Welcome to your weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last week.
US PMI data comes in higher
US PMI data, one of the most closely watched economic indicators, based on surveys of purchasing managers, came in slightly higher this month. PMI data measures sentiment around business conditions, and an increase in PMI data reflects increased confidence. February's data came in at 58.8, versus January's 58.7, painting a more optimistic expansionary picture. While the overall index rose, manufacturing PMI fell, disappointing expectations, and the services PMI rose, beating expectations.
Despite prices for raw materials climbing to their highest point since April 2011, we are currently seeing an impulse to growth, powered by increased expectations for a global recovery.
This is particularly relevant at the moment because current expectations point to US economic growth rebounding to above 2019 levels in the first half of 2021.
US retail sales ahead of expectations
US retail sales rose by 5.3% month on month in January, ahead of expectations. This was the sharpest recovery in seven months. US stimulus checks of $1,200 per person have helped spur a recovery in retail spending.
Higher consumer spending points to a greater likelihood of confident consumer activity later in the year when mass vaccination against COVID-19 has been achieved.
Inflation in the price of household goods
The UK Consumer Price Index rose higher than expected in January, to +0.7%, slightly higher than consensus. The UK CPI measures inflation in the prices of household goods. This is probably due to a comparison with significant price discounts at this time last year.
Inflation is expected to rebound this year, especially as the low oil prices of April 2020 are included in the annual comparison figures. Policymakers will need to take this into account when setting monetary policy.
Japan’s GDP beat expectations in Q4
Japan's GDP rose in Q4 to +3%, beating expectations, despite rising COVID-19 cases across the country.
This is likely because the manufacturing recovery in China and South East Asia has led to a large increase in exports from those countries, while Japan's soft domestic demand led imports to fall.
This is important because as an export-driven economy, Japan's GDP is a bellwether for Asia's economic recovery as a whole. As a result of this data, the Nikkei stock market index broke 3,000 for the first time since the Japanese asset price bubble burst in 1990.
Over the last week, global equities, as measured by the MSCI ACWI index, were down 0.8%, faltering slightly, but leaving the index up 5.1% for the year to date. On the fixed income side, the yield on the US 10-year government bond settled above 1.30 on expectations that inflation would return as the economy reopens. Finally, the Bitcoin price continued its positive momentum, rising 17.4% and breaking $50,000 for the first time.
Look out for next week’s update, where we’ll be focusing on US Q4 GDP, Euro area CPI and Q4 GDP, and UK unemployment data.
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