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BOV Market Watch - Week Ending 3 March 2017
03 Mar 2017
Fed’s Brainard says interest-rate hike likely appropriate ‘soon’. The Federal Reserve is setting the stage for an interest rate rise as the economy may be strong enough to bear an interest rate-hike “soon”. In a speech at Harvard University, Fed governor Lael Brainard said, “assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path”. The statement marks a move from the cautious attitude that Brainard has used in her recent speeches arguing for rates to be kept low, but her comments could suggest that the Fed will raise interest rates this month. Dallas Fed President Robert Kaplan, a voting member during this year on the Fed's policy committee said, “I believe the economy is strong enough that we can manage it”.

Eurozone inflation hits two percent for first time in four years. The Eurostat statistics agency revealed this week that the inflation rate across the Eurozone was above the European Central Bank's (ECB) target for the first time in four years during February. Inflation was driven higher by rising energy prices. The inflation rate increased from 1.8 percent in January to 2.0 percent in February. Eurostat, said that the last time that the inflation rate was at 2 percent was in January 2013. The ECB will unlikely ease its monetary policy position notwithstanding the continuous rise in Eurozone inflation and recent positive Eurozone economic news. Though the headline inflation rate has reached the ECB’s target, core inflation remained subdued, as the underlying prices (that is excluding food and energy) are still restrained.

Economic sentiment rises marginally in both Eurozone and the EU. European commission data showed this week that the economic sentiment remained mostly the same in both the Eurozone and the European Union (EU), notwithstanding increased uncertainty about future policies due to a number of key elections within the Eurozone. The Economic Sentiment Indicator showed that the overall index rose by 0.1 points to 108.0 for the Eurozone, whilst for the EU the index increased by 0.3 points to 108.9, the highest level since March 2011. The recovery in economic sentiment was influenced mainly by more optimism in industry, with the index rising to 1.3 point in February from 0.8 in January, and in the services sector where it rose to 13.8 in February from 12.8 in January.
UK consumer confidence fell in February as Brexit talks loom. UK consumer confidence fell in February as both Brexit and a rise in interest rates are becoming more likely. Market research firm GfK showed that consumer confidence fell in February to its lowest level since December 2014. Consumer confidence fell by one point from January to -6 in February and down by six points year-on-year. Joe Staton, Head of Market Dynamics at GfK stated, “Against a backdrop of rising food and fuel prices, sterling depreciation, nominal earnings growth and a burgeoning fear of rapid inflation, concern about our personal financial situation for 2017 has contributed to a drop in UK consumer confidence this month (to -6).” However, the gauge for the General Economic Situation of the country has increased by three points this month to -21, being 11 points lower from February 2016.
China manufacturing activity expanded again in February. A survey published this week showed that the manufacturing sector in China expanded for the eighth consecutive month in February as export orders rebound. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.7 in February on a seasonally adjusted basis from 51.0 in January. The reading beats analysts’ expectations of 50.8. Growth in output and new orders both increased at a higher rate from January but were below December’s levels. On the other hand, the National Bureau of Statistics showed that the official manufacturing PMI climbed by 0.3 to 51.6 in February from 51.3 in January. The reading was above the forecasts of 51.2. In the meantime, the non-manufacturing PMI fell from 54.6 to 54.2. 
Australia’s GDP rises 1.1% in the fourth quarter. The Australian Bureau of Statistics said that Australia’s gross domestic product (GDP) increased on a seasonally adjusted basis by 1.1% on quarter in the last three months of last year. This reading beat expectations for a rise of a 0.8 percent after a decline of 0.5 percent in the third quarter. Year-on-year GDP rose by 2.4 percent, also exceeding forecasts for a 2.0 percent and higher than the 1.8 percent recorded in the prior quarter. The strong final quarter of 2016 will lift Australia’s yearly economic growth back to an acceptable level even though below the average of 2.4 percent. The biggest two contributors to growth were a rise in household expenditure and higher public investment.
Japan’s capital spending grew by 3.8% year-on-year in the fourth quarter. Data released by the Japanese Ministry of Finance showed that the overall capital spending by domestic firms increased by 3.8 percent on an annual basis in the fourth quarter of last year, beating estimates of 0.8 percent after a 1.3 percent fall in the previous quarter. Capital expenditure rose by 3.3 percent, after excluding software, exceeding estimates of 1.1 percent following a decline of 1.4 percent in the previous 3 months. Capital expenditure in Japan was one of the economy’s weak factors with companies unwilling to invest due to uncertainty about the economic outlook. A Finance Ministry official said that the latest figures on business investment back the opinion that the economy “has been recovering moderately”.
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