Eurozone’s Lower Inflation Rate in December Far from ECB’s Target

Inflation in the eurozone moved further away from the target of the European Central bank for two months from November, as stated in the revised data published on Wednesday that confirms the previous statement.

According to the data from Eurostat, consumer prices increase by 1.4 percent annually in December from 1.5 percent a month before. This was in line with the “flash estimate” published by the start of January which was forecasted by economists on Reuter’s survey.

The year-on-year rate remained steadfast, excluding more volatile food, alcohol, and tobacco components and recorded at 0.9 percent in December, which supports the previous reading.

ECB chief Mario Draghi mentioned that he anticipates inflations to have a short-lived pullback as the effect of losing momentum for a rebound of energy prices as the economy and the labor market starting to gain its ground. Although, he noted that inflation should start moving in following the ECB target of almost 2 percent in the long run.

Canadian Free Trade Slow Down its Economy

The Canadian economy had an unfavorable situation in the previous year. The trade data was published yesterday that shows a continuous decline in growth and tried hard to gain profits outside the energy sector despite the positive exchange rate and the demand in exports of US non-energy products reduced in terms of volumes. Also, any recorded growth over the past decades was mainly driven by higher prices.

The inactivity of the past years is considered an enigma for policymakers which may question Canada’s ability to maintain its growth rate followed by the fastest 3 percent expansion in 2017 over six years. Bank of Montreal Economist Benjamin Reitzes mentioned that the country’s current trade environment remains fragile due to the sluggishness of non-commodity exports. Canadians desire is to become “perennial optimists” of international trading amid uncertainties arises regarding advantages of open economies.

According to Prime Minister Justin Trudeau, trade is the main factor for economic growth, making his Liberal Party lawmakers advocates to preserve the North American Free Trade Agreement (NAFTA), which is currently in the seventh round of talks.

The trade performance of the country was dull except for oil and its non-energy trade deficit increased by $8.64 billion (US$6.9 billion) in December and $87 billion for the entire year. Generally, the number of export volumes including oil failed to sustain along with the imports which would mean trade industry was largely driven by the excellent economic performance last year thanks to domestic demand. With this, the Bank of Canada may delay the interest rate hike while evaluating the overall economic condition.

The not so strong non-energy trade indicates that Canada is highly dependent on oil in order to keep its trade balance from falling, even though Trudeau strives to turn around from commodities.  Moreover, energy exports came in at 17 percent in 2017 and move higher by 14 percent in the beginning of the year.

France Faces Structural Unemployment Issues

The jobless rate in France had decline generally, but there are no immediate solutions for skill shortages. French unemployment lowered down by double figures during the third quarter last year and resumed to drop until the fourth quarter. According to Bloomberg, the country’s unemployment rate in December 2017 was 8.9 percent while the fastest acceleration in employment creation since 1996. On the other hand, unemployment in 2017 plunge to 1.9 percent which is a major downturn in a decade.

Meanwhile, President Emmanuel Macron promised to lessen the unemployment by 7 percent in the year 2022. Structural unemployment is also one of the largest shortcomings during the Hollande administration in which Macron performed as the Minister of the Economy.

Nevertheless, France is also known for its issue regarding the country’s increasing skills gap. As mentioned by the Financial Times, there are about two million French workers with less qualification which became the underlying factor for structural unemployment. According to estimates, the job market of France was unable to appease the demand of 200,000- to-330,000 posts due to failure finding the appropriate candidate.

Moreover, the current administration plans to have a €15bn investment programme to improve employability skills especially for the below average job seekers and long-term unemployed. In case of the approval of the project, it will take two-to-three years to take effect.

Fed’s Tighter Policy Risk in Higher Rates

More demand for safe-haven assets and low productivity growth induce the Federal Reserve to keep their rates low, according to the St. Louis Federal Reserve President, James Bullard, on Monday.

If the Federal Reserve will proceed with the rate hikes, a tighter policy would be ideal for the current economy. The goal of the federal funds would be around 1.25 and 1.5 percent and current rates still fall between this range as recommended with following a neutral rate that is kept at bay by various factors moving at a slower pace.

