. And with oil prices tumbling, inflation rates around the continent appear likely to decline further in coming months. Excluding food, energy and other volatile items, core inflation rose to 0.8%, up a notch from November. Meanwhile, on a positive note, Germany s economic growth accelerated to 1.5% in 2014 from 0.1% the previous year, the federal statistics office Destatis said Thursday, stabilizing at the end of the year after a slowdown in the summer. Pressure continues to mount on the European Central Bank to pull out all stops to help lift inflation toward its 2% target, raising the chances of large-scale purchases of government bonds as soon as its Jan. 22 policy meeting. 9

10 Expectations intensify for QE announcement at next ECB meeting The European Central Bank has said it would reassess its existing stimulus policies, which include cheap bank loans and purchases of asset-backed securities and covered bonds, in early 2015, and decide whether to do more to ensure that annual inflation moves closer to its target of just below 2%. Markets expect the ECB to deliver relatively aggressive QE in connection with next week s ECB meeting on Jan. 22. The move by the SNB is to a large extent regarded as a pre-emptive move ahead of the ECB meeting. Moreover, markets remain shaken by Greek Prime Minister Antonis Samaras s failure to win a parliamentary majority to elect a new president, which triggered a snap general election on Jan. 25, which may open the door to left-wing firebrand Alexis Tsipras, who is leading in the polls. Adding to the air of trepidation ahead of the vote, Eurobank and another lender, Alpha Bank SA, have requested access to an emergency cash facility run by the central bank. Both said the moves were only a precaution and that neither faced an immediate funding crunch. Meanwhile, an adviser to Europe s top court on Wednesday said the ECB can legally buy large quantities of eurozone government debt to stabilize the currency area s economy, delivering a key endorsement for the bank as it prepares another round of stimulus measures. The opinion from the European Court of Justice s advocate general, Pedro Cruz Villalon, comes in response to a lawsuit brought by German opponents of loose monetary policy claiming that the ECB s Outright Monetary Transactions program, announced in August 2012 and widely credited with saving the euro, violates the European Union treaty. While the opinion isn t binding on the court, the judges usually follow the advocate general s reasoning. A ruling is expected in four to six months. 10

11 U.K. inflation falls to 14-year low, adding to speculation that the BoE will hold off raising interest rates The rate of inflation in the U.K. fell to 0.5% in December year-on-year, according to the Office of National Statistics (ONS) -- its lowest level in 14 years. Growth in U.K. consumer prices halved from November's 12-year low of 1%, and came in below forecasts of 0.7%. Dec: 0.5% The fall below 1% means the Bank of England (BoE) Governor Mark Carney will now have to write an open letter to the U.K.'s Chancellor George Osborne explaining why prices have declined below this level. The central bank's brief is to use monetary policy to keep the inflation rate - measured by the consumer prices index (CPI) - within a percentage point of the bank's target of 2%. Friday: 1.53%; Yields rallied from a low of 1.51% on Thursday, but were down 7bp over the week Carney will have to tell Osborne when the BoE expects inflation to return to within target, and what action the bank's Monetary Policy Committee intends to take to achieve this. The decline in global oil prices -- which have fallen more than 60% since June 2014, alongside intense competition among supermarkets have contributed to the decline in prices. With no sign that oil has hit a bottom, next month's inflation data could be even worse, analysts warned. The data has added to speculation that the BoE will hold off raising interest rates into the latter half of 2015 at the earliest. 11

12 China exports data show resilience but policy easing may still be needed China's trade picture improved in December after a poor showing in November, suggesting that the world's second-largest economy ended the year on a more solid footing. Nevertheless, the data has not dented expectations for further monetary easing in the coming months. China s exports surged a faster-than-expected 9.7% in December on the back of stronger overseas demand, marked a rise from the 4.7% increase in November and was above market expectations of 6.6% growth, lending a little of momentum to the world s second-largest economy. Still, imports contracted 2.4% in December from a year earlier, according to official data released Tuesday, and that fall produced a narrower but still strong trade surplus. Last month s fall in imports came after a 6.7% decline in November. The December performance made exports one of 2014 s few bright spots for China as economic growth slowed and the property market reeled after decades of double-digit growth. China's economy likely grew 7.2% in the fourth quarter and 7.4% for the full year, according to economists, failing to reach the government s target of 7.5%. Fourth quarter gross domestic product (GDP) data will be released on January 20. The final China HSBC PMI for December indicated manufacturing contracted for the first time in seven months, with both output and new orders declining. The final reading came in at 49.6, up slightly from the preliminary reading of 49.5 from HSBC/Markit, but still lower than November's A reading above 50 indicates growth, while a reading below signals a contraction. Meantime, China's official Purchasing Managers' Index (PMI) slipped to 50.1 in December from November's

