Top 5 Economics Graphs of the Week - 22 May 2011

This week we take a look at some inflation numbers from the EU and UK, and while on the topic have a check in on commodity prices. Then we review the latest GDP numbers from Japan, before finishing up with a check in on global monetary policy.

1. EU Inflation
The EU saw a continued spike in inflation, with Euro Area annual inflation at 2.8%, vs 2.7% in March (1.5% in April 2010), while EU annual inflation rose to 3.2% vs 3.1% in March (2.0% in April 2010). Meanwhile Euro Area Core inflation was perhaps the most remarkable, rising to 1.6% in April, from 1.3% in March, and just 0.8% in April 2010. The highest rate of inflation was seen in Romania (8.4%), followed by Estonia (5.4%); while the lowest rate of inflation was recorded in Switzerland at just 0.1%, followed by Norway with 1.3%. While there is a degree of divergence in results, inflation is broadly creeping upwards in the Euro Zone and Core inflation is fast approaching the ECB inflation target.

2. UK Inflation
Over in the UK, a similar theme of rising inflation was seen with April annual consumer price inflation of 4.5%, up from 4.0% in March, and 4.0% in April 2010. The spike in inflation in the UK has caused some to speculate on a sharp rise in interest rates from the Bank of England, with inflation still well above its official inflation target. However the Bank of England, by and large, is not particularly set on aggressive tightening, particularly when the UK economy is still struggling along in recovery mode. The most likely policy path will be a steady path of rate increases, perhaps commencing later this year, depending on how the broader economy fares.

3. Commodities
On a rolling 12 month return basis, the latest data shows commodities were up 35.6% as measured by the Reuters/Jefferies commodity index. On a rolling monthly basis though the figure was -6.6% driven by a sell-off in a few commodities, particularly Silver. Commodity prices continue to be the key variable for 2011, as rising prices have catalyzed uprisings and social unrest, driven surging inflation in emerging markets, and have begun to have an increasing impact on inflation in developed markets. There's also the growth risks that high commodity prices present. But commodities are probably a good example of mean reversion in practice as high prices generally lead to a supply response, thus prices shouldn't be able to run up too high for too long unless structural changes have taken place in the global economy.

4. Japan GDP
Japan had a disappointing Q1 GDP figure, with GDP declining -0.9% on a quarterly basis (annualised -3.7%) , compared to -0.8% in Q4 2010, while Q1 2010 was 2.2%. On an annual basis this mean contraction of -0.7%, compared to 2.4% in Q4 2010, and 5.5% in Q1 2010. Much of the negative results can be explained by the impact of the earthquake as the disaster weighed heavily on private consumption and caused supply chain disruption impacting on net exports, and general uncertainty limiting capital spending. As with most large scale disasters the economic pattern is a short-term hit, but a medium term spike. So, provided the Japanese government can manage the process well, the rebuilding phase should help Japan's economy return to growth later this year, with 2012 likely to see much stronger economic activity levels.

5. Monetary Policy
The past week in monetary policy was relatively quiet with only 5 central banks announcing monetary policy decisions, and of those, only 1 adjusting its policy stance. Vietnam was the only bank to adjust monetary policy settings; increasing its reverse repurchase rate by 100 basis points to 15.00%. Meanwhile those that held their monetary policy interest rates unchanged were: Serbia (12.50%), Hungary (6.00%), Sri Lanka (7.00%), and Japan (0.10%). So there was somewhat of a theme of emerging markets beginning to ease off on aggressive policy tightening (with the exception of Vietnam, which is still seeing rampant inflation) as some inflation pressures begin to ease, if not peak, and as the growth outlook comes to fore in terms of policy risk. Monetary policy, and by extension inflation, remains one of the key factors for the growth and financial market outlook in emerging markets this year.

Summary

So we saw the pace of inflation beginning to show a more marked uptrend in the Euro Zone, which may well mean that the ECB's interest rate increase in April will likely be repeated in the near term. Meanwhile the UK also saw a continued high rate of inflation, but the Bank of England is still unlikely to budge as the UK economy is still on the go-slow. On a related topic, commodity prices saw surging 12-month returns in May, but with monthly returns diving into negative territory, perhaps heralding an easing in commodity prices over the medium term. In Japan, first quarter GDP results were disappointing, driven into negative territory by the disaster impact. On monetary policy, further signs of a peak in monetary policy tightening for emerging markets surfaced as the growth-inflation risk mix is becoming increasingly finely balanced.

