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Retail Sales to Surprise to the Upside, Don’t Buy Into It

The calendar for the week has a key piece of data that you’ll want to watch out for. We have August Retail Sales data to be released on Wednesday morning. The consensus among a survey of economists conducted by Bloomberg suggests that this figure will decline by 2.1% after having surged 2.7% in the month prior. This may be overly pessimistic as a reading of -2.1% on the sales side would imply that spending among the US public was at its worst since last December, when it tanked 3.2%. Keep in mind that since the start of the year, Retail Sales have only shrunk in two of the months. Such a swing to the downside would be a sharp change in the public’s mindset.

Note that when excluding automobiles from the metric, the consensus forecast is set for an increase of 0.2%. This leads one to believe that automobile sales plummeted throughout the month, causing the broader metric to sink as well. This might not necessarily true. The popular “Cash for Clunkers” program was extended during this period and saw car purchases soar. In fact, there was a 25% jump in the number of autos sold. So there is little reason to believe that August saw such a pathetic performance in Retail Sales.

What to take away from this: Retail traders may splurge on stocks when they see that this number is surprisingly high. But one must ask themselves if this high figure is surely sustainable. Keep in mind that this data is for August and not for September – that’s five weeks back. Cash for Clunkers is over with and there is now little incentive to keep car purchases up. Just moments ago, Philips released it’s Q3 earnings report. In it, they said that the structural recovery in their primary end-markets has been absent. This speaks contrary to that which has been heard from the popular media and other pundits.

Filed under: Economics, Global Economics, , , , , , , , , , , , , , , ,

New Zealand GDP Better Than Expected

New Zealand’s economy shrunk by -0.9% in the three months ending 2008 after economists had expected this south-Pacific country’s GDP to contract by more. The move marks the fourth straight quarter that the island-nation has seen its annual output decrease.

Since July the central bank has slashed interest rates by 5.25% to 3.0% in an effort to provide short-term liquidity to businesses and financial markets in order to stave off the effects of the global recession.

Now, in its fourth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

Yesterday, the IMF released a report stating that New Zealand’s economy would contract a total of 2.0% in 2009 after 2008 experienced a slight 0.1% decrease. One key “vulnerability” that is likely to keep the country under water is the extensive amount of short-term borrowing from abroad, the IMF said.

This final period of the year saw the country’s currency depreciate by as much as -20.95%, but ended the quarter down only 10.15%.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

New Zealand Trade Balance Soars on 11.6% Decline in Imports

New Zealand’s trade balance in February improved substantially from that which was expected. The figure jumped to 489.0 million from an expected 75.0 million after imports fell 11.6%.

The alleviating news comes just a day after Bill English, the nation’s Minister of Finance, said that the current account gap is “uncomfortably large.”

Imports fell as the New Zealand Dollar continued to stifle the purchasing power that domestic residents had for goods produced abroad. The first two months of the year saw their currency depreciate 16.57% against its U.S. counterpart and 9.12% against a trade-weighted basket of currencies.

The amount of goods shipped to the country from Europe fell by a staggering 21.3% and 14% from Asia.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

New Zealand Economy Will Contract 2% in 2009, Says IMF

In a report filed by the International Monetary Fund (IMF) the Washington-based body said that the New Zealand economy will contract by 2.0% this year. “The near-term outlook is weak,” they mentioned. “Households are constrained by high debt levels, falling house and equity prices and uncertain employment prospects,” they added.

The startling words come after Bill English, New Zealand’s Minister of Finance, said that the current account gap is “uncomfortable large”. Indeed, the actual figure for the current account balance in the final quarter of 2008 came in at -4.026, surprisingly better than in the three-month period prior. Despite what would look to be as a positive sign, the deficit-GDP ratio actually became weaker, coming in at -8.9% from -8.6% the period prior.

Claims of weakness in the country are legitimate. Now, in its fifth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

One “key vulnerably” is the country’s substantial level of short-term financing from abroad. With the central bank slashing rates by 5.25% since July, foreigners have been continuously disincentivized to invest in these debts with maturities of less than one year. The IMF may have been too cautious here. Albeit this may seem to be a risk on an absolute basis, the fact that short-term rates abroad are much lower than those in New Zealand may actually direct a greater amount of these foreign cash flows towards this South-Pacific economy.

