|
GLOBAL
US FEDERAL RESERVE RATE- The US Federal Reserve Chair Janet Yellen dropped a bombshell when she hinted that a rate hike during the summer was not ruled out. This comes in the background of less than expected growth in the US economy, while inflation is forecast to hit the Fed's target of 2%.Wobbly oil prices, now again sliding, seems to have emboldened Yellen. "I think for the Fed to gradually and cautiously increase our overnight interest over time and probably in the coming months, such a move would be appropriate," she said at Harvard University. Previously analysts expected the next hike would be made earliest by the end of this year. (RTT News, May 27, 2016)
OIL PRICES- Oil prices surged to the psychological $50 mark in May, helped by supply disruptions and demand increases. Analysts were not expecting the price to hit this level before the end of this year. Both the Brent and US crude prices crossed $50 per barrel. An important cause was the supply side problems faced in Venezuela with its economic difficulties, Nigerian terror attacks, Canadian wildfires and political uncertainties in Libya. In the first quarter of the year, pipeline explosions took about 1.1 million barrels per day of Iraqi, Nigerian and Columbian production off the table, according to the Citigroup. Another 800,000 barrels were lost in Nigeria to militant attacks. Wildfires in Canada reduced production by another 1.1 million barrels. Further, US oil production also dropped as many shale oil companies found sub $50 prices uneconomic.
The demand for oil from China, India, and Russia was both robust and unexpected, increasing by about 1.4 million barrels a day. Tightening supplies and elevated demand has pulled down reserves faster than expected, setting the stage for oil prices to rise.
"Remember, $50 was the number where a lot of producers began to panic and bleed deep, deep red ink," said Tom Kloza, global head of energy analysis at the Oil Price Information Service. "This is not a renaissance. It's still dark ages for an awful lot of producers." (CNN Money May 26, 2016)
NORTH AMERICA
US
US CONSUMER CONFIDENCE - In May, the US consumer confidence tumbled again after posting a loss in April. The Conference Board Consumer Confidence Index plunged from 94.7 in April to 92.6 in May, while economists were looking for a figure of 97. The Conference Board is a global, independent business membership and research association working in the public interest.
The Present Situation Index shrank from 117.1 in the previous month to 112.9 in May. Consumers who felt that business conditions were 'bad' grew from 18.2% to 21.6%, while those who said business conditions were 'good' also moved up from 24.2% to 25.9%.
Consumers who felt that jobs were hard to get increased from 22.8% in April to 24.4%, even though those who felt that jobs were 'plentiful' remained unchanged at 24.3%. This is a reflection of the tight labour situation. The outlook for the labour market remained subdued, with respondents who expect fewer job positions advancing from 16.7% to 18.1%.
The expectations index for short term economic outlook for consumers dropped from 79.7 in April to 79.0 in May. The proportion of consumers who felt that business conditions were likely to improve in the next six months climbed to 15.1%. It had been 13.8% in the previous month. However, the percentage of respondents who thought that business conditions were likely to worsen also increased from 10.8% in April to 11.6% in May.
"Consumer confidence declined slightly in May, primarily due to consumers rating current conditions less favorably than in April," said Lynn Franco, Director of Economic Indicators at The Conference Board. "Expectations declined further, as consumers remain cautious about the outlook for business and labor market conditions," she added. "Thus, they continue to expect little change in economic activity in the months ahead." (RTT News May 31, 2016)
US ECONOMIC GROWTH - The US economy grew a revised 0.8% on an annual basis in the first quarter of 2016, although analysts were looking for a figure of 0.9%. The economy had clocked a healthy 1.4% growth in the previous quarter. The Commerce Department attributed the slowdown to sliding personal consumption, which increased 1.9% in the first quarter, compared to the 2.4% growth posted in the earlier quarter. Lower spending by the federal government and lower growth in non-residential fixed investment were other contributory factors for the less than stellar performance.
US DURABLE GOODS ORDERS - April brought good news for the durable goods sector, according to the Commerce Department. Orders for durable goods climbed 3.4% in April, considerably more than the 1.9% growth witnessed in March. The increase in orders was supported by a 64.9% surge in demand for aircraft parts and commercial aircraft. Analysts who had expected orders to increase by just 0.3% point out that the aircraft industry demand is volatile and not indicative of intrinsic strength. Stripped of transportation demand, durable goods demand rose a more modest 0.4% in April. Analysts were also quick to point out that these figures did not show strength in the growth of core sectors.
