* Exports boost UK manufacturing
* Middle East unrest undermines Euroland economic sentiment
* Higher fuel prices push US consumer spending higher
* Earthquake impacts Japan´s manufacturing sector
* Brazil annual inflation hits 6.13%
* Agricultural Bank of China reports profit growth of 46% in 2010
UK manufacturing boosted by exports
A strong rise in Britain’s exports appears to be boosting demand for plant and equipment. Private sector manufacturing business investment in the fourth quarter rose 17.2% against levels the preceding year while non-manufacturing investment rose by 12.7%. Total business investment was actually flat in the fourth quarter from the third quarter, not the 2.5% drop initially reported. The Office for National Statistics said that GDP in the fourth quarter of 2010 had contracted by 0.5%, not the 0.6% reported at the first revision. Separate Office for National Statistics figures showed that the UK services sector, the largest part of the UK economy, grew by 1.3% in January, reversing the decline of 1.1% in December.
The CBI’s Distributive Trades Survey for March found that high street sales were more buoyant than expected in March. Among wholesalers, 19% more respondents said that they were expecting sales to rise rather than fall and a balance of 16% said that sales were high rather than low for the time of year. A report by GfK NOP Ltd. showed that UK consumer confidence was unchanged in March from the previous month.
A broad measure of money supply showed that growth slowed in February. Meanwhile, the Bank of England said that the number of mortgages approved for the purpose of house purchases rose modestly in February. The number of loans approved for remortgages increased to the highest number for at least two years.
Consumer credit, including loans and credit card debt, rose faster than the average rate over the previous six months. Elsewhere, lending to private, non-financial corporations – the businesses that form the backbone of the British economy – rose in February. The growth rate over the previous three months, annualised, was 1.2%, a sign that businesses’ appetite for borrowing is on the rise while banks are increasingly willing to lend.
German unemployment falls to 7.1%
This week an OECD report showed that average unemployment in Euroland was 9.9% in January for all 17 member states, with France recording 9.6% and Spain hitting 20.4%. Separate German data showed that unemployment in the region’s largest economy fell to a better-than-expected 7.1% in March, the lowest since German unification in 1990. Notably, the nation’s chemical industry workers agreed to a 4.1% pay rise over 15 months – the most important wage deal for the country’s manufacturing sector this year.
The European Commission reported that its “economic sentiment” indicator for Euroland fell in March for the first time since May last year, reflecting concern about the global economic impact of the earthquake and tsunami in Japan and Middle East unrest. Sentiment among Euro-area manufacturers was unchanged in March from the previous month while services confidence slipped. The survey also showed that Euroland consumers’ fears about inflation were at one of the highest levels in a decade. In the meantime, official figures revealed that the region’s inflation jumped more than expected to 2.6% in March, up from 2.4% the previous month. This is above the central bank’s inflation target of “below but close” to 2%.
Elsewhere, Standard & Poor’s cut Portugal’s credit rating to the lowest investment grade of triple B minus. The downgrade, the second in a week, sent Portuguese 10-year bond yields, which have an inverse relationship with prices, to over 8%, a record high. Greece also saw its ratings cut two grades to double B minus, three levels below investment grade. Greek 10-year bond yields jumped to 12.7%. In Ireland, the government revealed that its stricken banks would require a further €24bn in capital, pushing the total cost of the sector’s bailout to around €70bn. The capital management programme will be Ireland’s fifth attempt to draw a line under the banking crisis, which has so far cost the state €46bn ($65.3bn), and is likely to bring the country’s entire banking sector under government control.
US consumer spending exceeds forecasts
The Bureau of Economic Analysis announced that consumer spending rose by 0.7% in February. Higher fuel and grocery prices lifted the rate of increase higher than had been expected and above January’s revised 0.3% gain. Incomes also rose in February, up 0.3%. With spending outpacing incomes in the month, the personal savings rate fell to 5.8% of disposable income, compared with 6.1% the previous month. The core personal consumption price index, a measure of inflation favoured by policymakers, increased 0.2% in February, the same rise as the previous month.
Despite rising consumer spending, the Conference Board’s index of consumer confidence actually fell to 63.4 in March from 72.0 in February, which was its highest level in three years. The report follows the Thomson Reuters/University of Michigan consumer sentiment index, which fell to its lowest reading since November 2009 amid rising food and fuel prices, upheaval in the Middle East and the crisis in Japan.