13 U.S. stocks rallied, brining an end to a 5-seesion run of losses 13

14 Euro sinks to 11-year low amid SNB policy shift, deflation concerns, and Greek political uncertainty; Crude oil rallied as IEA see signs downtrend would eventually end 14

15 Major Interest Rate Forecasts Rate (%) United States Market yield (January 16) Q Q Q Q Q Q US 10-year Fed Fund Target Rate Germany Germnay 10-year ECB Main Refinancing Rate United Kingdom UK 10-year BoE Bank Rate Source: Bloomberg 15

16 The Week Ahead,,, Economic Data Release Calendar January 19, January 23, 2015 Date Event GMT Forecast Previous 19-Jan Mon CNY Foreign Direct Investment (YoY) 22.10% 22.20% JPY Industrial Production (YoY) 04: % 20-Jan Tue CNY Retail Sales (YoY) 02: % 11.70% CNY Industrial Production (YoY) 02: % 7.20% CNY GDP (YoY) 02: % 7.30% EUR German Producer Prices (YoY) 07: % -0.90% EUR German ZEW Survey (Economic Sentiment) 10: EUR Euro-Zone ZEW Survey (Economic Sentiment) 10: USD NAHB Housing Market Index 15: Jan Wed JPY BOJ Annual Rise in Monetary Base 80T 80T JPY Bank of Japan Monetary Policy Statement GBP Average Weekly Earnings (3M/YoY) 09: % 1.40% GBP ILO Unemployment Rate (3M) 09: % 6.00% GBP Bank of England Minutes 09:30 USD Building Permits 13: K 1035K USD Building Permits (MoM) 13: % -5.20% USD Housing Starts 13: K 1028K USD Housing Starts (MoM) 13: % -1.60% CAD Bank of Canada Rate Decision 15: % 1.00% 22-Jan Thu EUR Euro-Zone Consumer Confidence 10: EUR European Central Bank Rate Decision 12: % 0.05% EUR ECB Main Refinancing Rate 12: % -0.20% EUR ECB Monetary policy statement and press conference 13:30 USD Initial Jobless Claims 13:30 316K 23-Jan Fri JPY Markit/JMMA Japan Manufacturing PMI 01: CNY HSBC China Manufacturing PMI 01: EUR Markit/BME Germany Manufacturing PMI 08: EUR Markit Germany Services PMI 08: EUR Markit Eurozone Manufacturing PMI 09: EUR Markit Eurozone Services PMI 09: GBP Retail Sales (YoY) 09: % 6.90% USD Markit US Manufacturing PMI 14: USD Existing Home Sales (MoM) 15: % -6.10% 16

17 Central Bank Meetings Calendar Calendar for upcoming meetings of main central banks: Central Bank Month Current Rate Expected Rate Decision US Federal Reserve (FOMC) January % 0.25% European Central Bank (ECB) January % 0.05% Bank of England (BoE) February % 0.50% Bank of Japan (BOJ) January % 0.10% Swiss National Bank (SNB) March % 0.00% Bank of Canada (BOC) January % 1.00% Reserve Bank of Australia (RBA) February % 2.50% Reserve Bank of New Zealand (RBNZ) January % 3.50% 17

