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BOV Market Watch - Week Ending 24 February 2017
24 Feb 2017
Fed officials indicate another interest rate hike. Federal Reserve (Fed) policymakers said at their last meeting that the central bank may raise interest rates “fairly soon” and “potentially at an upcoming meeting”, if the economy continued to improve as expected. The Fed said that some officials want the bank to increase interest rates gradually due to uncertainties surrounding the new Trump administration. However a number of Fed members remained cautious, “in anticipation of policy proposals that might not be enacted, or that, if enacted might turn out to have different consequences for economic activity and inflation than currently anticipated”. The Federal Open Market Committee said that maintaining low interest rates could drive unemployment down to an unsustainable level and lead to more inflation.

US existing home sales rise more than expected in January. A report published by the National Association of Realtors (NAR) showed that existing home sales rebounded by more than anticipated in the month of January following a decline in the US existing home sales in December. The NAR stated that existing homes sales gained 3.3 percent for the month to an annual rate of 5.69 million in January following a decline of 1.6 percent to a revised figure of 5.51 million in December. Analysts had expected a rise of 1.1 percent to a 5.54 million-unit pace in January. US existing home sales hit a 10-year high in January and was 3.8 percent higher from January 2016. Demand for housing is being supported by a strengthening labour market, which in turn is boosting household formation.
Eurozone inflation accelerates as estimated on January. According to data released by IHS Markit the rate of the Eurozone economic growth improved significantly to hit a near 6-year high in February. Inflation rose from 1.1 percent in December to 1.8 percent in January. A similar reading was last seen in February 2013 and a higher figure was last registered in January of that year. The inflation figure was below but close to the 2 percent European Central Bank inflation target. Separately, sccording to the preliminary ‘flash’ estimate, the Markit Eurozone manufacturing Purchasing Mangers’ Index (PMI) registered 56.0 in February up from 54.4 in January. The latest reading was the highest since April 2011. A PMI reading above 50 shows expansion. 
German economy back on track. German business confidence unexpectedly improved in February, matching December’s 33-month high. The Munich-based Ifo economic institute said that the business climate index rose to 111.0 in February from 109.9 in January. The reading exceeded Reuters consensus forecast of 109.6. The German economy expanded at the fastest rate in five years in 2016 and is expected to boost economic expansion in the Eurozone amid concerns that political events could hinder momentum. The survey, suggests that the sentiment amid the German manufacturers improved due to a positive outlook amidst a strong improvement in demand and new work. Ifo Institute President Clemens Fuest said “After making a cautious start to the year, the German economy is back on track”.
The UK economy grew more than expected in the fourth quarter of 2016. A second estimate published by the Office for National Statistics (ONS) showed that the UK’s gross domestic product (GDP) grew more than initially expected in the fourth quarter of 2016. The overall growth for the year was less than originally forecasted due to weak stock-building. GDP grew by 0.7 percent on a quarterly basis in the three months to the end of December and above the previous estimate of 0.6 percent. UK GDP has grown in 16 consecutive quarters and the strongest growth since the fourth quarter of 2015. GDP growth for 2016 was revised down from 2 percent to 1.8 percent from the preliminary estimates. This figure was also lower than the 2.2 percent GDP growth seen in 2015.
China home prices continue to stabilize. The Chinese National Bureau of Statistics (NBS) revealed that house prices in the majority of the Chinese cities rose by 0.2 percent in January, continuing the decelerations that started in the fourth quarter of 2016. Analysts are expecting further falls during the year. On a monthly basis, house prices climbed in 45 cities out of the 70 surveyed. House prices declined in 20 cities and remained unchanged in 5 cities. In January, no variations were recorded in the capital region of Beijing. Zhou Hao, a Singapore-based economist at Commerzbank said, “I think home prices have basically peaked. Considering the yearly growth is still strong, prices are likely to keep falling this year”. Year-on-year, home prices still increased by 12.2 percent, down from 12.4% in December.
Japan leading index improves less than expected in December. Final data from the Cabinet office showed that Japan's leading index, which measures future economic activity, rose less than initially estimated to 104.8 in December from 102.6 in November. Analysts had anticipated Japan’s leading economic index to rise to 105.2 last month. This was the highest reading since June 2015, when the reading was 106.1. The nation’s coincidence index, that reflects the current situation, dropped to a level of 114.8 in December, compared to 115.1 in the previous month. The preliminary estimate was 115.2. In the meantime, the lagging index that shows the past activity, enhanced from 113.3 in the preceding month to 114.3 in December. The reading was revised up to 114.2.
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