In other news, the S&P/Case-Shiller home price index showed that prices of single-family homes in the 20 largest US cities fell a lowerthan-expected 0.2% from December to January after falling 0.4% during the previous month. The National Association of Realtors said that pending home sales rose 2.1% in February. The increase was a reversal of the 2.8% drop seen from December to January.
Meanwhile, the Commerce Department said that new orders for manufactured goods fell 0.1% in February following an upwardlyrevised 3.3% jump in January. The February reading was the first fall in orders since October. Excluding transportation, orders were up 0.1% on rising demand for non-durable goods. A separate Commerce Department report said that GDP expanded at a fasterthan-expected annualised rate of 3.1% in the fourth quarter, supporting the Federal Open Market Committee’s view that the US recovery was on a “firmer footing”.
Japan’s manufacturing contracts on impact of quake
The Markit/JMMA Japan manufacturing purchasing managers´ index fell to 46.4 in March from 52.9 the previous month, the steepest decline since the data began in 2001. (A number above 50 indicates growth in activity.) New orders fell at the steepest rate in two years while cost inflation rose at the fastest pace in two and a half years. The weakness came as little surprise in the aftermath of the March 11 earthquake and tsunami in northeast Japan which has crippled a nuclear energy plant and forced the closure of many factories. The Japanese government estimates that damage from the disaster, which left more than 27,000 people dead or missing, at around ¥25 trillion ($306bn). Meanwhile, the Trade Ministry said that Japan’s industrial production unexpectedly rose 0.4% in February - a sign that the economy was recovering before the earthquake struck. In a separate report, the Statistics Bureau said that the unemployment rate fell to a two-year low in February of 4.6% from January’s 4.9% and retail sales were better than had been forecast.
Emerging market news
In Brazil annual inflation increased to 6.13% in the 12 months to mid-March, the fastest pace since November 2008. Brazil’s central bank has signalled that it is ready to raise the benchmark interest rate, the Selic, more than originally planned (from 11.75%) in spite of the strength of Brazil’s currency relative to the US Dollar (which has made it more difficult for manufacturers to compete abroad.) The Real has gained 40% against the Dollar in the last two years.
Separately, official figures showed that Turkey’s economic growth accelerated to 9.2% in the fourth quarter, compared with revised growth of 5.2% over the previous three months. For 2010 output expanded by 8.9%. Meanwhile, surging demand for imports and rising commodity prices is swelling the country’s trade gap. Compared to 12 months previous, Turkey’s current account deficit, the broadest measure of trade in goods and services, has almost doubled to $5.9 billion.
Company news
Agricultural Bank of China (AgBank), China’s largest rural lender, reported that 2010 net profits grew 46%, far outstripping the average net income growth of 29% for larger domestic peers that have focused their operations in urban areas. AgBank, which listed last year in Shanghai and Hong Kong in the world’s largest initial public offering, has around half of its 23,600 branches in rural areas. The bank said that its profitability was, in part, achieved because of government policies that have prioritised infrastructure investment in the countryside in recent years.
Elsewhere, the Industrial & Commercial Bank of China Ltd. (ICBC) posted 28% profit growth in 2010, better than had been forecast. ICBC’s net interest margin, a measure of profitability of loans, widened to 2.44% last year from 2.26% in 2009. The world’s largest lender by market value plans to advance at least 820 billion yuan ($125bn) of new loans this year, increasing outstanding credit by 13.2%. New loans expanded by 19% in 2010 and 25.3% in 2009. The slowdown follows efforts by policymakers to slow credit expansion and curtail inflation.
It was also revealed this week that the Polish government intends to sell shares in PKO Bank Polski in a September public offering that may value the central European largest bank’s sale as high as $5 billion, a record state-asset sale in the country. State-owned Bank Gospodarstwa Krajowego said that it will sell 10%. The government will cut its total stake, including Gospodarstwa’s shares, to as low as 25% from its current holding of 51%. The Polish government is expected to hold a record number of share sales on the stock exchange this year to help finance the state deficit and limit debt. Last year, Poland’s public debt stood at 53% of GDP.