Sources
1. EuroStat epp.eurostat.ec.europa.eu
2. National Statistics Office www.statistics.gov.uk
3. Jefferies www.jefferies.com
4. OECD Statistics stats.oecd.org
5. Central Bank News www.centralbanknews.info

Article Source: http://www.econgrapher.com/top5graphs22may11.html

Economic Calendar: EU CPI, Japan GDP, U.S. Housing Market

Here's the Economic Calendar for the week commencing the 15th of May 2011. This week brings more inflation results from the eurozone, the U.K., and Canada. There's also Q1 GDP from Japan, which also has industrial production figures out, and an interest rate decision due from the Bank of Japan. The U.S. has housing starts, building permits, and existing home sales data due this week. Elsewhere there's retail sales figures due from the U.K. and Canada, and foreign direct investment numbers from China.

http://seekingalpha.com/article/269963-economic-calendar-eu-cpi-japan-gdp-u-s-housing-market

Japan Update - The Yentervention

The Bank of Japan today intervened in the forex market, selling Yen (JPY) as the exchange rate entered the psychologically important 82 yen zone. After the intervention the USD strengthened against the JPY, with the USD/JPY rate rising to about 85.50. The move follows repeated threats by the Bank of Japan to take "decisive steps" if necessary. Japan's Finance Minister, Yoshihiko Noda, noted that the impact of the rising Yen on the economy could no longer be ignored - he also noted that Japan had acted alone in the move. So what does this mean? and what does it signal?


In the short term it probably means more volatility in the JPY, and possibly a continuation of the artificially induced pullback. As Japan is very much a trade driven economy, the exchange rate has a material impact on export competitiveness and thus growth in exports (note exports have still not recovered to pre-crisis levels in Japan).

In the medium to longer term though currency intervention often tends to have the effect of blowing air into the wind; currency intervention has its place at the margins and at the extremes, where it can be quite effective - or as a trigger point. But if the fundamentals suggest the exchange rate should be trending in a certain direction then intervention is liable to backfire.

The move also sends some strong signals about the relative levels of desperation felt by the Ministry of Finance and the Bank of Japan by extension. It means they are getting nervous about the state of the Japanese economy, and maybe they should be. The deflation problem is still there, so is the debt problem, growth has rebounded - but for how long, trade has rebounded - but the exchange rate issue has played a part; global demand will also come into the mix.

So what's the conclusion? Well for one the "yentervention" probably wont work long term, and probably wont have the intended impact of boosting exports. And on the signaling side, well, Japan may well be going the way of the US and we may start seeing double on the double-dip front!

Sources
Econ Grapher Analytics www.econgrapher.com
Global View Forex www.global-view.com

Article Source: http://www.econgrapher.com/15sep-yentervention.html

Top 5 Economics Graphs of the Week - 28 August 2010

This week we take a look at GDP stats from the robust German economy, and the less than robust US economy. Then we look closer at the US situation; reviewing the existing home sales data, and consumer sentiment data. We then wrap up with a review of the July trade figures from Japan.

1. German GDP
Germany proved itself to be one of the strongest developed economies (and certainly within the EU). Overall the German economy grew 2.2% compared to the previous quarter (the fastest growth rate since East and West Germany reunified). The surge in growth was driven by strong exports, up 8.2% in Q2; boosted by trade with China and the US... which should immediately raise some concerns given the slowing of those two economies. However equipment investment (up 4.4%) also grew relatively strongly; and consumer spending returned to growth (0.6%). So there are growing signs of fundamental strength in the German economy, as well as from the rebound in international trade.


2. US GDP
The US economy showed further signs of descending into the double dip as the second quarter GDP growth rate was downgraded to 1.6% annualised (0.4% q/q) vs initial reading of 2.4% annualised (0.6% q/q). The downgrade was driven by a higher net export deficit and smaller gain in inventories; as well as residential investment and government purchases; these were partially offset by slight upward adjustments to personal consumption and nonresidential fixed investment. From here the vulnerability and weight of risks is almost certainly weighted to the downside, there's a weakening housing market, a still high unemployment rate, a necessary period of deleveraging to go through; so the weight of probabilities is for a dip back into negative growth. The best case scenario would be for stagnant growth (the muddle ages).


3. US Existing Home Sales
US existing home sales confirmed concerns by many that the US housing market is still a major risk area for the US economic recovery. On a seasonally adjusted annualised basis existing home sales dropped to 3.83 million from 5.37 million in June (consensus was for a dip to just 4.65m). Supply at the current sales rate expanded from 8.9 months to 12.5 months - the worst reading in 11 years. For now prices have only dipped slightly, with reluctant sellers not yet giving in, the median price dipped to $182,600 from $183,700 in June. So, as noted above, unless something radical happens, the US housing market remains a critical threat to the US economic recovery.


4. US Consumer Sentiment
On a similar vein, the Reuters/University of Michigan Consumer Sentiment index crept along, rising slightly from the July reading (68.9 vs 67.8). Expectations improved less; 62.9 vs 62.3 and current conditions improved to 78.3 from 76.5. Overall the impact of scarce jobs and stagnating incomes have spurred consumers to hunker down; taking a more defensive outlook with the whole deleveraging and cash reserve building behaviour becoming more and more endemic (and for good reasons). The data lines up with the weak housing data, and slowing trend in the GDP data; unless the manufacturing sector really pulls a rabbit out of the hat; and exports somehow surge, the outlook keeps coming back to the scenario of a double dip.