Now, since Mid-March the New Zealand Dollar has fallen by as much as 40.4% against it’s U.S. counterpart. Generally, such a bearish movle would lead investors in domestically denominated short-term debt to flock away in hysteria. But what if their was an expectation that the currency would begin to rise in value? Under such a case, one would expect exchange rate risk to be of less of concern.

We are seeing such a pattern now. From the low on Mar. 3rd, the currency has rebounded 17.95%. This may be due to the inflationary fears that the Federal Reserve, with its plan to buy $1.2 trillion in treasury and agency/mortgage securities, has sparked among global investors. During this time we have also seen gold rally 7.43% and crude (West Texas Intermediate) break out of a range bound environment and rally 37% to as much as $54.18.

Historically we have seen a strong correlation between the New Zealand currency and commodities. A 180-day rolling correlation with the S&P Goldman Sachs Commodities Index shows that these two instruments have a correlation of .9688, a very substantial relationship.

Thus, if inflationary fears are correct (which the commodities markets seem to believe) then the New Zealand Dollar is likely to continue rising. Hence short-term financing from abroad may actually increase and not decrease.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , , ,

Geithner Open to China Using Non-Dollar as Reserve; Dollar Plummets

WIRE: Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Governor Zhou Xiaochuan for a new international reserve currency. He said “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that…”


Filed under: Global Economics, Politics, , , , , , , , , , , , , , , , , ,

Euro Central Bank President Trichet Says Deflation Won’t Hit Euro-Area, No Fiscal Stimulus

European Central Bank President Jean-Claude Trichet spoke to the Wall Street Journal and was quite reluctant to acknowledge some of the 16-nation currency bloc’s financial problems. He said that Europe does not need to use fiscal policy as liberally as the United States has.

He took some shots at the global financial community, stating that it is unjustified to criticize Europe for its lack of conviction in battling this crisis. Nonetheless he did offer his own critique of the U.S. situation, stating that the U.S. should be ‘quick’ on implementing a rescue plan and on settling on a final budget.

As far as monetary policy is concerned he said that zero interest rates would not be “appropriate” and that there are “drawbacks” to such a policy. He did, however, acknowledge the obvious, that the economic trend remains “downward.” While he did not give any specifics as to his ideal interest rate target, he did suggest that the bank could lower rates below the current 1.5% mark. Nonetheless, despite the difference in approach taken by the Federal Reserve and the ECB, central banks are not in a “race,” he noted.

Ultimately, he has confidence in the experts that say that deflation will not hit the Euro-Area.

We could see the Euro rally as the news of this interview disseminates among the public. As dwarfed expectations of deflation loosen the notion of a zero-interest rate policy, those seeking yield may send their money to Europe and hence prop up the 16-nation currency.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

N.Z. Prime Minister Key Sees Nation Emerging Stronger After Tax Cuts

New Zealand Prime Minister John Key said that the nation’s economy will emerge from this recession much stronger. “I, for one, am confident that New Zealand can come out of this recession stronger than many other countries,” Key said. “These tough times could be a springboard for much better times ahead.”

Since reaching a high of 0.8213 in late Feb. 2008, the New Zealand Dollar has lost as much as 40.4% against its U.S. counterpart. But the Prime Minister has sees this as a positive shift. Indeed, “the exchange rate is acting as a buffer.” That is, “firms in some industries, including for example, sheep meat, venison, and even niche manufacturing, are getting better incomes as a result of the lower currency,” he added.

Australia’s neighbor has been in recession since the first quarter of 2008. It is likely that throughout the entire year, New Zealand’s economy shrank at least 0.3%. In that 12 month period, the unemployment rate rose from 3.4% to 4.6%. Since June the central bank has slashed the overnight cash rate by 525 basis points from 8.25%, the most of any nation throughout that period.

Key has taken steps to ‘think outside-of-the-box.’ His latest piece of legislation aims to give incentives for Australians to vacation in New Zealand. He has increased Tourism New Zealand’s budget by $2.5 million, an increase of more than 25% of its current $9 million budget. “The impact of the global recession is likely to result in New Zealand becoming a more attractive holiday option as Australian consumers tighten their spending,” Key said.

‘Trickle-down economics’ seems to be what Key really wishes to aim for. The Prime Minister plans to cut income taxes on Apr. 1. But such action won’t be adequate. His comprehensive plan also seeks to increase infrastructure investments. In an effort to enhance their transportation efficiency, he plans on increasing the petrol tax by NZ6 cents per liter. Other spending will include school building programs because he is ‘determined to build on these strengths so that when the world starts growing again, New Zealand can be running faster than the countries we compete with,” he said.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , , ,

Mexico Slaps U.S. With $2.4 Billion Tariffs on 90 Products

Mexico slapped the United States with $2.4 billion worth of tariffs on 90 unnamed industrial and agricultural products. The move comes in retaliation after the U.S. Congress cancelled a pilot program that would allow a handful of Mexican truckers to deliver goods throughout the U.S.

