Monthly Archives: April 2015
The people who nailed the horrific Q1 GDP number have bad news about Q2
30-Apr (BusinessInsider) — The Atlanta Fed nailed US Gross Domestic Product in the first quarter.
On Wednesday, we learned that the US economy grew by just 0.2%, far below the consensus forecast for 1% growth among economists. Of the 86 economists surveyed by Bloomberg, only four estimated that GDP growth would be 0.2% or lower.
The Atlanta Fed had long forecast 0.2% growth before revising it down to 0.1% after last Friday’s durable goods report.
And just a day after the disappointing Q1 GDP release, the Atlanta Fed has news about Q2: the economy will grow by just 0.9%, according to their latest forecast.
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Japan factory output falls; BOJ keeps policy unchanged
30-Apr (AP, via YahooFinance) — Japan’s central bank has defied expectations it might expand its monetary stimulus to help get growth back on track, keeping policy unchanged despite data showing factory output fell in March.
A brief statement from the Bank of Japan reaffirmed the central bank’s intention to maintain its asset purchases and other measures aimed at spurring inflation to help stimulate corporate and consumer spending.
The government said Thursday that industrial production fell 1.2 percent in March from a year earlier and 0.3 percent from the month before. The decline was relatively mild: manufacturers and analysts had anticipated a drop of over 2 percent from February, when output fell 1.3 percent from the month before.
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PG View: While the industrial production drop was not as big as expected, on the heels of the huge retail sales plunge, the overall tone of the Japanese economy remains pretty bleak. This constitutes an abject failure of the herculean monetary effort on the part of the Abe government and the BoJ to stoke growth and inflation.
The Daily Market Report: Gold Retreats as Dive in Initial Claims Lifts Dollar
30-Apr (USAGOLD) — Gold slid back below the $1200 level in early New York trading, weighed by a sharp drop in initial jobless claims last week. This, along with a bigger than expected rebound in the Chicago PMI revived the dollar somewhat.
Initial jobless claims fell 34k last week to a cycle low 262k. This unwinds most of the gains in claims seen in recent weeks. Perhaps more importantly, it sets up some upside risk for April nonfarm payrolls and the jobless rate, which come out a week from tomorrow. Consensus for payrolls is +228k, although we might see that edge higher now. The unemployment rate is expected to tick lower to 5.4%.
Even if we see payrolls double from the dismal 126k print for March, the Fed is still unlikely to hike rates in June. If fact, yesterday’s terrible Q1 GDP advance report, adds considerable credence to the scenario that suggests the Fed won’t raise rates this year.
The dollar index, which fell to 9-week lows earlier in the session, has since rebounded. However, the gains have been less than 1% thus far. The harsh impact the strong dollar had on Q1 GDP has many now thinking the Fed needs to do something to undermine the greenback.
Renewed hope that Greece may reach some compromise with its creditors may be weighing on gold as well as risk aversion in Europe moderates. A recent poll shows that a decided majority of Greek voters believe the Tsipras government should cut a deal to keep Greece in the eurozone.
This may provide Tsipras with the political cover he needs to backtrack on some of the promises he campaigned on. Even if Greece is able to secure the next €7 bln tranche of bailout funds, it does not even come close to solving the problem that is Greece. It only kicks that can a little ways down the road.
Like other recent retreats into the range — driven by speculators in the paper market — this provides an opportunity to buy physical gold with an 11-handle. The underlying supply/demand dynamics in the gold market remain broadly supportive.
Chicago PMI rebounded to 52.3 in Apr, above expectations of 49.0, vs 46.3 in Mar.
Greece signals concessions in crunch talks with lenders
30-Apr (Reuters) – Greece’s leftist government offered its biggest concessions so far in a race to remove roadblocks in crunch talks with lenders on a cash-for-reforms package on Thursday.
Prime Minister Alexis Tsipras’s three-month-old government is under growing pressure at home and abroad to reach an agreement with European and IMF lenders to avert a national bankruptcy. A new poll showed over three-quarters of Greeks feel Athens must strike a deal at any cost to stay in the euro.
An enlarged team of Greek negotiators was due to meet representatives of the so-called Brussels Group of lenders to discuss which reforms Greece will turn into legislation rapidly in exchange for aid. Athens says it needs fresh aid before a 750 million euro payment to the IMF falls due on May 12.
Elected on promises to end austerity and scrap an unpopular EU/IMF bailout program, Tsipras had so far refused to give ground on so-called “red lines” – pensions, labor reform and state asset sales – that are core to his leftist party’s agenda.