5. Japan Trade
Japan saw a continuation of the recovery in exports (and imports), but at a slightly slower pace. Looking to the chart its clear the trend is showing a recovery, but still; exports are well below trend, and are still yet to return to levels seen prior to the crash in global trade. Exports climbed 23.5% year on year to 5.983 trillion yen ($71 billion), the year on year growth rate in June was 27.7%. Interestingly the key driver of growth was continued sales of cars and electronic components to emerging economies like China and other Asian countries; which is promising somewhat given their higher potential growth rates. But the Japanese Yen has been appreciating, and this could reduce export competitiveness. So for Japan, trade remains the key to sustaining economic growth, but the downside risks remain.


Summary

So we saw two key developed economies provide updates on their GDP situations. On the one hand there was Germany - albeit caught up still with some of the wider EU risks - which was showing surprising resilience, with strong exports, growth in investment, and even a return of consumer spending. The signs are for continued strength in the German economy.

The US however showed weakness on almost all fronts; and the housing data and consumer sentiment data did nothing to provide comfort. It's becoming increasingly harder to get to any other conclusion than for a double dip. The best case is likely to be a prolonged period of stagnant growth, aka the muddle ages of the recovery.

Over to Japan, the challenges of deflation (which increased to -1.1% in July), high government debt, and low consumer spending; were carried once again by strength in trade. But again, as some of its key trade partners show signs of slowing, and as the Yen appreciates, the outlook is probably also for relatively stagnant growth at best.

Sources
1. OECD Stats stats.oecd.org
2. Bureau of Economic Analysis www.bea.gov
3. Realtor.org www.realtor.org
4. Reuters/Univesity of Michigan customers.reuters.com
5. Japan External Trade Organization www.jetro.go.jp

Article Source: http://www.econgrapher.com/top5graphs28aug.html

Top 5 Economics Graphs of the Week - 20 August 2010

This week we look at the Q2 GDP results for Japan and Taiwan; getting a gauge on how these two key Asian economies are tracking in their recoveries. Then onto the US where we look first at the industrial production results, which are a tad paradoxical, and then at the PPI stats which may be pointing to margin compression. Then we wrap-up with a view on Euro zone inflation.

1. Japan GDP
Japan's economy grew at an annualized rate of 0.4% (basically flat), well below median forecasts for about 2.3%, and Q1 revised rate of 4.4%. The Japanese economy was also reported as dropping behind China to the world's 3rd largest economy (which is pretty much just a technicality in confirming a foregone conclusion). The Japanese economy was held back by slowing export growth and subdued consumption, as phase 2 of the recovery sets in (i.e. the muddle ages). So Japan will keep muddling on, the key sensitivities for Japan continue to be international trade (and therefore the currency), and on a related note; the resilience of the Chinese economy.


2. Taiwan GDP
Taiwan's economy grew 12.53% year on year in the June quarter, slower than 13.71% in Q1 but higher than consensus estimates for 10.5%. The great rebound is just about run its course in Taiwan. The Taiwanese economy which is also closely linked to the fortunes of global trade, and its neighbor to the north (Zhong Guo); which is currently undergoing a managed slowdown. The policy factors are also playing into the picture as the central bank in Taiwan normalises monetary policy (with a few small hikes expected into the second half of 2010), as well as fiscal policy normalisation, with the authorities keen to keep government debt below the 40% debt to GNP ceiling.

3. Industrial Production
The US released its industrial production figures for July this week, with production rising 1.0% month on month; ahead of consensus 0.6%, and previous 0.1%. On an annual basis industrial production rose 7.7% off of the lows of the earlier stages of the recession, decelerating slightly off 8.2% in June. Capacity utilisation also climbed to 74.8% from 74.1% in June. Looking at the chart below you can see the path of some of the other major economies; China's trucking along, Japan's super-volatile, and the EU/US are playing catch-up since the depths of the recession. The trend marks a dissonance in the US economic scene, as business investment and manufacturing is a bright spot, whereas the consumer is a dark spot; if the US can build up exports it may lead to a happier ending...

4. US PPI
US Headline PPI rose 4.1% year on year, and core (taking off the more volatile food & energy components) rose 1.5%. The movements in prices here reflect some of the signals from the PMI prices sub-index which has been riding relatively high for a few months; however as is notable from the relatively more static and subdued CPI inflation metrics, the price increases aren't getting passed through to the consumer (which makes sense given the competitive environment, and economic environment), so this may mean a bit of margin compression... especially as capacity utilization (normalization) results in eventual reversals of the purge of labor costs during the recession. So this recent positive bout of corporate earnings could be somewhat short-lived as demand is relatively lackluster and potential pressure on the cost side also puts a double hit on margins.

