Tibez´s market roundup 20/03/2014
[B]In Brazil, the indicators of confidence register slowing of economic growth.[/B] Consumer confidence, measured by ICC-FGV, fell by 0.8% in April (after 0.1% in March) due to a decrease in the measure of present conditions (-1.9%), which was due to lower satisfaction with the economic environment. The indicator remains in negative expectations and recorded the fifth fall (-0.4 %) in the April calculation. As for the business confidence index, measured by the ICI-FGV, it was up 0.3% in April (after falling 2.3% in March), with the improvement in the perception of the present situation (1.1%) and a worsening of future expectations, which had the fourth consecutive decrease (-0.5 %). According to FGV, capacity utilization (NUCI) decreased from 84.4% to 84.2% between March and April, seasonally adjusted. In summary, domestic confidence indicators point to moderating of economic pace in the beginning of the second quarter. Economists forcast growth of 0.3% and 0.4% for the GDP of Brazil during the first and second quarters of this year, coming from 0.7% in the last three months of 2013. For 2014, expansion of 1.5% is expected (against 2.3% last year).
[B]Despite the weak economic performance and the favourable performance of industrial raw materials around the world, the Brazilian inflation outlook remains challenging. [/B]According to market expectations, compiled in Central Bank´s Focus Newsletter, projected IPCA for 2014 increased to 6.51% this week (coming from 6.28% four weeks ago) and projected IPCA for 2015 lies at 6.00% (previously 5.80%). This can be explained by several points of uncertainty in the current inflationary scenario (misalignment of administered prices, agricultural prices and shock resistance to services inflation). Forecasts are an increase of 6.4% for CPI this year and 6.0% in 2015. Members of the Monetary Policy Committee, however, have signalled that a significant portion of the impact of the increase in the Selic rate on inflation will materialize later this year and, in addition, IPCA will be within the range of tolerance. With this in mind there will be a further increase in the Selic rate at the next meeting of Copom (to 11.25 % per annum, a level that should remain until the end of 2014).
[B]In the US, data indicated a recovery in line with market forecasts.[/B] Orders for durable goods were up 2.6% in March (above the expected 2.0%) and the core of orders for capital goods grew by 2.2% during the same period (consensus 1.5%). In addition, the indicator for shipments of capital goods (which correlates with the aggregate investment for GDP) increased by 1.0% (in line with expectations). The PMI for manufacturing increased from 55.5 points in March to 55.4 in April (consensus 56.0). Despite the modest change in the total PMI, the measure for new orders rose from the high of 58.1 points to 58.9 and production rose from 57.5 to 58.2. Both of the above point to an acceleration of the US economy starting in the second quarter – coming from a weak first quarter (around 1.0% annualised, to be released next week) mainly due the harsh winter weather. Growth of 2.8% and 3.0% for the US GDP in 2014 and 2015 is expected, with continued expansion of household consumption and investment, in addition to a smaller fiscal drag than seen in recent years. The recovery for the US housing market is, however, still fragile. Sales of new homes fell 14.5% in March, after falling 4.5% in February (well below the expected 2.3%). Sales of used properties dropped 0.2% during the same period, after falling 0.4% in February. The minimal influence of the real estate sector on GDP should mitigate a possible adverse impact.
[B]In the Eurozone, economic activity continues to resume, however, there could be additional monetary easing in the coming months.[/B] The composite PMI for the Euro area increased to 54.0 points in April, coming from 53.1 in the previous month and above consensus (53.0). There was increase in both the manufacturing PMI (53.0 to 53.3) and the services PMI (52.2 to 53.1). Germany was the most positive influence on the indicators (measures all above 50 points with an uptrend across all sectors surveyed), whereas in France, the composite PMI and its components decreased. Also of note, in Germany, the business climate indicator measured by the IFO institute also improved between March (110.7 points) and April (111.2), surpassing the consensus (110.4) mainly due to the increase in sub-index expectations. In summary, economic sentiment data in the region points to an acceleration of activity (despite recent geopolitical turmoil) and, in light of this, GDP for the Eurozone will expand 1.3% and in 2014 and 2015 coming from -0.4% in 2013. Despite the consistent recovery, the president of the European Central Bank (ECB), Mario Draghi reiterated that the board of the institution may use unconventional or conventional instruments to reduce the risk of deflation. Any extension of the official program of asset purchases has not been overlooked and, more importantly, current accommodative monetary policy should remain the same in the coming quarters. The board of the ECB may adopt further stimulus action at their next meeting, especially by reducing the deposit rate. A new subject touched upon by the ECB President in his speech is the frequency of monetary policy meetings, which could be expanded in the near future due to a more timely reaction of against economic high-frequency data.