According to Gerardo Ruiz Mateos, Mexico’s Economy Minister, the tariffs are allowed under the 1994 North American Free Trade Agreement (NAFTA). “We consider this action by the United States to be wrong, protectionist and clearly in violation of the treaty,” Ruiz Mateos added.

Mexico’s actions might be coming at one of the worst times in the U.S.’ economic history. In January, exports from the U.S. to the world fell 12.5% from the month prior. Since August the figure has plummeted 33.45%. To Mexico alone, that figure has fallen to levels last seen in Jul. 2005 or by 34% since August.

U.S.’ southern neighbor might be hurting itself too. Mexico’s Peso has tanked after hitting a 6-year high against the U.S. Dollar of 9.85 on Aug. 04th. It reached an all-time low only three days ago of 15.58. Such a violent change in price will make it more expensive for Mexicans to purchase goods produced north of its border. But with the enactment of such tariffs, the inflationary pressure felt from Peso weakness will only be exacerbated. Thus the new trade policy may actually prove to hurt Mexico as much as it does the United States.

– LG

UPDATE: Mexican, U.S. Officials to Discuss Trucking Dispute

Filed under: Global Economics, World, , , , , , , , , , , , ,

Australia Plans to Cut Skilled Visas by 14% as Labor Market Weakens

Australia’s Immigration Minister, Chris Evans, has said that the nation will be reducing the number of skilled migrants visas by 18,500. This will be the first of such cuts in 10 years as the domestic labor market weakens to 5 year highs. Such a move will shrink the intake of skilled visas by 14% to 115,000.

In February, the unemployment rate leapt to levels last seen in Oct. 2004. The figure jumped by 0.4% points to 5.2% after economists had expected the figure to print to only 5.0%. The second month of the year also saw 53.8K full-time jobs converted into 55.6K part-time ones, signaling deeper labor-market weakness.

Evans told the Australian Broadcasting Corp. radio station that “we don’t want people coming in who are going to compete with Australians for limited jobs.”

The actions taken by the country’s immigration board may bolster inflation. In the final quarter of 2008, general consumer prices actually fell by -0.3%; the country felt the effects of deflation. Now, since there will be less workers available to meet the labor needs of job providers, employers will need to bid up the price of labor. As this happens the extra cost of labor is likely to be transferred to the cost of goods sold to the public. Hence inflation may rise.

This may sound good in theory, but since the visa cuts will only apply to skilled workers, the effect of such higher prices may only be felt in those goods which employ such people. Such goods may include electronics, research and development, and financial services.

Hence, the visa cuts might not actually help the common Australian, but instead aid those who are highly educated and are well-off on a long-term basis.
– LG

Filed under: Global Economics, Politics, , , , , , , , , , , , , , ,



In November, the Chinese government announced that it would be implementing a stimulus package worth $915 billion. Details of the plan were not so readily available and made it difficult for economists to estimate the impact that it would have on the global economy. Just recently, however, the former head of the nation’s statistic bureau stated that they would be removing export taxes on many industries hurt by the crisis.

Moments ago China’s Premier Wen Jiabao spoke at a news conference and offered greater insight into the government’s thinking. He stated that the communist government has prepared other measures in case of greater problems head. He also said that they had a “full arsenal” to stimulate the economy. Wen may have been taking a shot at the U.S. legislature, saying that China can “at any time…introduce new stimulus.” It has “reserved adequate ammunition” to do so.

In a startling note, he also mentioned that they are concerned over the security of its investments in the U.S. He then urged the U.S. government to “ensure the safety” of its American assets. “We have lent a huge amount of money to the United States” and that “of course we are concerned about the safety of our assets. To be honest, I am a little bit worried.”