5. EU CPI
Euro zone inflation increased in July to 1.7% from 1.4% in June on an annual basis for the Euro area, and 2.1% from 1.9% for the EU. However in the month of July inflation was actually negative compared to the previous month. The results tentatively point to a stabilisation or even turning of inflation, but as the ECB noted in its recent statement, "inflation rates should remain moderate overall, benefiting from low domestic price pressures". And so, the EU will likely also just keep muddling along, with no significant price inflation; but... remember the EU is actually a collection of economies, which will all be tracking along at their own unique pace e.g. the powerhouse Germany vs the others like Greece.

Summary

So we saw a tapering off of growth in both Japan and Taiwan, two key Asian economies that saw a strong bounce back in GDP following their emergence from the depths of the crisis. And looking forward, the risks are similar for them both; they are both very sensitive to the course of the global economy due to their dependence on international trade, but of the two, Taiwan has less problems and seemingly a better policy position.

Then onto the US we saw industrial production tracking along well; providing some positive (albeit dichotomous) signs as the consumption paradox unwinds. There was also the potential early warning in PPI that margin pressure may increase for US corporates in the medium term. Keeping with large developed economies and inflation; the EU inflation picture is unfolding much as the growth picture is; just muddling along.

Sources
1. OECD Statistics Database stats.oecd.org
2. Taiwan Statistics eng.stat.gov.tw
3. Trading Economics www.tradingeconomics.com
4. US Bureau of Labor Statistics www.bls.gov
5. Eurostat epp.eurostat.ec.europa.eu

Article Source: http://www.econgrapher.com/top5graphs20aug.html

Economic Calendar - 16 August 2010

Here's the Economic Calendar for the week commencing the 16th of August 2010. This week the key economic events start with Japan on Monday releasing its Q2 GDP stats, also on Monday is China with its foreign direct investment figures, and the CB leading index. Throughout the week there will be a few inflation metrics out; EU CPI, UK CPI, US PPI and capacity utilisation, NZ PPI, and Canada CPI. There's also monetary policy meeting minutes due from the Bank of England, and the Reserve Bank of Australia; speaking of which, there's also the Australian elections at the end of the week.

(More commentary follows the table)

Day	Time (GMT)	Code	Event/Release	Forecast	Previous
		CNY	Foreign Direct Investment ytd/y		19.6%
MON	00:00	CNY	CB Leading Index m/m		0.8%
MON	00:00	JPY	Gross Domestic Product Annualized (2Q)	2.3%	5.0%
MON	00:00	JPY	Nominal Gross Domestic Product (QoQ)	-0.3%	1.3%
MON	00:00	JPY	Gross Domestic Product (QoQ) (2Q P)	0.6%	1.2%
MON	00:00	JPY	Gross Domestic Product Deflator (YoY)	-1.8%	-2.8%
MON	09:00	EUR	Euro-Zone CPI - Core (YoY) (JUL)	1.0%	0.9%
MON	09:00	EUR	Euro-Zone Consumer Price Index (YoY)	1.7%
MON	12:30	USD	Empire Manufacturing (AUG)	8.25	5.08
MON	01:30	AUD	Reserve Bank's Board August Minutes
TUE	08:00	EUR	Euro-Zone Current Account s.a. (euros)		-5.8B
TUE	08:00	EUR	Euro-Zone Current Account n.s.a. (JUN)		-16.7B
TUE	08:30	GBP	Core Consumer Price Index (YoY) (JUL)		3.1%
TUE	08:30	GBP	Consumer Price Index (YoY) (JUL)	3.1%	3.2%
TUE	12:30	USD	Housing Starts (JUL)		549K
TUE	12:30	USD	Building Permits (MoM) (JUL)		2.1%
TUE	12:30	USD	Producer Price Index (YoY) (JUL)	4.2%	2.8%
TUE	12:30	USD	PPI Excluding Food & Energy (YoY) (JUL)	0.2%	1.1%
TUE	13:15	USD	Industrial Production (JUL)	0.5%	0.1%
TUE	13:15	USD	Capacity Utilization (JUL)	74.5%	74.1%
TUE	21:00	USD	ABC Consumer Confidence (AUG 15)
TUE	00:30	AUD	Westpac Leading Index (MoM) (JUN)		0.2%
WED	05:00	JPY	Coincident Index (JUN F) (JUN F)
WED	05:00	JPY	Leading Index (JUN F) (JUN F)
WED	08:30	GBP	Bank of England Minutes (AUG 18)
WED	22:45	NZD	Producer Prices- Outputs (QoQ) (2Q)		1.8%
WED	22:45	NZD	Producer Prices- Inputs (QoQ) (2Q)		1.3%
WED	03:00	NZD	ANZ Consumer Confidence Index (AUG)		115.6
THU	06:15	CHF	Trade Balance (Swiss franc) (JUL)		1.77B
THU	08:30	GBP	Retail Sales With Auto Fuel (YoY) (JUL)	1.1%	1.3%
THU	08:30	GBP	Retail Sales (YoY) (JUL)		3.1%
THU	12:30	CAD	Leading Indicators (MoM) (JUL)		1.0%
THU	12:30	CAD	Wholesale Sales (MoM) (JUN)		-0.1%
THU	12:30	USD	Initial Jobless Claims (AUG 14)	480K	484K
THU	14:00	USD	Leading Indicators (JUL)	0.1%	-0.2%
THU	14:00	USD	Philadelphia Fed. (AUG)	7.5	5.1
THU	22:45	NZD	New Zealand Net Migration s.a. (JUL)		70
FRI	11:00	CAD	Consumer Price Index (YoY) (JUL)		1.0%
FRI	11:00	CAD	Bank Canada CPI Core (YoY) (JUL)		1.7%
FRI		AUD	Australian Elections