"As far as the June Fed decision goes, this data has not taken the argument very far forward," ING Chief International Economist Rob Carnell said. "We remain slightly in favor of a July hike, but the outcome remains data dependent."(RTT News, May 26, 2016)
CANADA
CANADIAN ECONOMIC GROWTH - Buffeted by falling oil prices and a slower than expected economic growth, the Canadian currency, 'the loonie' slid 4% against the USD in May. Canada's economy grew 2.4% in the first quarter of 2016, while analysts were expecting a growth of 2.9%. Wild fires in Alberta, western Canada have disrupted oil production and the economy has taken a hit in April and May.
"It is going to make the Bank (of Canada) cautious, but they are probably going to see some sizable swings in the GDP numbers in the next couple of quarters, reflecting the shifts in oil production," said Paul Ferley, assistant chief economist at Royal Bank of Canada.(Reuters, May 31, 2016)
EUROPE
UK
UK RETAIL PRICES - Obviously economic conditions in the UK are a little unsettled ahead of a June vote on whether the UK should stay in the European Union. Retail prices in the UK dipped 1.8% annually in May. This comes hard on the heels of the decline of 1.7% witnessed in April. Fresh food inflation dropped 0.8% while non food prices tumbled 2.9%. "The fact that today's figures remain deflationary doesn't come as a great surprise. We've experienced a record run of falling shop prices and, for the time being, there's little to suggest that'll end any time soon," said Helen Dickinson, British Retail Consortium, BRC, chief executive. ."(RTT News, May 31, 2016)
EUROZONE
EUROPEAN UNEMPLOYMENT - The April unemployment rate in the Eurozone declined to its lowest level in four years. The unemployment rate came in at 10.2%, the lowest since august 2011. The number of jobless persons dropped by 63,000 from the previous month to 16.42 million in April. On an annual basis, the number of jobless persons declined by 1.309 million. The youth unemployment rate applicable to persons less than twenty five years old was 21.1%. The unemployment rate in the EU28 was 8.7% equaling the rate in April 2009.
German unemployment rate witnessed a fall to the lowest level in more than 25 years. The unemployment rate in April stood at 6.1% beating analysts' expectation of 6.2%. Unemployment in Italy rose from 11.5% in March to 11.75 in April.
EUROZONE INFLATION - The measures taken by the European Central Bank, ECB, seemed to have had little effect on Eurozone prices in May. Consumer price inflation in the Eurozone area fell 0.1% annually. Prices had dropped 0.2% in April. Inflation has continued below the ECB's target rate of 2% for the last three years. However some analysts feel that inflation would climb in the coming months, unless oil prices drop again. Core inflation that excludes energy, alcohol, food and tobacco increased 0.8% in May an advance of 0.1% over the previous month. In contrast, oil prices plunged 8.1% on an annual basis. Non-industrial goods prices increased 0.5% while the prices of services jumped 1%.
"Despite the Eurozone remaining in deflation in May, the ECB remains odds-on to sit tight at its June 2 policy meeting and to stress that its focus is on implementing the measures that were announced at its March meeting," said Howard Archer IHS Global Insight Economist. He expects the ECB to take further stimulus measure to bump the inflation rate up to the target 2% level. (RTT News, May 31, 2016)
ASIA
CHINA
CHINESE MANUFACTURING - The manufacturing sector in China continued its slide in May. The Caixin Purchasing Managers Index, PMI, dipped from 49.4 in April to 49.2 in May. Chinese manufacturing has declined for fifteen months now. The fall was as expected by analysts. Any reading below 50 indicates contraction. The private Caixin PMI measures data mainly from small and medium firms.
Industrial purchases decreased marginally, while suppliers took longer than before to make deliveries. New work orders declined, pulled by weak demand, while export orders slumped at the fastest pace in a quarter. This led firms to pare work commitments to meet poor market conditions. Further, companies attempted to restore their finances by reducing the number of workers. Manufacturing employment continued to decline in May. Inflation eased, even if cost pressures continued to build up.
"Overall, China's economy has not been able to sustain the recovery it had in the first quarter and is in the process of bottoming out," Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said. "The government still needs to make full use of proactive fiscal policy measures accompanied by a prudent monetary policy to prevent the economy from slowing further." (RTT News, June 1, 2016)
The official manufacturing PMI put out by the National Bureau of Statistics, told a different story, with the reading at 50.1, just above the critical 50 mark which measures contraction and expansion. Non-manufacturing PMI dropped from 53.5 in April to 53.1 in May.
The government's policy of quantitative easing and stimulus seems to have had some effect. Though the economy is still not out of the woods, economists increasingly expect the news from China to improve in the coming months, riding on the back of credit growth.
JAPAN
JAPANESE ECONOMY - Manufacturing in Japan continued its downward trend in May. The Nikkei Performance of Manufacturing Index, decreased from 48.2 in the previous month to 47.7. Any figure below 50 shows contraction. Manufacturing output dipped at the fastest pace in two years, while new orders were at their lowest level in nearly four years.
