NEW$ & VIEW$ (12 FEBRUARY 2014)

Note: BEARNOBULL.COM also published: Good Read: How Technology Can Drive The Next Wave Of Mass Customization

FIRM BUT FLEXIBLE
  • Fed to Keep Course on Bond-Buy Cuts The U.S. economic outlook would have to take a distinctive turn for the worse before the Fed considers halting its reduction of bond purchases, Yellen said.

(…) Some recent economic data have been soft, Ms. Yellen noted in her steady-as-she-goes comments before the House Financial Services Committee, but she doesn’t want to overreact to that. (…)

Asked what would cause the Fed to alter its course, Ms. Yellen responded it would take a “noticeable change” in its outlook for growth, employment or inflation. (…)

  • BOE Raises U.K. Growth Outlook The Bank of England said the U.K. economy will grow much faster this year than it previously thought but that interest rates will remain low for some time to come.

The bank now forecasts that the U.K. economy will grow by 3.4% this year, much quicker than the 2.8% forecast in November.

The BOE also said it expects upcoming data will show the unemployment rate in the U.K. fell to 7% in January, more than two years earlier than officials predicted in August when they chose 7% as the point at which they would consider a rise in interest rates. This policy, known as forward guidance, has been a cornerstone of Governor Mark Carney’s leadership since he took the helm at the BOE in July.

In its quarterly inflation report, the U.K. central bank stepped away from tying a rise in its benchmark interest rate to progress on unemployment, saying officials will now take a broader look at how many hours Britons are working and other labor-market signals to assess whether they need to tighten policy. (…)

The Canadian was asked repeatedly whether the public will comprehend the role of the 18 new economic variables the BOE included in its forecasts as signposts for future changes in policy. (…)

“For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time,” Mr. Carney said. (…)

SOFT PATCH WATCH
As Inventories Soar, Car Makers Bet on Pricing

On Tuesday, automotive sales tracking firm ALG Inc. warned industry inventory levels in January were the highest since August 2009, when the recession was in full force. It took U.S. dealers in January an average of 59 days to sell a new vehicle, nine days longer than the same period a year earlier and the highest level since the 68-day peak in 2009.

None of the auto makers say they plan to reduce production to counter the inventory overhang. Paring output would reduce pressure to discount, but auto maker’s book revenue when they ship vehicles to dealers and any slowdown would hit first-quarter revenue.

They are counting on dealers to cut the backlog—without a wholesale change in manufacturers’ incentives or production schedules. (…)

So far, says IHS IHS +0.45% automotive analyst Tom Libby, GM and other car makers figure “it is cheaper to offer these incentives than to shut the plants. The problem is once you turn it on, [discounting] it is hard to turn it off, and now we are looking at another challenging month with February.”

Mortgage Applications Decrease in Latest MBA Weekly Survey

The seasonally adjusted Purchase Index decreased 5 percent from one week earlier.

Angel Boehner breaks with Tea Party, backs away from debt fight

The current era of budget brinksmanship in Washington appears to be over, as Republican leaders shift strategy ahead of midterm elections in November.

House Speaker John Boehner, the de facto leader of the Republican opposition to President Barack Obama in Washington, broke with the hardline Tea Party faction of his party and called a vote on raising the statutory debt ceiling in the United States on Tuesday. (…)

Mr. Boehner’s tactical shift Tuesday follows a bipartisan budget agreement in December and an agreement last week on renewed farm policy that had languished in Congress for more than two years.

Sarcastic smile China’s Exports Power Higher China’s exports jumped unexpectedly in January, a potentially positive sign that could help reverse recent worries about the health of emerging markets.

The country’s exports rose 10.6% compared with January last year, up from a 4.3% year-over-year rise in December, official customs data show. This is well ahead of the median 0.1% growth forecast by 11 economists polled by The Wall Street Journal and suggests a gradual recovery of demand in western economies is helping to boost China’s trade. (…)

Economists had forecast that very strong Chinese exports in January 2013 would make this year’s growth look lackluster. The result is even more surprising given that the Lunar New Year holiday, when factories shut down and workers return home, fell in January this year.