For what is a relatively quiet week, the main event will be on Monday with Japan releasing its second quarter GDP numbers. The Japanese economy is projected to have grown 2.3% on an annualised basis in Q2, or 0.6% on a quarter over quarter basis... and about -0.3% quarter on quarter on a nominal basis (hmm I guess that's where having deflation is a good thing?). Japan also has a few other minor indicators out during the week e.g. the coincident and leading indexes. Anyway, the Japanese economic recovery is relatively entrenched thanks to the normalization of global trade volumes, but of course it still faces the demographic challenge, the fiscal challenge, and of course the deflation challenge.

As noted, much of the data releases this week will inform the view on the inflation situation. The first up will be the EU with July year on year inflation projected to increase slightly, then there's the UK with it's own RPI and CPI - expected to remain static around 3%. Then the US releases PPI on Tuesday, which is expected to spike up on the back of food and energy prices; there is also an expectation that capacity utilisation will also edge up slightly. New Zealand also releases its PPI stats on Wednesday, followed by Canada with its CPI or Consumer Price Index data on Friday.

There is a scattering of other interesting data points out during the week, including China's foreign direct investment numbers and its leading index; which will add to the picture seen last week when the major data release was made. Other releases of note are EU current account for June, US industrial production (which is expected to increase slightly), US ABC Consumer Confidence index, NZ ANZ consumer confidence index, UK retail sales, and NZ net migration.

While there's no major monetary policy moves on the calendar there is the meeting minutes due from the Reserve Bank of Australia, which will likely be pretty straightforward; in line with the messaging that was in the recent monetary policy announcement where they left rates unchanged at 4.5%. The Bank of England is also set to release its minutes on Wednesday; this one will be more interesting because the Bank of England doesn't really say much when it announces its decisions (which were recently to hold the rate at 0.50% and the APP at GBP 200 billion). On the policy front, its worth noting that Australia has its elections on Friday/Saturday.

So as always, have a great week, watch out for surprises, and stay tuned for updates...

Sources
DailyFX www.dailyfx.com/calendar
Forex Pros www.forexpros.com/economic-calendar/
Forex Factory www.forexfactory.com/calendar.php
Bloomberg www.bloomberg.com
+various statistics websites and central bank websites for verification

Article Source: http://www.econgrapher.com/16aug-calendar.html

Top 5 Graphs of the Week - 22 May 2010

This week we look at the data out over the past week that showed a continued (yet fragile) economic recovery in Japan, higher economic growth rates in Mexico, continued strength in the economy of Taiwan, and relatively subdued inflation pictures in both the EU and US.

1. Japan GDP Growth
Japan's economy grew at an annualized 4.9% in Q1 2010, below consensus estimates of 5.5%, but on par with a revised Q4 2009 growth figure of 4.2%. Japan's economy has made a decent bounce-back over the past year, driven largely by international trade; showing a continued reliance of the Japanese economy on exporting. However much of the recovery thus far has been driven by export demand from China (relating to stimulus spending), and more broadly from inventory rebuilding (inventory cycle). Thus much of it to date has been somewhat artificial - it's almost coming down to a question of whether international trade will make a solid and broad based recovery as to whether Japan's economic recovery will be cemented. But then there's also deflation issues and fiscal challenges.


2. Mexico GDP Growth
Mexico saw its economy return to growth on an annual basis (but pulling back slightly on a quarterly basis - note the impact of the comparator period). GDP grew 4.3% in Q1 year on year; slightly above the 4% Bloomberg median estimate. On a growth basis Mexico has also made a sharp recovery back to 'normal' from the deep lows at the height of the crisis. However Mexico's growth is running below potential as the drug war drags on; with continued violence spooking off foreign direct investment. Even the Finance Minister, Ernesto Cordero, noted that violence from the drug war cuts about 1% point off of GDP growth. So as with most emerging economies, lots of potential return, but plenty of volatility.