18 Regional 18

19 Egypt: CBE surprises markets and cuts rates by 50bp Egypt s 3M and 9M T-bill yields dropped by more than 60 basis points as the Central Bank of Egypt surprised markets and cut benchmark rates by 50 basis points. Meanwhile, 6M and 12M yields remained unchanged as the government has not yet auctioned bills for their durations. The Central Bank of Egypt was expected to keep benchmark rates unchanged at 10.25% for lending and 9.25% for deposits as inflation rose in December to 10.1% from 9.1% in November. Source: Bloomberg However, the CBE cut rates by 50 basis points, noting plummeting global oil prices and the consequent revising in international food prices forecasts had eased inflation risks while adding that economics growth was rebounding. Economic growth reached an annual 6.8% in the Q1 of the 2014/15 fiscal year (July-September), on the back of a rebound in manufacturing and tourism. The government had slashed energy subsidies in July, raising energy costs by up to 78% which pushed inflation upward and limited the CBE s ability to cut rates to promote growth. Source: Trading Economics 19

20 GCC Economic Highlights: Qatar: Inflation grew 2.7% in December According to figures released by Qatar s Ministry of Development Planning and Statistics, the inflation rate grew by 2.7% in December of 2014 when compared to December 2013, down from 3% in November. Inflation in Qatar remained moderate in 2014, due to lower international food prices. Inflation registered around 3% in 2014, compared to 3.1% in Key drivers of inflation were higher rent inflation offsetting lower international food prices, as well as an increase in population. Prices of rentals, fuel & energy group which carry a weight of 32.2% of the CPI basket were up by 7.3% over from December 2013, mainly due to rental hikes of residential buildings. Excluding the effect of rent, overall inflation drops to 1%. Source: Trading Economics Meanwhile, food, beverage and tobacco prices, which carry a weigh of 13.2% in the CPI basket, dropped by 0.4% over the same time period. Moreover, analysts attributed the rise in rents to a significant increase in the population, which is estimated to have grown 10.1% in Analysts expect inflation to register 3.5% in 2015 and 4.4% in 2016 on rising rent inflation. 20

21 GCC Economic Highlights: Saudi Arabia: Inflation grew by 2.4% in December 2014 According to figures released by the Central Department of Statistics & Information, the inflation rate grew by 2.4% in December of 2014 when compared to December 2013, down from 2.5% in November. Analysts had expected inflation to rise in 2014 due to the outflow of foreign workers and the resulting increase in wages pushing inflation up, though the effect seems minimal. Instead, sluggish global economic recovery and falling import costs due to a strengthening U.S. minimized external inflationary pressure, which pushed inflation to its lowest level in December since September of Source: Trading Economics Main source of inflation were prices of food and beverages which rose 2.6% from December 2013, and housing and utility costs, which grew 2.5%. Inflation grew by 0.1% in December when compared to November. For 2015, analysts expect rent to put upward pressure on home prices and rents, given the slow progress in government housing initiatives resulting in a shortage insupply ofhomes. Meanwhile, the IMF expects inflation to register 3.2% in

22 GCC interbank rates Source: Bloomberg 22

23 Comparative MENA Markets Week starting January 11 23

24 Locally 24

25 Inflation grew 2.8% in 2014 According to figures released by the Department of Statistics, the inflation rate grew 2.8% during 2014, down from 5.6% in Inflation figures for 2014 came below forecast expectations of 3%, helped by a rapid decline in oil prices. Looking ahead, the IMF forecasts inflation to grow by 2.6% in The report said that the rise in inflation was attributed mainly to higher prices in the following main commodities and services: Tobacco (up 13.9%) Clothes (up 9.9%) Rents (up 6.9%) Medical Care (up 6.9%) Education (up 4.5%) On the other hand, prices of other commodity groups dropped for the same time period: Personal care (down 0.3%) Vegetables (down 2.8%) Dairy Products (down 0.2%) Fuel and electricity (down 0.8%) 25

26 Inflation up by 1.1% in December 2014 compared to December 2013 Comparing December of this year to December of 2013, inflation was up by 1.1%, down from 2.4% in November. The inflation was attributed mainly to higher prices in the following main commodities and services: Rents (up 6.0%) Education (up 2.5%) Meat and Poultry (up 3.0%) Tobacco (up 14.6%) Clothes (up 9.3%) Meanwhile, prices of other commodity groups dropped for the same time period: Fuel and electricity (down 5.6%) Transportation (down 5.7%) Dairy products (down 2.7%) Vegetables (down 14.9%) On a monthly basis, inflation dropped by 0.4% in December compared to November, mainly due to a drop in transport and fuel and electricity prices, indicating low inflationary pressures for the time being. 26