On foreign exchange intervention, Wen seemed a bit defensive. He argued that that the Yuan appreciated against a wide-range of currencies, but that the currency’s upward swing has hurt its exports. He also reiterated their stance on diversifying the basket against which the Yuan is pegged to. “No country” can “pressure” them to appreciate or depreciate the currency.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , ,

Australian Unemployment Jumps To Highest Since October 2004

The Australian Unemployment Rate for February shot up to levels last seen in Oct. 2004. Economist expectations of a 5.0% figure were overshot by a realized value of 5.2% after having posted a 4.8% reading in January. The participation rate continued to jump for a third consecutive month, by 0.5% points to 65.5% in February. Falling participation along with rising unemployment indicates that a broader measure of labor strength may be deteriorating. As people become discourage and halt their search of jobs, they are removed from the sample space used to estimate the unemployment rate. Had those disenfranchised ex-laborers been included, the unemployment figure would have likely been greater.

Structurally, the labor market shifted a large portion of full-time positions into part-time ones. 53.8K full-time positions were lost while 55.6K part-times were created.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , ,


Chinese trade with the rest of the world suffered heavily in February. Its surplus plummeted 87.6% to a mere $4.84 billion from $39.11 billion. The realized value substantially underscores expectations that the figure would print at $28.30 billion. Surrounding this event may be questions regarding the health of the world’s third-largest economy.

In the year through the month, exports from the Asian nation fell 25.7%; imports shipped to the country fell 24.1%. The sudden developments will likely add pressure to the Chinese government to add to the 4 trillion Yuan ($585 billion) stimulus announced in October. China’s commerce minister stated yesterday that the U.S.’ largest foreign creditor would be eliminating export taxes as part of the additions to the stimulus. He noted that the country would “use all possible measures to ensure the stable growth of our exports and prevent a large drop in external demand.” At this point it is questionable whether the communist nation’s domestic policies will aid the troubling glove in combating their lack of appetite for Chinese made goods.

The U.S. Dollar rallied on the news. Against the Euro, the greenback jumped from 1.2727 to 1.2656, or 71 pips in the 10 minutes following the release. Against the Australian Dollar, the greenback jumped from 0.6475 to 0.6427, or 52 pips.

– LG

China's Trade Surplus; Source: Bloomberg, Prepared by Luis Gil

China's Trade Surplus; Source: Bloomberg, Prepared by Luis Gil

Filed under: Global Economics, World, , , , , , , , , , , , , ,

IMF: World Suffering From IMF: World Suffering From “Great Recession”

The International Monetary Fund (IMF) stated that the world is now suffering from a “Great Recession” that could trigger wide-spread poverty and civil unrest. “The global financial crisis, that might now be called the great recession, provides a sobering backdrop to our conference,” said IMF Managing Director Dominique Strauss-Kahn today. The institution, which was created after WWII, now “expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” the managing director said.

A global effort to alleviate the consequences of this global recession will not only benefit the incomes of those in the developing world, but will also help their residents remain safe. “this is not only about protecting economic growth and household incomes – it is also about containing the threat of civil unrest,” Strauss-Kahn added. “I urge partner countries to support me in this,” he also noted.

Yesterday, the IMF’s sister institution, the World Bank, stated that the global economy would shrink for the first time since WWII. Bank president Robert Zoellick stated that “we need to react in real time to a growing crisis that is hurting people in developing countries.”

– LG

Filed under: Global Economics, , , , , , , , , , , , ,

China’s Deflation Has Officially Arrived As Prices Fall 1.6%

China’s Consumer Prices declined by -1.6% in February from the year prior as the global economic contraction reduced demand for the Asian giant’s good. This is the first time since Dec. 2002 that prices in the world’s third-largest economy decline. Producer Prices led the decline; the cost of manufacturing products has been falling consistently since August, ultimately plummeting by -4.5% in January. The last time wholesale prices fell by this much was in Mar. 1999.

It was reported earlier today that China plans to reduce export taxes to zero. Such a move would allow supply pressures to ease domestic prices upward. As export taxes are reduced, the price for such goods decreases to those living abroad. When prices decrease, they tend to consumer more. While this is happening, those living in China see less supply of these products on their store shelves. And as supply decreases, prices increase.

On a similar note, Home Prices fell by 1.2% in February, marking it the steepest decline since the Chinese government began keeping track of the data in Aug. 2005. This is the third straight month that housing prices fall.

– LG

China's CPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

China's CPI Since 2000; Source: Bloomberg; Prepared by Luis Gil

China's CPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

China's PPI Since 1999; Source: Bloomberg; Prepared by Luis Gil

Filed under: Global Economics, World, , , , , , , , , , ,

Europe Refuses Additional Stimulus Measures

“European ministers said on Monday they had no plans to add to recent fiscal stimulus packages despite calls from the US for radical expansions in government action to boost ailing economies.