3. Taiwan GDP Growth
The economy of Taiwan grew 13.27% in Q1 year on year, beating estimates for 11% growth, and surging ahead of the Mainland's 11.9% growth. The statistics bureau of Taiwan raised its 2010 GDP growth projection to 6.14% from 4.72%, and inflation to 1.4% from 1.27%. The economy of Taiwan (whether you call it province of China, or republic of China), has benefited immensely from sales of computer chips and display panels to the Mainland as the Chinese economy continues to surge; opting for closer trade ties over ideology differences as progress moves on in freeing up trade and commerce. But again, as there is huge potential return, there is also risk; eventually China wants reunification, and the form that eventually may take will also have significant economic ramifications (with the potential to be positive or negative).


4. EU Inflation
European inflation crept up slightly in April, with Euro Area inflation tracking at 1.5% (1.4% in March, and 0.6% in April 2009), and European Union inflation tracking at 2% (1.9% in March, and 1.3% in April 2009). As can be seen on the chart below headline inflation is making a bit of a rebound as cyclical factors such as commodity prices push through into the more volatile/market driven aspects of inflation. However core inflation continues to track downwards. Basically the inflation picture for Europe is reasonably subdued for the near term, especially as fiscal challenges continue to dog the continent; but there are risks to the upside longer term, particularly if stimulus measures become more significant and prolonged in their use.


5. US Inflation
US inflation muddled along sideways in April, recording 0.9% year on year in the core index, and 2.2% in the headline index. The results are fairly boring this time, no particular signs of inflation re-surging just yet, which in the short term will give the Fed plenty of comfort (and those who watch the Fed - opposing any step to withdraw stimulus) to continue its policy of significantly low interest rates for a long extended period. Of course the risks to this policy include sowing the seeds for future inflation, encouraging excessive risk taking, and promoting asset bubbles. But to be fair there is a time and a place - and that probably is still now, but the challenge will be to pull out before the vicious asset bubble cycle is reflated (with timing being one aspect, and political pressure being another aspect).


Summary

On the GDP front we looked at the strong rebound in the Japanese economy; noticing that it is still heavily dependent on international trade, with consumer spending and inflation still lack luster, and risks arising from deflation and fiscal challenges. Then we looked at Mexico, which showed a strong recovery in economic growth, but held back by drug and gang related violence. Then Taiwan with a surging recovery, helped by forging closer ties with the Mainland. The uniting theme is a strong bounce back since the peak of the crisis, but in each case significant risks remain to continued strong economic growth.

On the inflation front, the EU showed little signs of a pick up in inflation, other than headline measures. While the US results showed little in the way of an upward trend in the past index results. So on both fronts, a reasonably subdued inflation picture in the short to medium term. But what will be interesting to monitor is the medium to long term, and of course - the policy response to this.

So as a one line summary for the data we looked at this week: strong economic growth bounce back with plenty of risks, and relatively subdued inflation pictures in the developed economies.

Sources
1. Economic and Social Research Institute (Japan) www.esri.cao.go.jp
2. OECD Statistics database www.oecd.org
3. National Statistics, Republic of China (Taiwan) eng.stat.gov.tw
4. Eurostat ec.europa.eu/eurostat
5. Bureau of Labour Statistics www.bls.gov

Article Source: http://www.econgrapher.com/top5graphs22may.html

Japan Holds Rates, Faces Critical Challenge of Deflation

The Bank of Japan decided to "encourage the uncollateralized overnight call rate to remain at around 0.1 percent." The decision was driven by the "critical challenge" of deflation.

Jumping to the last paragraph of the Statement on Monetary Policy, it's clear that the rate will stick around 0.10% for some time:

"The Bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability. To this end, the Bank will continue to consistently make contributions as central bank. In the conduct of monetary policy, the Bank will aim to maintain the extremely accommodative financial environment."

But it's not all gloom and doom for Japan, in fact Growth has finally turned positive thanks to a recovery in international trade.

"Japan's economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand. Exports and production have been increasing mainly against a backdrop of high growth in emerging economies.

Business sentiment has been improving. Business fixed investment is leveling out. Private consumption, notably durable goods consumption, is picking up mainly due to policy measures, despite the continued severe employment and income situation.

Public investment is declining. Meanwhile, financial conditions, with some lingering severity, have shown increasing signs of easing. The CPI (excluding fresh food) is declining on a year-on-year basis due to the substantial slack in the economy as a whole, but the moderating trend in the pace of decline has continued."

