This week’s episode - week ending February 17, 2017
further Fed rate hikes to be expected
The U.S. Federal Reserve (Fed) Chair Janet Yellen maintained a generally upbeat, hawkish tone at the semi-annual Monetary Policy Report. Yellen assured she won’t await fiscal policy before further raising rates, suggesting that “waiting too long to remove accommodation would be unwise” and “labour markets continue to strengthen”.
Inflation, a key measure determining Fed action, jumped 0.6% in January, the largest monthly increase in four years. This brings the annualized rate to 2.5%, which is comfortably ahead of the Fed’s 2% target rate.
Chances of a March rate hike rose to 44% after Yellen spoke, although declined to 32% by week’s end. The majority still expect the Fed’s next move to be in June.
positive U.S. economic momentum continues
U.S. retail sales gained for the fifth consecutive month, up 0.4% in January. This pulled the annualized rate up to 4.6%, the highest level reached since November 2014. December’s sales was also revised higher to 1%, from 0.6%.
In a clear indication of booming factory activity, the Philly Fed general business activity index surged 19.7 points to 43.3 in February, a sharp contrast to expectations for a 5.8 points’ drop. This was the largest monthly increase since 2009, reaching levels not seen since 1984.
U.S. industrial production fell 0.3% in January. However excluding Utilities, which suffered its steepest drop in 11 years due to warmer weather, industrial production was up 0.3% during the month.
Eurozone growth stalls
Eurozone fourth quarter of 2016 GDP missed preliminary expectations, advancing only 0.4% and bringing the annualized rate down to 1.7%.
Germany pulled down the headline number, as it concluded the final quarter of 2016 up 0.4%, to 1.2% year-over-year. Italy also missed, with GDP growing only 0.2% for the quarter. However, the 1.0% gain for 2016 was Italy’s strongest year since 2010.
Also this week, Greece’s debt situation returned to the spotlight, with the International Monetary Fund (IMF) renewing concerns over nearly €7 billion in debt repayments due in July. At this point it appears that Greece will be unable to pay its debt without further assistance from the IMF.
Other Economic News
China’s inflation grew higher than expected, rising 1.0% in January, to an annualized rate of 2.5%. Producer prices of wholesale goods and commodities, or PPI, neared a six-year high in January, up 6.9%.
U.K. added 37,000 jobs in the final quarter of 2016 and January’s unemployment rate held unchanged at 4.8%. However, a post-Brexit reality is beginning to set in as inflation rose to 1.8% and is expected to grow higher. This impacted consumer spending, as retail sales slipped 0.3% in January, now to 1.5% annualized, which marks the weakest growth in over three years.