If rates have substantially increased without changes in the data, monetary policies would then become restrictive. There is a worry that the FOMC might go on “too fast”, added by Bullard. There must be support from the data to continue with the rate hike.   

The Federal Open Market Committee is anticipated to increase its interest rates in March meeting at least twice a year, in reference to the latest December forecast of policymakers.

Bullard is known to be the most cautious among Fed officials when talking about rate hikes while the U.S. is deemed to have a low growth following a low-inflation policy and the rate should not be too high unlike there are clear indications that the economy has changed.

The term “neutral” was discussed during the National Association of Business Economists conference following the remarks of Bullard denoting that the monetary policy is a way to determine the positivity and negativity of economic activity.

Vague as it may be, the neutral rate is sufficient for the Fed in gauging the policy rates. Authorities see the present policy rates have to continue its accommodative monetary policies while inflation is still under composure.

The Release of Government's EU Exit Analysis

The EU free trade agreements still expected to cost the UK by 4.8 percent of its projected economic growth for the next 15 years, based on the confidential government ‘EU exit analysis’ released yesterday. The decline in growth amounted to £55 billion of the British government debt by 2033, which could further negate the expected ‘Brexit dividend’ by the supporters of the EU exit. The report was issued by the department of Exiting the EU committee. Moreover, Brexit Secretary David Davis stated that the published document should be kept confidential but some parts of the material were already leaked to the media last month.

The alternative option led by Theresa May’s team is the “Membership of the single market” but was ruled out due to the possible drop in GDP by 1.6 percent. On one hand, the ‘no deal’ Brexit would return the UK trading with the EU-27 under the standards of the World Trade Organisation and would cost 7.7 percent of the GDP based on the government numbers. This could result in a surge of government borrowing by £20 billion and £80 billion, respectively. With this, there are assumptions that approximately 40,000 to 90,000 EU migrants are planning to leave the United Kingdom.

Included in the analysis is the projected economic benefits from the reducing regulations. The government of Britain would likely create its original version of impact assessment, however, some of the think tanks are expected to see potential gains around zero and 2 percent only of the GDP. Nevertheless, the report does not mainly evaluate the short-term economic effect of Brexit.

It further shows that the free trade deal with the United States would benefit the UK GDP by 0.2 percent in the longer term. While another concession with countries under the trans-Pacific and south-east Asia regional group such as Australia, China, India and New Zealand is expected to add 0.1 to 0.4 percent of GDP. Ministers of Britain are hoping to start the talks prior to the Brexit scheduled in March 2019, but this plan seems to be already abandoned.

British Chambers of Commerce Upgrade UK Economic Outlook

The British Chambers of Commerce (BCC) lifted its forecast for the UK economic growth, however, showed warning that UK will be the worst performing economy among other G7 countries in 2020. The GDP outlook of the BCC is 1.1 to 1.4 percent for this year and 1.3 to 1.5 percent in 2019.While, the initial growth forecast is 1.6 percent for 2020, as the revision was steered by the slightly stronger than anticipated consumer expenditure. Moreover, exports from Britain is predicted to remain stable amid robust global growth. On the other hand, imports could possibly resume its expansion and the net trade contribution to the country’s GDP in the short term appears to be limited, as the pound support Britain’s overall net trade position. In spite of the increases, the UK GDP is expected to remain below the historical average during the forecasting period.

The non-profit organization stated that productivity is projected to have slight improvement compared over its estimated outcome but continued to be weak restrained by the underlying issues within the country, such as skills shortages and failure in infrastructure investment. The BCC expects that inflation will pick up and start to ease in the near term since the impact of the post-Brexit toned down upon the weakening the Sterling. Furthermore, there are assumptions that the next hike in UK official interest rates will reach 0.7 percent in the second quarter of 2018, which could be followed by another rise in Q1 next year. The business body foresees that public sector borrowing in Britain will come in over £13.4bn for the next three years compared with the projection issued at the Spring Statement by the Office for Budget Responsibility last week.