Thus for now, Japan continues to be reliant on exports for growth; on the upside though it is positioned well to leverage off any further pick up in global trade (likely driven by emerging markets). But it still faces the heavy burdens of significant fiscal challenges and the deflation dilemma.

Sources:
Econ Grapher Analytics www.econgrapher.com
Economic and Social Research Institute www.esri.cao.go.jp
Japan Statistics Bureau www.stat.go.jp
Bank of Japan www.boj.or.jp

Article Source: http://www.econgrapher.com/7apr-jpy.html

Top 5 Graphs of the Week - 20 February 2010

This week we look at Japanese GDP figures which show an improving situation, poor performance in UK retail sales, a lift in UK inflation, a pause in US inflation, and the start of the US Federal Reserve testing the exit strategy waters in policy normalisation. So thematically I suppose we've got a bit of a growth and inflation slant this time.

Thus we've got what were for a time the 3 main financial centers in this article, where the growth situation is mixed; the UK really just struggling along, Japan benefiting from global trends in stimulus and presently largely artificial pick ups in demand, while the US is still in economic limbo - what happens when the stimulus is gone?

Meanwhile on the inflation front things are currently also largely mixed, the UK is probably the leader of the three on current inflation, while the US is a close second, and Japan is still in deflation. The risks to accelerating inflation are similar in the US and the UK, but as we'll see in the US the Fed has been making some promising moves towards preventing sowing the seeds of more powerful inflationary pressure in the years to come.

1. Japan GDP - thank you exports, thank you stimulus
Last week Japan released its GDP figures for Q4 2009; q/q it was up 1.1%, and above the expected 1%. However you need to be careful with that figure as they ended up revising down Q3 from about 1% to 0%... so the growth was shuffled forward I guess. Year on year the decreases reduced to a mere -0.90%, but overall GDP was down 5% for 2009 vs 2008. The main drivers of growth were private consumption (spurred on by stimulus measures), and a revival in net exports (helped by Chinese demand - in part stimulus related, and global demand from inventory restocking). The Japanese economy still remains firmly export oriented, and is set to gain from any improvement in international trade.


2. UK Retail Sales - another rainy day
UK retail sales disappointed in January with -1.8% month on month (against expected -0.5%), and up 0.9% year on year (against expected +1.1%). Now, much of the negative performance was related to bad weather (the index now includes fuel - so bad weather = less driving, less fuel consumption), but it would be hard to say that the result was completely weather driven. Overall this data point adds to the picture of an ailing UK economy, on a GDP basis, they've very barely left the recession with a minuscule +0.1% quarterly growth figure in Q4 2009, paired with the next chart, and my previous article on The Future of Public Debt (which shows the UK in an increasingly vulnerable position, things do not look good there indeed.


3. UK CPI - stagflation anyone?
UK CPI fell -0.2% on a monthly basis against expected 0%, on an annual basis it accelerated as expected to 3.5% vs 2.9% in December; core CPI also rose to a record 3.1% as expected. Much of the pressure is coming from the return of the VAT rate to 17.5% from 15%, a recovery in fuel prices, and a weak exchange rate. However, as with the temporary impact on retail sales above, it would be hard to argue that there isn't inflationary pressure working away here somewhere. Indeed the conditions e.g. quantitative easing, can only be facilitative of increasing inflation, for now at least, the situation is high inflation (and even though the factors can be explained - prices are still rising), and low growth...


4. US CPI - fuel up shelter down
Over in the US, the CPI figures came in slightly weaker - allowing the deflation hawks some ammunition. Headline CPI rose 0.2% against expected 0.3% month on month, and up 2.7% year on year. Core CPI actually fell -0.1% vs consensus +0.1% on a monthly basis, and eased back to 1.5% on an annual basis. Upward pressure is still coming through from fuel prices, but these were slightly offset by a drop in shelter costs (helped by hotels and resorts dropping prices to try and drum up some business - makes sense given the large stock of hotels coming through the pipeline that were started back before the crisis). Overall the outlook for inflation in the US is probably for reasonably stable for an extended period - but with risks to the upside dominating.


5. US Federal Reserve - Testing the exit strategy waters...
The US surprised markets, and me, when it made it's Thursday after-market-close announcement that it had decided to increase the primary credit rate (discount rate) by 25bps to 0.75%, and that it would also increase the minimum bid rate on TAF auctions to 0.5% (though it also highlighted that final the TAF auction will be on March 8, 2010). As you can see in the chart below it marks an increase from record low levels, it also brings the spread between the discount rate and the fed funds rate back up slightly (but still below where it usually is). Most commentators pitched it as a normalisation of the rate at which banks borrow money from the Fed. My spin is that this is the first steps in testing the exit strategy waters - at some point they will need to exit the stimulus measures and return to neutral (otherwise the CPI chart above will start to look a bit scary), so in that respect this is a positive move.


