The World Overall 02:22 - Week in Review

7/21/2019 The World Overall 02:22 - Week in Review

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The World Overall

One Financial | Andrei Wogen| [email protected]|For the Week of: 02/22

Last Week in Review

KRW South Koreas central bank left rates steady at 2% at theirmeeting last week. The Bank is encouraged by the recent uptick in USand Euro Zone growth but continues to see downside risks from theweakness in emerging markets in particular. The BoK is also concernedabout weak domestic fundamentals which include weak sentiment anda negative output gap that they expect will persist for some time. Otherconcerns of theirs is the continued high household debt and a weak

export sector while low oil prices and capital flows are also on theirradar. However, they are encouraged by the recent increases in thenumber of employed, seen especially in the services sector. As forinflation the Bank expects it to rise going forward while current inflationis actually staying quite strong. Overall though the bank looks like it iscomfortable with where it is at in terms of policy.

JPY The Bank of Japan left rates alone during their monthly meetinglast week. In their statement though, they sounded a bit more optimisticon the Japanese economy. For the first time since the tax hike occurred(way back in April of last year) the Bank did not mention it in theirstatement as being a problem for the economy. They actually upgradedtheir assessment on the Japanese economy which included the exportand industrial production industries. They did however voice their

concern about the weakness in consumer spending. Really though, theBank sounded more optimistic than in the past on the economy and ifthis optimism continues then the Bank could very well cut back on theirQE program. However, I think we are quite a ways off from them doingthat at this point and with expectations being that the Bank will easefurther, there will need some clear indications that the Bank does indeedwant to start puling back on QE before we see any changes in thoseexpectations by the markets. As for data last week, exports rose themost in a year while imports continued to decline. So a mixed bag therewhile the trade balance continued to fall further into deficit territory.

USD Meeting minutes released by the FOMC from their Januarymeeting, showed that the Fed is still a ways away from raising rates. Inthe minutes, it showed that Fed is concerned about the geopoliticalevents around the world, the weak economic growth and some slowingin conditions in the States. Their was also worry about inflation that wasevident in the minutes with members opting to keep rates low for sometime yet. Overall, the Fed it would seem wants to see more positiveeconomic developments in not only the US, but globally as well andthey want to see higher inflation before raising rates. It was somedovish meeting minutes and in my mind helps to solidify my bet thatthe Fed will wait and not raise this year. Other data last week showedthe housing sector is slowing a bit recently with builders sentiment,housing starts and building permits all coming in weaker than last
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months. This could very likely though be more seasonally related andso as the summer months come, we will hopefully get a better picture ofhow the housing market is doing in the US. It should be mentionedthough that the weakness in the housing market was one of theconcerns the Fed talked about in their minutes. Other data also showedindustrial production improving from last month while capacityutilization slowed from last month a bit.

EUR As for the Euro Zone as a whole last week (minus Greece) thebig release last week was the release of the ECBs first ever meetingminutes from their January meeting. Within the minutes we got a bitmore of a look at the decision surrounding QE and the surprises werefew. Overall, the Germans in particular are against the program whilethe overall vote was in favor of doing QE overall but split down themiddle. The one encouraging part of the minutes was were it wasmentioned that all members agreed that QE is a policy tool. This couldhelp stem any legal action that is or could come from Germany inparticular or any other opponents of QE. But like I said, not a whole lotof surprises in the minutes. As for data German and Euro Zonesentiment numbers improved, both for investors and consumers whilemonthly manufacturing and services data from France, Germany and

the Euro Zone showed manufacturing continuing to weaken overallwhile the services sector continues to improve.

Greece The story in Greece continues but with a different endingthen we have seen over the past few weeks. Greece and the Eurogroup(and Troika) agreed to a four month extension plan for Greeces currentdebt program. Bank recapitalization by the ECB will also continuethroughout this four month period while Greece has agreed to honor allof its obligations in full. This deal also paves the way for a new deal tohappen in four months time which is code for, well try and hash out a

better agreement later on and just kick the can down the road somemore for the time being. On the whole, this agreement appears to be astep in the right direction but I am not very encouraged by the fact thatsomething more concrete could not be agreed upon. This agreementsimply allows the Greek government more time to figure out a way toget out of their current bailout program (through some other avenueaside from their European partners) and gives the rest of Europe time tofigure out whether they can really indeed live without Greece in theEuro Zone anymore. But maybe Im being too pessimistic. With thisextension it would seem that Greece is may not so keen on getting outof their bailout program (because it would mean a boot from the EuroZone) and even Germany seems to be willing to play ball somewhatwhile still keep a tight lid on Greece. And I hope that I am being toopessimistic because if the next negotiations dont go well it could verywell be the beginning of the end of the Euro Zone and this would bevery bad indeed.

