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BOV Market Watch - Week Ending 10 March 2017
10 Mar 2017
ECB quantitative-easing program and interest rates unchanged amidst inflation flare-up. The European Central Bank (ECB) kept its bond buying program and interest rates unchanged whilst maintaining its cautious approach even though inflation and growth have increased at a faster pace than expected. The ECB said that the main refinancing rate will remain at 0%, while the deposit facility rate will be kept at minus 0.4%. The rate on the bank's marginal lending facility was left unchanged at 0.25%. Furthermore, the ECB reaffirmed its decision to maintain the monthly asset purchase programme (known as quantitative easing), but this will be reduced to €60 billion per month from April from the current €80 billion per month. 

German industrial output rebounds in January. German industrial output increased sharply in January from December, exceeding economists’ expectations. This rise was led by strong demand for machinery, cars and other capital goods, although energy and construction pulled down the overall growth. According to figures published by the German statistics agency Destatis, industrial output grew by 2.8 percent in January from a month earlier, when production fell by a revised 2.4 percent. This output growth was the highest rate in five months. Analysts’ had estimated that production will rise by 2.6 percent following a decline, initially projected at three percent, in December. These figures gave same reassurance that the expansion in the German economy is likely to continue, after data released this week showed that factory orders indicate the biggest slump in demand in eight years in January. 

Greece’s fourth quarter growth disappoints. Greece's economy performed much worse than forecast in the final quarter of 2016, according to the latest data from the country's statistical service Elstat. GDP shrank by 1.2% in the fourth quarter of 2016, marking it the worst quarterly performance for the debt stricken southern European economy since the depth of its debt crisis in the summer of 2015. A previous first estimate of GDP in the quarter suggested that the economy shrunk by just 0.4%, but the final figure is significantly worse. The data comes just days after the country's central bank governor Yannis Stournaras said that international lenders should lower the country's fiscal targets from 2021 onwards to help boost its growth potential.

US services firms expanded at fastest pace since October 2015. According to industry data, the US services sector expanded in February at the fastest pace since October 2015. The Institute for Supply Management (ISM), a trade group for purchasing managers, said that its non-manufacturing index rose from 56.5 in January to 57.6 last month. Any reading above 50 indicates growth i.e. more businesses are expanding instead of contracting. ISM surveyed 18 service sectors in February out of which 16 reported growth, with only real estate and information industries reported contraction. ISM also reported that US factories expanded in February at the highest rate in more than 2 years. Production, new orders and hiring all indicated growth. 
China lowers growth rate; consumer prices remain below target. China has lowered its annual economic growth target to “around” 6.5% compared to last year's range of 6.5% to 7%, as the world’s second largest economy braced for further slowdown of its growth. “(China will) pursue better results in actual economic work,” according to the report that Chinese Premier Li Keqiang delivered at the opening ceremony of the annual session of China's top legislature, the National People's Congress. The projected target is in line with both economic principles and realities, the report said, adding that it will help stabilise market expectations and facilitate the country's structural adjustments. In the meantime, the National Bureau of Statistics reported that producer prices rose at their fastest pace since 2008 last month. But consumer price inflation remains well below the government’s 3% threshold.



Brazil's industrial production starts 2017 with positive surprise. Brazil's industrial production (IP) was down 0.1% month-on-month in January, following an accumulated expansion of 2.9% in the last two months of 2016, according to data published by the statistics bureau, IBGE. The results were better than expected, with economists projecting a 0.4% drop month-on-month. Compared to January 2016, IP increased by 1.4%, ending 34 consecutive months of negative results for the comparison. The last 12 months saw a 5.4% decline in production.


Global oil supply may struggle to match demand after 2020, when the pinch of a two-year decline in investment in new production, could leave spare capacity at a 14-year low and send prices sharply higher, the International Energy Agency (IEA) said this week. “This is no time for complacency,” says IEA Executive Director Fatih Birol, noting that investment in new supply need to rebound quickly if the market expects to be able to meet continuing demand growth. Investment fell by about 25% over the past two years. The forecast sees demand topping 100M barrels per day in 2019, and reaching 104M by 2022.
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