Summary
To sum up, there's a tentative economic recovery underway in Japan that will only be helped by any further improvements in international trade. While in the UK signs are that the very weak economic recovery there may stall; in any case the growth situation is weak at best, and inflation is picking up; leaving you with stagflation. In the US, inflation has continued to show signs of picking up, but has taken somewhat of a breather this time, and while inflation risks are low, they are weighted to the upside.

Sources:
1. OECD http://stats.oecd.org/index.aspx
2. UK Office for National Statistics www.statistics.gov.uk
3. UK Office for National Statistics www.statistics.gov.uk
4. US Bureau of Labor Statistics http://www.bls.gov
5. US Federal Reserve http://www.federalreserve.gov/

Article Source: http://econgrapher.site1.net.nz/top5graphs20feb.html
9YU8U4JVZHXG

Econ Grapher - Top 5 Graphs of the Week - Economic Growth

In the past couple of months the GDP data for Q3 has come through for most of the main economies. The overall theme is that on a quarterly basis the advanced economies are starting to record growth again, things are stabilising and starting to turn the corner. But then you need to be careful because a lot of the positive results are still basically artificial at this point. If you think of the 3 forces that drive economic growth as being stimulus, inventory cycle, and demand; we have a lot of support from stimulus, a temporary boost from inventory cycle, but are for the most part, still waiting for end demand to come through for a real, sustainable recovery.

1. US GDP
The United States of America recorded its first positive quarter of GDP growth in a year for Q3. The first estimate was revised down a bit, but the components stayed the same. On a component basis the drivers of the positive figure were: consumption (stimulus), residential investment (stimulus), and government (stimulus!). So in case you haven't connected the dots yet, this is a stimulus pushed recovery, rather than a demand lead recovery at this point. You also have the short term impulse of inventory adjustments, but overall still waiting for end demand to come through - this will be the key test for the US economy in 2010.


2. EU GDP
The Eurozone also recorded a positive figure in Q3, showing a visible business cycle-like recession/recovery. The big economies there, France and Germany, recorded their 2nd quarter of q/q growth. Things have certainly started to bottom out, if not recover, in some parts of the EU. The thing is that it is a very diverse area, and while some economies are starting to recover, there are others with deep structural problems. The trajectory from here is a slight bounce back in 2010, but within the number, a wide divergence between member states.


3. Japan GDP
Japan recorded its second quarter of growth in Q3, helped by stimulus and a recovery in trade - helped in large part by stimulus overflow from China. The severity of the crisis in Japan illustrates its dependence on exports to drive growth - as the peak of the global crisis saw global trade fall right off, you saw nations like Japan, Singapore, Taiwan, etc record huge drop-offs as trade volumes froze up. Japan is still dealing with deflation, and has recently announced further stimulus measures, both on the monetary and fiscal policy fronts. That said, if global trade continues to recover, there may be a decent bounce back for Japan in 2010, but be mindful of the stimulus and the demographic challenges.



4. BRIC GDP
This diverse bunch showed the makings of a recovery in Q3. This is good as emerging markets are increasingly becoming the drivers of global growth. Drilling down, as these are very diverse nations in terms of political structure, culture, language, so too are they on an economic make-up basis. China and India took a hit from the crisis, but are getting back to their usual 7-9% GDP growth rates. Brazil took a fairly decent hit, falling into the negatives, but has a lot of promise to lead amongst developing South America and will probably get back to its normal 4-5% GDP growth in the next year or two. Russia - the commodity economy of the 4, showed a strong connect with oil prices, with the crash in crude sending the economy into a deep recession, the key challenge is that the commodity crash doesn't spillover and create longer term damage to other sectors of that economy - but as commodity prices recover, it is likely that this economy will also continue to recover.


5. Australian GDP
The land down under barely saw a recession at all. It only had one quarter of negative GDP growth, and holds the enviable position of being one of the only developed economies that has had to start adjusting monetary policy rates already (with 3 x 25 basis points increases in the last few months). The Australian economy has been assisted in part by some stimulus measures, but probably owes a lot of its resilience to trade with China - as the nation has large mineral resource endowments. Even on an employment front it has recorded consecutive positive job growth in the past 3 months, and has shown a pretty clear topping out of the unemployment rate. Aside from the spiders, snakes, and crocodiles - this seems like a pretty good place to be!


So as you can tell by looking at each of the examples here, economic growth has tentatively restarted. However the drivers of this are largely stimulus lead, with some help from inventory adjustments, and of note - increasingly influenced by emerging markets; particularly China. The signs generally point to a reasonable bounce back in 2010 - but the question remains whether end demand will pull through to make the recovery sustainable and genuine.

Sources:
1., 2., 3., OECD Statistics Database
4. Trading Economics
5. Australian Bureau of Statistics

Article Source: http://econgrapher.site1.net.nz/top5graphs20dec.html