But Athens said late on Wednesday it was ready to sell a majority stake in its two biggest ports and to concede on value-added tax rates and some pension reforms, in the clearest signal yet that it is ready to back down for a deal.
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Gold slips back below $1200 after sharp drop in jobless claims.
US personal income unch in Mar, below expectations of +0.3%, vs +0.4% in Feb; PCE +0.4%.
US Q1 ECI +0.7%, above expectations of +0.6%, vs negative revised +0.5% in Q4 2014.
US initial jobless claims -34k to 262k in the week ended 25-Apr, well below expectations of 290k, vs upward revised 296k in previous week.
Gold better at 1206.34 (+1.72). Silver 16.68 (+0.128). Dollar lower. Euro higher. Stocks called lower. US 10yr 2.03% (-1 bp).
Fed damps rates expectations as economy loses momentum
29-Apr (Financial Times) — The US recovery has lost momentum and the pace of hiring has moderated, the Federal Reserve said, acknowledging a weakening in the economy that has prompted markets to push back expectations of interest rate rises.
The central bank said that growth had “slowed” during the winter months reflecting “in part” transitory factors, while growth in household spending had declined even amid strong rises in real incomes, and exports had fallen.
However in its statement the Fed said that despite the weakening in output and employment growth it expects activity to expand at “a moderate pace”.
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PG View: A more dovish take on the FOMC statement from the FT.
Gold dips back to $1200 as Fed is apparently nonplussed by dismal GDP print.
Federal Reserve leaves open chance of June rate hike
29-Apr (MarketWatch) – The Federal Reserve said it expects the U.S. economy to rebound after slowing in the ‘winter months,” leaving open the chance of an interest-rate increase as early as June. Yet the latest statement by the Fed after top officials met on Wednesday could be a signal the central bank might wait a bit longer. Many analysts think the Fed will hold of at least until September. The Fed also took note of the sluggish U.S. growth during the first quarter but pointed to ‘transitory factors.” Although GDP and job creation “slowed during the first quarter,” the Fed said, the central bank “continues to expect that … economic activity will expand at a moderate pace.” The Fed’s statement and actions were approved in a 10-0 vote.
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PG View: Anyone who thinks the Fed will actually hike rates in June is delusional. This is a throwaway policy statement because Yellen doesn’t need to answer any questions this month.
Fed: Don't worry about the present, focus on the future.
— Pedro da Costa (@pdacosta) April 29, 2015
The Daily Market Report: Gold Underpinned by Weak Dollar After U.S. GDP Disappointment
29-Apr (USAGOLD) — Gold remains fairly well bid in the wake of this mornings GDP disappointment. The yellow metal is being underpinned by a weaker dollar and rising risk aversion.
U.S. Q1 GDP came in well below expectations at just +0.2%. Consensus had been running around +1.0%. We suggested in yesterday’s DMR that the Atlanta Fed’s GDPNow forecasting model was probably closer to the truth, and it was in fact just about spot on.
Exports got crushed in the first quarter, dropping 7.2% y/y. The rise in the dollar to 11½-year highs in Q1 was largely to blame, as talk of an impending Fed rate hike intensified.
Capital expenditures plummeted by 2.5%. It was the biggest drop since 2009.
If it weren’t for the huge 0.74% inventory build (biggest ever), Q1 GDP would have been negative. Final sales were in fact -0.5%.
The bad news is that the inventory build will now take away from Q2 GDP; and we’re already seeing some negative revisions. Deutsche Bank’s Joe LaVorgna nearly halved his Q2 estimate from +4.0% to +2.5%.
When the Fed announces policy later today, they really should address the weak growth with something that is more overtly dovish. Perhaps a more forceful emphasis on the data dependency of any movement on rates.
I think it is safe to say that a June hike is off the table, even though I’ve never really felt that it was on the table. The last thing the Fed wants to do is intensify the growth risks at this point by suggesting policy remains unequivocally on a divergent path with the rest of the industrialized world.
In light of the sharp drop in exports and widening of the trade gap, something should also be said about the dollar. The Fed has been sitting on its hands for about a year now as the ECB and BoJ have debased the euro and yen respectively. Now that the impact of dollar gains are hitting the economy, the Fed should do something to cap the greenback.
Japan Retail Sales Slump Flashes Warning Signal for Kuroda
27-Apr (Bloomberg) — Japan’s retail sales fell in March the most since 1998, cutting against central bank chief Haruhiko Kuroda’s view that cheaper energy will give a boost to the world’s third-biggest economy.