Some analysts said the results could signal the return of businesses overstating the value of their shipments to get money past China’s strict capital controls and into the country for investment. The practice came to light last year, after a divergence between China’s exports and corresponding import figures from other territories raised eyebrows last year.

“On top of the 20% or so increase [in January] last year, we have another 10% rise? That’s hard for me to believe,” said Liu Li-Gang of ANZ Bank. (…)

Imports also strengthened more than expected, growing 10% in January compared with 8.3% in December. (…)

China land sales pull in record $672bn Latest evidence of rising property market

Chinese land sales hit a record $672bn in 2013 following a lull the previous year, providing more evidence that the country’s property market is once again in full throttle. But although construction activity is likely to bolster the economy in 2014, there are signs that land sales could slow, weakening local governments’ ability to raise money.

Land sales hit Rmb4.1tn, the Ministry of Land and Resources said, eclipsing the previous record of Rmb3.5tn in 2011. Land zoned for real estate use, which accounts for about one-quarter of zoned land sales, rose by nearly 27 per cent year-on-year.

Euro Zone Output Falls in December Euro zone industrial output fell in December, suggesting that while the economy likely expanded for a third straight quarter it did so at a muted pace.

imageIndustrial output across the then 17-country euro zone—Latvia increased the figure to 18 after joining the single currency area in January of this year—fell 0.7% in December from November, and grew just 0.5% compared with a year earlier.

The And, the strength previously reported in November took a hit in revisions. Eurostat now calculate that industrial output grew 1.6% on the month and 2.8% on the year after originally reporting a monthly gain of 1.8% and an annual rise of 3%.

As with the strength in November that was broad-based, so the decline in December was also spread across countries and sectors.

Eurostat data show industrial output in Germany fell 0.7% on the month, Italy posted a 0.9% monthly fall while French factory output was 0.3% weaker in December than in November. By sector, energy production slid 2.1% compared with November, as did output of capital goods.

In reality, the monthly stop and go simply continues with no real movement overall. IP has declined during four of the last 6 months and ended up unchanged over the period. Since July, German IP is up 0.6% (+1.2% a.r.), France is unchanged, Italy –0.8% (-1.6%) and Spain +0.2% (+0.4%).

The good news is that Markit’s January Manufacturing PMI for the Eurozone was 54.0 with strong numbers for new orders and new export orders.

This is puzzling considering that EU retail sales volume was down 1.6% in December and –1.8% (-5.5% a.r.) since September, the most important period of the year and that the U.S. economy seems to have entered a soft patch.

German Growth Forecast Raised

The German government Wednesday slightly raised its 2014 economic growth forecast for Europe’s largest economy to 1.8% from an earlier estimate of 1.7%, citing strong domestic demand.

Germany’s economics ministry said higher exports and investment are expected to stimulate growth this year and next. The ministry expects Germany’s gross domestic product—a measure of goods and services produced across the economy—to expand 2% in 2015.

Confused smile OECD admits eurozone forecasting errors Recovery outlook based largely on repeated false assumption

“The OECD did not underestimate fiscal multipliers,” he said. “It was the repeated assumption that the euro crisis would dissipate over time, and that sovereign bond yield differentials would narrow, they turned out to have been the most important source of error.”

Am I reading what I am reading? The forecasts simply assumed that things would eventually get better. Like driving a car blind and assuming it will take you where you want to go. Here’s what Pier Carlo Padoan, deputy secretary-general and chief economist of the OECD wrote in today’s BloombergBriefs:

A number of lessons that are now being put into practice at the OECD. Near-term monitoring of the economy needs to be improved, through indicator models, assessments of vulnerabilities and discussions with business contacts, so as to be better able to spot impending downturns. Better account also needs to be taken
of international linkages, spillovers and financial market developments. To recognize the uncertainty around all forecasts, and their underlying assumptions, greater
use should be made of quantitative scenario analyses around our baseline view.

In short, just do your job well.

 

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