The silver lining in an overall gloomy picture was the increase in capital spending, which in the first quarter moved up 4.2% on a quarterly basis, while capital spending had leaped 8.5% in the earlier quarter. Still, the growth was more than the 2.4% rise expected by economists. Capital expenditure stripped of software expenses grew 4.3%, slowing from the 8.9% jump in the previous quarter.
Company sales decreased 3.3% in the first quarter after dropping 2.7% in the earlier quarter. Profits too slumped 9.3% in the first quarter, much more than the 1.7% decline in the earlier quarter.
AUSTRALIA
ECONOMIC GROWTH - Australia's economy jumped a seasonally adjusted annual 3.1% in the first quarter, the Australian Bureau Statistics revealed. This was slightly more than the 3.0% growth clocked in the previous quarter and significantly more than the 2.8% increase forecast by economists.
The economy was pushed by robust exports in the first quarter, which posted a 1.0% growth. Financial services including insurance expanded 1.8%, while art and recreation services grew 0.9%. Accommodation and food services increased 1.5%. The key mining industry surged 6.2%. Growth was pulled down by the 2.2% decline in gross fixed capital formation, which in turn was affected by the 6.9% downturn in the construction of new buildings and the 6.4% drop in new engineering construction.
The Performance of Manufacturing Index posted a reading of 51.0 in May, continuing the sustained growth of the last eleven months. Any reading above 50.0 indicates growth. However, it was lower than the reading of 53.4 witnessed in April. Sub-sectors like new orders, deliveries, stocks, sales, production and exports all saw expansion, even though employment shrank.
SOUTH KOREA
SOUTH KOREAN TRADE SURPLUS - In May, the South Korean merchandise trade surplus stood at $7.08 billion. This was less than the $9.2 billion forecast by analysts. In April the surplus was $8.84 billion. Imports slumped 9.3% annually in May, following the 14.9% tumble in the earlier month. Exports dropped 6.0% to $39.78 billion after tumbling 11.2% in the previous month.
INDIA
INDIAN ECONOMY - In the quarter ending in March, 2016, India's economy grew 7.9% on an annual basis, compared to the 7.2% increase in the previous quarter. For the full fiscal year 2015-2016, the economy posted a growth of 7.6% versus the 7.2% gain in the earlier year. The growth was pushed by an increase in personal consumption, increased sales of passenger cars, increased electricity production and cement dispatches, and better agricultural output.
Farming grew 2.3% on an annual basis, after slowing 1% in the previous quarter. Mining jumped 8.6%, while electricity, water and gas production leaped 9.3%. The figure for the earlier quarter was 7.1% and 5.6% respectively. Inflation is near the Reserve Bank of India's target of 5%. An analysis of recent consumer prices data reveals that it is doubtful if inflation would decline any more.
On the downside, investment growth continues to be weak. Gross fixed capital formation is lower than in the earlier year, while business confidence remains fragile. Toxic assets continue to dog many banks, as a consequence of which their balance sheets are weak, constraining their ability to lend. In fact, of 150 basis points interest rate cuts made by the Reserve Bank of India , only about 60 to 70 basis points have been passed on to customers so far.
The investment cycle is yet to pick up while exports are declining as foreign demand slows. There is great rural distress after two consecutive years of poor monsoons. The trend in Gross Value Added, GVA, which excludes the effects of indirect taxes and subsidies, shows an economy whose growth has remained stable over the last two years.
The upside is that any decline in oil prices would be beneficial, while if the Seventh Pay Commission proposals are implemented it would add tailwind to the consumption led growth story. A key factor this year would be a good monsoon. "Momentum is building up faster than anticipated and there is a demand pick-up on the horizon," said Shubhada Rao, chief economist at Yes Bank."This definitely spells out a positive story that there will soon be a recovery in private sector capex." (Livemint May 31, 2016)
INDIAN MANUFACTURING - The Nikkei Purchasing Managers Index, PMI, rose a seasonally adjusted 0.2 points to 50.7 in May. This shows that while manufacturing is increasing, nevertheless, the growth is weak. The index had stood at 52.4 in March, while manufacturing had shrunk in December when the reading was 49.1. Thus there has been five straight months of growth.
"Signs of challenging economic conditions in the Indian manufacturing sector were evident in May, with output losing further growth momentum. The headline PMI remained in expansion territory, but recorded one of its lowest readings since the end of 2013, suggesting that the sector is barely improving," Pollyanna De Lima, Economist at Markit and author of the report, said. (Business Standard, June 2, 2016)
Share this article
|
Current Conversations: Sound Bytes