Sales dropped 9.7 percent from a year earlier, when there was a run-up in purchases ahead of an April sales-tax increase, according to trade ministry data released Tuesday. Sales sank 1.9 percent from the previous month, compared with a gain of 0.6 percent forecast by economists in a Bloomberg survey.
The weak reading on consumer spending comes ahead of this week’s Bank of Japan policy decision and economic outlook that could highlight waning momentum in inflation. Kuroda has said cheaper oil may crimp price gains in the near term, while eventually fueling growth and inflationary pressures.
“It’s becoming clear that Japan’s recovery is very sluggish,” said Kiichi Murashima, an economist at Citigroup Inc. “With a tight labor market and better consumer sentiment, we don’t have to change the view that spending will pick up gradually. But uncertainties are growing about the strength of the economy and that’s worrisome for the BOJ.”
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PG View: This terrible news came out a couple days ago, and what a huge miss versus expectations! It just goes to show that even market professionals continue to think that massive money printing will eventually ignite consumption. Apparently not yet, so what’s the BoJ to do? Print more is the likely answer.
Gold Futures Pare Losses as U.S. Economy Stalls in First Quarter
29-Apr (Bloomberg) — Gold futures pared declines after a U.S. government report showed the economy stalled in the first quarter, adding to speculation that the Federal Reserve will wait longer before raising interest rates.
The metal has rebounded about 6 percent since reaching its 2015 low on March 17. The next day, Fed policy makers trimmed their expectations for where rates would be by the end of the year. Officials are scheduled to issue a policy statement at 2 p.m. in Washington. U.S. gross domestic product rose at a 0.2 percent annualized rate after advancing 2.2 percent the prior quarter, Commerce Department data showed.
“At first glance, the GDP was much weaker than expected, meaning the Fed will probably keep interest rates low for longer,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a telephone interview. “Maybe they’ll even defer the rate hike into next year, so this should clearly be supportive for gold.”
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PBOC ‘poised to pull QE trigger’ as economy stalls
29-Apr (ChinaDaily) — Financial markets on the Chinese mainland are abuzz with speculation that the central bank will inject more liquidity into the economy by unconventional means that could amount to a version of “quantitative easing”.
The People’s Bank of China may adopt new policies that could include direct purchases of local government bonds from the market, a report by Market News International said on Monday. The Wall Street Journal also reported that the government may let banks use these notes as collateral for loans from the central bank.
Economic growth in China has been slowing, but unlike Europe and the United States, there is abundant scope in China to counter the downward pressure by conventional means as reducing interest rates and cutting banks’ reserve requirement ratios, both of which have been done in recent months.
So it seems strange, to say the least, to be talking about QE. However, a closer look suggests that the idea is not so irrational, and an aggressive asset-purchasing program with Chinese characteristics can be expected.
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Economy in U.S. Stalls on Slump in Business Spending, Exports
29-Apr (Bloomberg) — The economy in the U.S. barely grew in the first quarter, buffeted by slumps in business investment and exports after oil prices plunged and the dollar surged.
Gross domestic product, the volume of all goods and services produced, rose at a 0.2 percent annualized rate after advancing 2.2 percent the prior quarter, Commerce Department data showed Wednesday in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1 percent gain. Consumer spending, the biggest part of the economy, rose 1.9 percent, a little better than projected.
While the restraints of harsh winter weather and delays at West Coast ports were temporary, the effects of the drop in fuel prices and stronger currency will probably prove longer-lasting. Federal Reserve officials wrapping up their meeting later in the day may signal they’re in no rush to begin raising interest rates.
…Corporate fixed investment decreased at a 2.5 percent annualized pace, the worst performance since the end of 2009. It grew at a 4.5 percent rate in the previous quarter.
Investment in nonresidential structures, including office buildings and factories, dropped 23.1 percent, the most in four years. It rose 5.9 percent in the prior quarter.
…Exports have fallen for four consecutive months as the dollar gained more than 20 percent since the end of June and overseas growth remains uneven.
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PG View: Inventory building added 0.74% to GDP, so real final sales were -0.5%. That’s bad news, so the Fed may have to express some more overt dovishness this afternoon.
Fed will meet later today to discuss when to raise interest rates. If they had models that worked, they'd discuss #QE4. That comes later.
— Jim Rickards (@JamesGRickards) April 29, 2015