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BOV Market Watch - Week Ending 24 March 2017
24 Mar 2017
G20 members agree on forex, wary on trade. Financial leaders from the world's biggest economies found common ground on foreign exchange at a G20 meeting last week end but failed to agree on trade. This highlights a global shift towards protectionism and sets a cautious tone for financial markets. The Group of 20 powers meeting in the German spa town of Baden Baden reiterated their long-standing warnings against competitive devaluations and disorderly foreign exchange markets, but allayed fears that the new US administration might have weakened the G20's united front on global currency policy. But failure to agree on a commitment to keep global trade free and open might have negative consequences for financial markets, even if not in the immediate future.

US home sales pull back in February after January surge. A report published by the National Association of Realtors showed that existing home sales saw a sharp decline last month following a rise in January, which was the highest rate in a decade. Sales of existing homes tumbled by 3.7 percent in February to a seasonally adjusted annual rate of 5.48 million after a rise of 3.3 percent to a rate of 5.69 million in the previous month. On the other hand, over the past year, existing home sales increased by 5.4 percent due to stable hiring and a recovering economy which have stimulated higher demand among homebuyers, though sales growth was restricted by a shortage in supply in the home market.

Eurozone current account surplus narrows. The Eurozone current account which measures the Eurozone’s balance of trade with other nations fell to a 15-month low in January thus failing to meet market expectations of Eur29.3 billion. Figures released by the European Central Bank revealed that the current account surplus fell to Eur24.1 billion in January from Eur30.8 billion in December. That February balance was the lowest since October 2015, when the surplus was Eur23.4 billion. The surplus on services fell from Eur5.1 billion to Eur3.5 billion whilst the surplus on goods traded declined from Eur31.6 billion to Eur24.1 billion. 

UK inflation increased by more than expected. The Office for National Statistics (ONS) revealed that UK inflation rose to 2.3 percent year on year beating expectations for a 2.1 percent rise and higher than the 1.8 percent reading recorded in January. The increase in the inflation rate exceeded the Bank of England’s two percent target and was at its highest level since September 2013. Rising fuel and food prices were the main contributors to the rise in the rate. Whilst inflation has been going up, wage growth has been slowing, thus raising concerns over peoples’ household budgets being squeezed this year by higher living standards. The Bank of England is anticipating that inflation will rise to 2.8 percent next year, though some economists believe that the rate could exceed three percent.

Greek talks to be ‘intensified’: Eurogroup head. Eurogroup head Jeroen Dijsselbloem said that bailout talks between Greece and its Eurozone lenders have yet to lead to an agreement on reforms before granting new loans under its existing bailout programme. Dijsselbloem said, “The outcome of today's meeting is that on the basis of the preparatory meeting which we had - myself, the institutions and the Greek authorities - we agreed that talks will continue to intensify in the coming days here in Brussels”. Dijsselbloem said, that a lot of work has been done and progress made but the group still needed to agree on tax, pensions and labour market reforms. He said that there was no guarantee that an agreement will be reached in the next meeting of Eurozone finance ministers.

Australia’ leading index fell in February. Westpac Institutional Bank revealed that Australia’s leading index fell by 0.1 percent in February from January. Australia’s leading index shows the expected rate of economic activity relative to trend three to nine months into the future, fell from 1.34 percent in January to 1.02 percent in February. Westpac said that this was the seventh successive month where the growth rate has been at or above trend. The index pointed to above trend growth momentum, even though the pace eased since the beginning of the year, it was consistent with the bank’s estimates for three percent growth for 2017. The main drivers which led to growth over the past six months were commodity prices, yield spreads and a reduced drag from hours worked.

Japan all industry activity index recovers in January. Data published by the Ministry of Economy, Trade and Industry showed that Japan’s all industry activity index recovered in January. The all industry activity index recovered by 0.1 percent in January from December when a drop of 0.2 percent was recorded. The overall expansion was mainly affected by the construction sector which expanded by 4.1 percent. Industrial output fell by 0.4 percent whilst tertiary industry activity remained unchanged. On an annual basis, all industry activity growth increased slightly from 1.2 percent in December to 1.3 percent in January.
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