US Factory Growth Hit Lower in March

The factory activity in the United States had slowed down for the month of March alongside the downturn in new orders. While growth in manufacturing industry continued to be supported by strong global and domestic economies. Further data showed on Monday the marginal increase in construction expenditure for February. The figures coincided with the economists’ forecast that the economic growth will slacken in January to March. Economic growth in the first quarter of 2018 appears to be weak due to seasonal quirk.

According to the Institute for Supply Management (ISM), the national factory activity index declined to 59.3 in the previous month versus 60.8 in February. If the reading in the ISM index is above 50, it indicates expansion in manufacturing which accounts more or less than 12 percent of the American economy. While the survey's production sub-index drop to 1.0 point from the reading of 61.0 last month. The estimate of new orders fell to 61.9 in March against 64.2 in February. The gauge of factory labor reduced by 2.4 points to 57.3 in the previous month.

There are 17 sectors that reported growth in March, which involves computer and electronic products, fabricated metal products and machinery and chemical products. On the other hand, the Apparel, leather and allied items showed a downswing. Machinery manufacturers told that imposed tariffs on steel and aluminum imports led to panic buying, pushing short-term costs higher, and further caused scarcity for non-contractual clients. The tariffs set by US President Donald Trump is intended to protect domestic industries from the so-called unfair competition against other countries.

The report slightly influenced US financial markets. As shown in a separate report, construction spending gained 0.1 percent in February following a steady stance in January. The Reuters poll indicates that economist projected that construction spending grew by 0.5 percent in February and expected to increase by 3.0 percent on an annual basis. February’s marginal increase in construction spending presents a growth estimate for the GDP in Q1, which is predicted to be lower than the 2 percent annualized rate.

The costs on private construction projects were up by 0.7 percent on the back of its 0.7 percent decline in January. While nonresidential structures expenditures had rebounded by 1.5 percent in February after it plummeted to 1.7 percent in the past month.

NZ Retail Sales Recorded Slowest Growth in Q1

The retail sales volume in New Zealand had expanded during Jan-Mar period but also recorded its slowest rate after five years, this further indicates the possible slackening of economic growth in the following years. On an annual basis, the official data showed that retail sales volume grew by 3 percent on Monday,  which also imply a sharp decline versus the 5.4 percent rise in the previous quarter and the weakest growth from July-September 2012.

Sales gained 0.1 percent only based on a quarterly growth, which is lower than the rough estimate of 1 percent increase projected by the economists. Footwear and clothing had decreased by 5.1 percent while motor vehicles are down to 1.1 percent. The figures led to speed-bumps in the economy, whereas, many developed countries in the past years envied but it begins to deal with some headwinds due to weak immigration and expansion in the housing market.

The administration was able to secure strong economic growth because of immigration levels and stable price of dairy products at 3 percent per year despite the slight decline to 2.9 percent in 2017.

New Zealand's new Labour-led government took control in October and pledged to settle the housing crisis in the country along with some plans to improve property investment tax and officially ban foreigners to purchase residential properties in NZ. On Thursday, the expanded government investment declared in the annual budget would likely negate the sluggish consumption expenditure, with the 3.8 percent GDP growth outlook from the Treasury forecast in 2019. In addition to it, the GDP data for the first quarter is scheduled on June 21.

PBOC Increased the 28-repo rates by 2.85 percent

The People’s Bank of China adjusted their rates higher on the 28-day reverse bond repurchase agreements to keep with the pace on previous increases in tenors for the past two months.

According to the report from the online site of the PBOC, the 28-day reverse repos raised from 2.80 percent to 2.85 percent.

This move was enacted after the U.S. Federal Reserve Bank had also raised their rates on March 21 which signifies that Beijing is keeping up with the global market trends despite all of the financial risks in their homeland.

Moreover, the central bank added 30 billion yuan into money markets, particularly on their 7-day and 28-day rates on Monday, where the seven-day was set at 2.55 percent based on their given statements.

U.S. Consumer Prices Rose to a Record High of 2.8 Percent Over Six Years

The consumer price of the U.S. increased slightly in May despite the slower growth of gasoline costs, implying moderate inflation in the economy.