Meeting in Brussels, finance ministers from the countries in the eurozone said they wanted first to see the effect of stimulus packages that had been passed. Peer Steinbrück, the German finance minister, said: “We are not debating any additional measures.””

Filed under: Global Economics, World, , , , , , , , , , , , ,

China To Cut Export Tax to Zero as Part of Stimulus

China has set a plan to cut its export taxes to zero in an effort to encourage producers to sell their products abroad, the nation’s commerce minister said today. He added that the Asian country will “use all possible measures to ensure the stable growth of our exports and prevent a large drop in external demand.” The plan comes less than one week after it was reported that Premier Wen Jinbao would announce additions to the 4 trillion Yuan ($585 billion) stimulus package that was set in October.

Timing couldn’t be any more perfect. Indeed, collapsing global trade has forced the world’s third-largest economy to see its export volume plummet by 17.5% in January alone. Early reports, albeit unofficial, predict February’s figure to plummet by even more than that.

– LG

Filed under: Global Economics, , , , , , , , , , , , ,

Reserve Bank of Australia Holds Rate Steady For First Time in Seven Months; Currency Jumps

The Reserve Bank of Australia held its overnight cash rate at 3.25% despite expectations calling for a 0.25% cut in the main policy rate. For the first time in seven months, the central bank left rates unchanged after an aggressive rate slashing campaign that began in August. Since then, the RBA has sought to prop the ailing south-pacific economy by easing liquidity. Throughout those seven months, the bank slashed the rate by 400 basis points from 7.25% to 3.25% in early February.

Expectations, however, deviated quite substantially. Of the 18 economists that Bloomberg had surveyed, four called for the bank to hold the rate steady while seven expected a 50 basis point cut. The remaining seven favored a 25 basis point move down.

The Australian Dollar jumped 48 pips against its U.S. counterpart in the seconds following the announcement.

Interestingly enough, the pair also spiked just seconds before the rate announcement, implying that some institution was made aware of the decision BEFORE it was made public.

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

AUD/USD Jumpes Seconds After Rate Decision; Prepared by Luis Gil using FXTrek Intellichart

Filed under: Global Economics, , , , , , , , , , , , ,

Australian Retail Sales Unexpectedly Jumped in January

Australian retail sales rose unexpectedly in the month of January. At 0.2%, the rise in sales aggressively overshot expectations of a -0.5% decline in the figure. Spending was bolstered by the government’s distribution of A$8.9 billion ($5.6 billion) in cash grants to families as a result of the stimulus package passed in late January. Prime Minister Kevin Rudd announced that they would continue distributing more cash. In fact, another A$12.7 billion will be sent to lower and middle-income families and individuals.

The greatest gains in spending came in the form of eating out at cafes and restaurants. This sector of the overall metric rose 2.3%, but hasn’t shrunken since October. On the contrary, spending on household goods fell a substantial 4.0%, lending clues as to the underlying sentiment being felt among the public. That is, spending on durable (big-ticket) goods like washers, refrigerators, and television has probably also fallen. Furthermore, this could imply that people are reluctant to purchase such items because of the fear they may have over losing their house due to delinquencies in mortgage payments.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , ,

Euro Monetary System Risks BREAKUP As Unemployment Soars Higher Than Expected


Unemployment Rises to 8.2% With Forecasts Seeing 8.1%…

Filed under: Global Economics, World, , , , , , , , , , , , , , ,

Japanese Deflation Strikes Again: Prices Fall Through January; Unemployment Unexpectedly FALLS

Overall prices in Japan remained even in the 12 months through January after global slowing consumption reduced demand for autos and electronics. When eliminating food and energy from the metric, Japan actually suffered from deflation. These prices fell by 0.2% throughout the same period.

Interestingly, unemployment plummeted in the same month. Indeed, the jobless ratio fell to 4.1% after economists had forecast the figure to rise 0.3 percentage-points to 4.6%. This move comes as the Jobs to Applicants ratio fell, yet again, to 0.67; that’s down from 0.73 in December and 0.98 at the start of 2008. With the unemployment falling and the jobs-applicants ratio dwindling, one may think that people are leaving the work force.

The bleak picture comes as little surprise after the Asian economy shrank at an annualized 12.7% pace last year. Vehicle sales fell 27.9% in the 12 months through January alone! Exports fell 13.9% as well.

– LG

Filed under: Global Economics, World, , , , , , , , , , ,



May 2020


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