27 FX reserves unchanged at $14.2 billion in November FX reserves remained unchanged from October to November at $14.2 billion. FX reserves are expected to remain at high levels in 2015, as the IMF expects the government to receive $3.5 billion in external funding during the year. This includes a $1.75 billion Eurobond and international loans during 2015, and around $1.4 billion in GCC capital grants. On the other hand, the government has a $750 million Eurobond that will mature in November of this year. FX reserves remain at comfortable levels; covering above 7 months of imports. 27

28 JD deposits at banks up by 246 million JD in November 2014 In November of 2014, JD deposits at licensed banks increased by 246 million JD to reach billion JD. The increase in deposits had slowed down significantly during the months of July and August, but has picked up again over the past 3 months. However, the growth still remains below the 340 million JD average monthly increase registered during the first half of The continued increases indicate better stability in the Jordanian economy. So far, deposits have grown 2.88 billion JD in 2014, growing at a slower pace than the same time period in Deposits grew by 3.3 billion JD in Meanwhile, foreign currency deposits increased in November by approximately $15 million, making the total drop in foreign currency deposits around $333 million in 2014 so far. The recent monthly increases in foreign currency deposits suggests that de-dollarization is slowing. Foreign currency deposits are currently around $8.96 billion (6.35 billion JD). 28

29 Amman Stock Exchange For the period 12/01 15/01 ASE free float shares price index ended the week at (2,146.1) points, compared to (2,151.1) points for the last week, posting a decrease of 0.23%. The total trading volume during the week reached JD(36.5) million compared to JD(30.4) million during the last week, trading a total of (36.3) million shares through (11,441) transactions. The shares of (149) companies were traded, the shares prices of (47) companies rose, and the shares prices of (67) declined. Top 5 gainers for the last week Top 5 losers for the last week Stock % chg % chg Jordan Loan Guarantee Corporation 15.09% Al-Dulayl Industrial Park & Real Estate Company P.l.c % Arab East for Real Estate Investments 9.56% Philadelphia International Educational-Investment Company 6.02% The Arab Assurers Insurance Company 5.88% Akary for Industries and Real Estate Investments (13.65%) Al-Quds Ready Mix (12.12%) South Electronics (10.00%) Specialized Trading & Investment (8.91%) Jordan Decapolis Properties (8.82%) 29

30 Local Debt Monitor Latest T-Bills As of January 18, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(3,498) million. 3 months T-Bills Issue Date Maturity Date Size - million Yield (%) Last issued in December /12/ /03/ % 6 months T-Bills Issue Date Maturity Date Size - million Yield (%) Last issued in February /02/ /08/ % 9 months T-Bills Issue Date Maturity Date Size - million Yield (%) Last issued in March /03/ /12/ % 1 year T-Bills Issue Date Maturity Date Size - Million Coupon (%) 10/ /11/ /11/ % 09/ /10/ /10/ % 08/ /09/ /09/ % 07/ /08/ /08/ % 30

31 Local Debt Monitor Latest T-Bonds Issues 2 years T-Bonds Issue Date Maturity Date Size - million Coupon (%) T /01/ /01/ % T /01/ /01/ % T /12/ /12/ % 3 years T-Bonds Issue Date Maturity Date Size - million Coupon (%) T /12/ /12/ % T /09/ /09/ % T /09/ /09/ % 4 year T-Bonds Issue Date Maturity Date Size - million Coupon (%) Last issued in January /01/ /01/ % 5 years T-Bonds Issue Date Maturity Date Size - million Coupon (%) T /11/ /11/ % T /10/ /10/ % T /09/ /09/ % Public Utility Bonds Issue Date Maturity Date Size - million Coupon (%) PB65 (Water Authority) 19/08/ /08/ % PB64 (Water Authority) 01/07/ /07/ % PB63 (Water Authority) 30/01/ /01/ % 31

32 Prime Lending Rates 32

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