The inflation report of the Labor Department was released prior to the two-day policy meeting on Tuesday. With the steady growth of inflation and anticipated tightening of the labor market, the Federal Reserve is motivated to raise interest rates for the second time this year on Wednesday.

The CPI data rise by 0.2 percent in the previous month while the cost of food remains the same. A similar increase of CPI was seen in April. After a year in May, the CPI gained 2.8 percent, which has been the biggest growth since February 2012, following its increase of 2.5 percent in April.

Gaining 0.2 percent of the CPI, excluding volatile food and energy components, was due to the rebound of new motor vehicle prices and a pickup in the cost of health care, after rising to 0.1 percent in April. In turn, this raised the year-on-year gain of the core CPI by 2.2 percent from 2.1 percent in April. It was the largest growth since February last year.

After the weak reading last week, the annual inflation measures are adjusting higher. Both the CPI and core CPI growth in the previous month met the expectations of economists.

The Federal Reserve moves on a different inflation measure which is just lower than the two percent target. Economists have different perspectives on whether policymakers will implement more rate hikes in the statement following the rate decision on Wednesday.

Meanwhile, the dollar is moving steadily against a basket of currency which is immediately after the data fell slightly than the U.S. Treasury yields, which is trading lower compared a slightly higher U.S. stock index futures.

France’s Economic Growth Sharp Decline in 2018

The economy of France dropped from 2.3 percent to 1.7 percent this year, according to the forecast of National statistics, which is another financial problem of President Emmanuel Macron in reducing costs of the government.

Macron’s administration aims to reduce spending and maintain the deficit targets of the European Union with 2.0 percent target growth for 2018.

Growth has been steady and there are no particular concerns, remarked by Finance Minister Bruno Le Maire on Monday.

However, statistics agency through that the government would fail to meet the target as it would be pulled lower by a strong euro and increasing oil prices as some of the influential factors.

Gross Domestic Product increased by 0.3 percent in the second quarter, higher than the previous quarter’s rate of 0.2 percent. Further increased by 0.4 percent in both the remaining two factors in twelve months with  1.7 percent.

The Central bank of France revised lower their target growth of 1.8 percent in a year, following a bright year in 2017. It has changed as if covered by clouds in France and the eurozone as described by the head of Insee's economic outlook division Frederic Tallet.

This includes external factors over which the nation has less control such as global trade war, higher costs of oil prices, a strong euro, as well as, political uncertainties in Europe, notwithstanding the new far right-eurosceptic coalition in power in Italy.

Moreover, domestic concerns including sluggish household consumption and nearly three months of unabating train strikes that will likely bring down the second-quarter growth by 0.1 percentage points.

The forecast says that the corporate investment will slow down from 4.4 percent to 3.1 percent over the year, while household investment would decline from 5.6 percent in 2017 to 1.6 percent.

On a brighter side, good progress was seen on the trade and unemployment concerns. Unemployment will only decline slightly which is currently twice the value of Germany or Britain. The forecast rate is 8.8 percent at the end of the year from 9.0 9.0 percent at the end of last year.

A slow start of exports in 2018 is expected to change in the second quarter with the help of large demand in the aviation and shipbuilding sectors, according to the agency. On the other hand, households will gain from the reduction in both of the residency and payroll taxes.

11.11. Oman believes non-OPEC will extend the deal to reduce oil production

Oman’s energy minister Mohammed bin Hamad al-Rumhy said today, that OPEC and non-OPEC producers will probably extend a deal to limit crude supply, but the oil production will be kept at the current level (1.2 million barrels per day).

The minister also noted, that oil demand was improving lately as trade tensions soften and that Oman was satisfied with current oil prices.

The Organization of Petroleum Exporting Countries (OPEC), Russia and other allies have agreed since January to reduce oil production by 1.2 million barrels per day to maintain the market. Nowadays the experts see signs of improvement in the situation with balance of demand and supply in the oil market, fear of recession is getting lower, and optimistic signals about a trade agreement between the US and China make unnecessary the further reducing measures.