CNY data was light from China last week with the country onholiday for their New Year. Its the year of the Sheep and people born inthis year are expected to be meek and will follow more than lead.Something that parents in China dont like overall and for this reasonthe rate of births in the last few weeks has been high, even if the newly

borns were not quite ready to be born. Anyway, theres your lesson forthe week in the social norms and beliefs of the Chinese people. So as forthe data, this showed new loans weakening a huge amount versus lastmonths data as the lending and banking sector continues to slow amidreforms and crackdowns by the central government towards this sector


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continues. House prices also continued to decline which is anothernegative for the Chinese economy now and in the future. The domesticpicture continues to weaken in China.

What to Watch this WeekEUR This week for data from the Euro Zone, the key data will befinal 4th Quarter GDP from Germany, Greece and Spain. Growth islooking a bit better, especially in comparison to last year and so moreevidence of this will be watched for. The other data that will be watchedwill be inflation data from he Euro Zone and other countries in the EuroZone. Inflation continues to be weak and any improvement in inflationwill also be an encouraging sign. Also, based on last weeks ECBmeeting minutes, inflation has become much more important as thelongevity of (as well as possibly the total size of) QE is dependent uponinflation and inflation expectations, both which continue to deteriorate.I expect then that inflation from he Euro Zone will begin to be cared

about by the markets a whole lot more now, even more than it has beenin recent months. Expectations though are for inflation to continue tofall lower due mostly to the continued weakness in energy. The other

big event this week, aside from any developments in Greece, will be therelease of the ECBs latest TLTRO auction. Take up has not been as goodas some would like and improvement in these auctions would be verywelcome indeed as it would show that banks could very well be lendingmore since a bigger take-up could mean more demand for the moneyfrom bank customers including businesses. This week, ECB Draghi willalso be testifying before European Parliament and in light of their recentQE announcement and with Greece on the front pages everywhere, thisparticular speech could present some interesting words from thePresident. Overall though, Greece will continue to be the front story asnegotiations still seem far from happening between Greece and its

creditors and the Troika.

GBP The important data will be preliminary fourth quarter GDP onThursday. Expectations have been that UK growth will have and hasslowed some especially in the last few months leading up to the end oflast year. The question really is though, has it slowed even more thanexpected. If it has this will very likely push back rate hike expectationssome. In my opinion though, looking at the Euro Zone GDP data fromlast week and the overall condition of the United Kingdom, I am notexpecting anything lower than what is expected and actually I thinkthere is more risk for a better growth number than not. Mortgageapplications, which have continued to weaken over the past fewmonths, and consumer confidence will also be released this week.

USD Fourth Quarter GDP, January inflation figures and JanuaryDurable Goods orders data will be in focus for the states this week. Asfor the GDP data, expectations are that growth for the fourth quarterwill be lower than the third quarter of last year but full year growth toowill also be in focus. The hope and expectations have been that growthin the US last year came in close to or even at three percent and sofourth quarter dat will be a big determinant of that. We did though seesome slowing in the economic picture as the year ended last year and soI am personally not so optimistic on both the fourth quarter number andthe full year growth number. As always though, what counts is what is


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coming up and so Durable goods this week for the month of Januarywill be in focus and possibly even more so than the GDP figures. I amnot expecting a good number form Durable Goods as weakness in themanufacturing and consumer sectors will likely translate into a weakerDurable Goods orders number. If this number is lower than expectedthen this will cause expectations of first quarter growth for this year to

be lowered as well as expectations for a Fed rate hike this year. As for

the inflation data, this will more than likely continue to show weaknessin prices led by energy. Not too important as of right now though as theFed has opted to look through the recent weakness in inflation and hasopted instead to focus on their longer-term expectations which continueto stay stable overall. Other data for the week will include services PMI,consumer confidence and existing home sales and then to finish off theweek, along with GDP data Personal Consumption expenditures datawill be released which will give the markets another indication ofinflation in the States. The other key event this week for the US marketswill be a speech by Fed President Yellen who will be testifying beforethe Senate and Financial committee throughout the week. There is muchanticipation that during this time Yellen will pave the way for a morehawkish tone from the Fed at their meetings including the removal ofthe patience word at their next meeting in March. However I am not

on this side of expectations. Rarely do we get policy changes or any sortof meaningful change in the Feds tone during these testimonies.

