Daily Economic Briefing: February 16, 2010

Daily Economic Briefing: February 16, 2010

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Page 1: Global data summary

• Japan 4Q GDP was stronger than expected, rising 4.6%q/q saar compared to our forecast of 3.0%. Net exports were responsible for a large portion of the surprise—contributing 2.2%pts to 4Q quarterly growth, about 1%pt more than our expectation. Although exports surged in line with expectations, imports were considerably weaker than expected. Perhaps more concerning is that nominal GDP only edged up 0.9% annualized last quarter as the economy struggles with deflation; GDP prices fell 3.6% annualized. With fiscal stimulus waning and deflation concerns keeping domestic spending soft, real GDP growth is projected to moderate to a 1.7% annualized pace in 1H10, while the pace of GDP deflation picks up.

• UK CPI jumped from 2.9%oya to 3.5% in January, about in line with our and consensus forecasts and largely due to the VAT hike at the start of the year. This move to above 3%oya prompted a letter from Governor King to the Chancellor. However, we expect the BoE to look through this temporary leap in over-year-ago inflation. Our UK team’s updated CPI forecast looks for inflation to fall back to 2.9%oya this month and be back at the 2% target around midyear.

• Recent central bank communications signal that policymakers remain firmly biased to supporting growth as inflation readings remain stable and sovereign credit risks are perceived as threatening the recovery. The few central banks that have raised rates, including the RBA, Norges Bank and Bank of Israel, recently paused. In addition, statements from last week’s BoE and BoK meetings prompted us to revise down our policy rate forecasts in both cases. The trend continues this week.

• Today’s release of the RBA minutes reinforce the Board’s comfort with the current cash rate of 3.75% and raises the risk that the pause is longer than we currently expect (JPM fcst of 25bp hike in April). In addition, we now see a more gradual tightening path for the BoI in response to soft recent inflation prints and growing uncertainty around Europe’s fiscal problems (see box).

• In Turkey, the CBRT today maintained its strong bias toward growth, leaving the base rate unchanged as widely expected. Rates will remain low for long and the recent pickup in inflation will be temporary given the large degree of economic slack still weighing on underlying inflation, according to the policy statement. We do not expect policy normalization to begin until 3Q10.

• In the US, the NAHB survey advanced 2 points in February to 17.0, suggesting a bit of rebound in housing activity. Home sales and construction slumped toward the end of last year, as the homebuyer tax credit neared expiration. The NAHB survey correctly identified this slowing, and the moderate rise in the NAHB survey may be signaling that the extension of the tax credit is helping to support housing activity in 1Q. Also out of the US today, the Empire State manufacturing survey for February was mixed. The headline business activity index jumped 9 points to 24.9 but the ISM-weighted composite decreased from 53.5 to 52.3. Our next early look at February manufacturing will be the Philly Fed survey out Thursday.

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ENDS

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