[B]The Chinese economy in the following months will be subject to a downturn, which could contain prices of industrial raw materials around the world. [/B]The PMI of Chinese industry, according to HSBC, increased from 48.0 to 48.3 points in March and April – still in contractionary territory (below 50 points). The components of production and new orders scored a high, while new export orders and inventories declined with only stocks up to 50 points. With regard to price data within the HSBC PMI, it is worth mentioning that the input price index rose from 41.5 to 46.1 points, also the price of final goods (from 41.7 to 47.0). With low inflation risk, the People´s Bank of China´s monetary policy should remain “cautious”, with some relaxation at the margin (such as the recent reduction in the deposit reserve for agricultural banks) and fiscal policy should be “proactive”. The outlook for growth for the Chinese economy is a slowing to 7.2% this year and 7.0% next (coming from 7.6% in 2013). Inflation of industrial raw materials will be contained around the world and should counteract the recent upward shock of agricultural prices (due to global climatic imbalances).
[B]In Latin America, Mexico’s central bank kept interest rates at 3.50%.[/B] In its statement, it highlighted the risks to domestic activity that has showed marginal improvement since the last meeting. The activity index of February recorded an annual increase of 1.7%, above consensus (1.6%) and the reading the previous month (1.00%). Retail sales fell 1.7% in February, surprising the market. Inflation in the first half of April fell 0.19% over the previous month (-0.15% expectation), decelerating from 3.62% in March to 3.53% in April. Core inflation accelerated from 2.95% to 3.16%.
[B]With other emerging markets, Turkey, will allow the national treasury provide guarantees to infrastructure projects. [/B]Projects worth more than 1 billion lire will be guaranteed by the Turkish treasury, a process that has been restricted since the 2001 crisis. Permission for the government to take over private debt is a sign of deteriorating fiscal discipline in the country. With regard to monetary policy, the Central Bank of Turkey (CBRT) kept the weekly repo rate at 10%, the rate of borrowing overnight at 8% and the loan rate at 12%. The highlight from the CBRT was the cut of 150 basis points from 15.0% to 13.5 %, of interest rate for emergency liquidity (Late Liquidity Window Interest Rates), reaffirming the dovish bias of the committee.
[B]In South Africa, March inflation increased to 6% in the twelve month measure (5.9% expected) and after three months of stability at 5.3%, core inflation registered an increase coming in at 5.5%.[/B] This behaviour of prices of the South African economy is reflecting in the currency with the depreciation in previous months. Two central banks have raised interest rates this week. The first was the Central Bank of New Zealand (RBNZ) which raised its benchmark interest rate by 25 bps, in line with expectations. The second, in an unexpected move was the Central Bank of Russia, which raised the interest rate to 7.50% pa (up 50 bps) with the primary justification being the risk of inflation moving close to the 2014 above the target of 5% due to food prices and the depreciation of the currency (Ruble), and the reaction to the downgrade by S&P.
[B]On the agenda next week, the highlights will be payroll data and the meeting of the Fed in the US, inflation data in the Eurozone and fiscal data from Brazil. In the US, the FOMC meeting, data from payroll and the unemployment rate in April, first quarter GDP, plus the ISM and consumer confidence (both for April ) will be disclosed. In the Eurozone, the highlights will be inflation data and the unemployment rate (April), whereas in China, the focus will be the release of official PMIs for industry and services in April. On the domestic calendar, fiscal results (consolidated central government and public sector) and credit data for in March and the IGP-M April will be released.[/B]