JPY CPI data this week on Thursday will be in focus as will the BoJsmeeting minutes from their most recent meeting. As for CPI this haslikely continued its fall, along with the rest of the world while the effectof last years tax hike on prices continues to taper off. As for the BoJsmeeting minutes, this will likely continue to show the same messageoverall though I will be focused perennially on comments about theircurrent QE program. Recent comments have given a mixed messageabout how the Bank is currently thinking about their QE program withsome comments suggesting that the Bank is getting uncomfortable withtheir QE program while another comment, by the BoJ president himself,suggesting that the QE program poses no real threat to the bondmarkets at least. It should be noted though too, that the Banksstatement released lsat meeting showed the bank was a bit moreoptimist on the economy overall and so we will see if this sentiment isreflected in the minutes as well and how much.

CAD Inflation data will be in focus this week. As oil continues todecline and as the Canadian economy continues to decline I amexpecting a continued lower reading. This data too will be in more focustoo, by the Bank of Canada in particular, especially after their recent ratecut and downside expectations for the Canadian economy. Also, lastweek we heard from the BoCs deputy governor who said that thecondition of the Canadian economy will the determinate in whether ornot the BoC cuts rates again.

Greece now with the fourth month extension plan in place there are acouple of questions at hand: (1) what sort of reforms will Greece presenton Monday and will they be satisfying enough for their Euro Zonepartners? and (2) what about countries such as Spain, Portugal andItaly? What are their next steps in light of this agreement?


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Overall Sentiment Indicator

AssetOverall

SentimentStrength

US Dollar Positive 3

Euro Negative 3

Pound Positive 3

Canada Dollar Negative 4

US Dollar Positive 4

Japanese Yen Negative 3

New Zealand

DollarPositive 2


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Economic Calendar

Region Event/Data Expected Date Time (EST)

Japan BoJ Monetary Policy Meeting Minutes 02/23 6:50pm

Germany 4th Quarter GDP q/q - Final 0.7% 02/24 2am

Germany 4th Quarter GDP y/y - Final 1.6% 02/24 2am

Euro Zone CPI y/y -0.6% 02/24 5am

United States Consumer Confidence (Feb) 100.0 02/24 10am

United Kingdom BBA Mortgage Approvals (Jan) 36.2 02/25 4:30am

Euro Zone ECB Draghi Speech 02/25 9:30am

United States Fed Gov. Yellen Speech 02/25 10am

Germany GfK Consumer Confidence (Jan) 9.4 02/26 2am

Germany Unemployment Change (Feb) -10K 02/26 3:55am

Germany Unemployment Rate (Feb) 6.5% 02/26 3:55am

United Kingdom 4th Quarter GDP q/q - Preliminary 0.5% 02/26 4:30am

United Kingdom 4th Quarter GDP y/y - Preliminary 2.7% 02/26 4:30am

Euro Zone TLRO Take-up 02/26 5:15am

Canada Bank of Canada CPI (Jan) y/y 02/26 8:30am

Canada CPI (Jan) y/y 02/26 8:30am

United States CPI (Jan) y/y 02/26 8:30am

United States Core CPI (Jan) y/y 1.6% 02/26 8:30am

United States Durable Goods Orders (Jan) 1.9% 02/26 8:30am

United States Core Durable Goods Orders (Jan) 0.5% 02/26 8:30am

Japan Tokyo Core CPI (Jan) y/y 2.2% 02/26 6:30pm

Japan National Core CPI (Jan) y/y 2.3% 02/26 6:30pm

Germany CPI (Feb) m/m - Preliminary 0.7% 02/27 8am

Germany Harmonized CPI (Feb) y/y - Preliminary 02/27 8am

United States 4th Quarter GDP Annualized - Preliminary 02/27 8:30am

United States 4th Quarter GDP - q/q 2.1% 02/27 8:30am

United States 4th Q Personal Consumption Expenditures q/q 02/27 8:30am

Documents

The World Overall 02:22 - Week in Review