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EU: Rising Unemployment Will Shrink Eurozone GDP


“The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said.

Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth, the Brussels-based commission forecast today. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year.

Economic and Monetary Affairs Commissioner Olli Rehn said authorities must press on with reforms to end the region’s debt crisis and help the recovery. While “hard data” has been disappointing, there also has been more encouraging “soft data” that points to better times, he told reporters today.

A strengthening of the euro economy later this year may be led by Germany, where investor confidence rose in February to a 10-month high. The commission’s weak outlook reflects government austerity measures and efforts by companies and consumers to reduce debt. The European Central Bank said today banks will next week return 61.1 billion euros ($80.5 billion) of its second three-year loan, a measure introduced to aid lending at the depths of the financial crisis.

“We clearly have a decoupling with different recovery trends, with Germany certainly recovering at a much faster pace,” saidMarco Valli, chief euro-area economist at UniCredit Global Research in Milan. “We still have a lot of noise and volatility in the monthly data, but the bottom line is that the euro zone as a whole has already turned.” …”

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The Euro Zone Witnesses Faster Than Expected Slowing of Manufacturing and Services

“Euro-area services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggled to recover from the deepest recession in almost four years.

A composite index based on a survey of purchasing managers in both industries in the 17-nation currency bloc decreased to 47.3 from 48.6 in January, London-based Markit Economics said today. Economists had forecast a reading of 49, according to the median of 22 estimates in a Bloomberg survey.Germany’s services measure declined more than forecast to 54.1, while its factory gauge rose above 50, indicating expansion in that industry.

The data reinforce indications that the euro-area economycontinued to contract in early 2013 after the recession worsened in the fourth quarter. The European Central Bank forecasts gross domestic product will decline 0.3 percent this year.

“When you’re in the midst of the recession, and some would argue, a depression in some places like Greece, it’s hard to be optimistic,” Robert Savage, chief strategist at New York-based currency fund FX Concepts, said today in a Bloomberg Television interview. The PMI data “are highlighting the problem.”

The euro-area services index fell to 47.3 in February from 48.6 in January, its steepest drop in 10 months, today’s data showed. The manufacturing gauge slipped to 47.8 from 47.9. Markit will publish the final reading for the factory index on March 1 and the services and composite measures on March 3.

German Manufacturing

In Germany, Europe’s biggest economy, the services measure fell to 54.1 in February from 55.7 last month, the sharpest decline since August. The German manufacturing gauge rose to 50.1, moving into expansion for the first time in a year. France’s services gauge fell to 42.7 this month from 43.6 in January, while its manufacturing index increased to 43.6 from 42.9, today’s data showed….”

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FOMC Minutes Reveal Several Policy Makers Agree Fed Should Vary QE Pace

“Several Federal Reserve policy makers said the central bank should be ready to vary the pace of their $85 billion in monthly bond purchases amid a debate over the risks and benefits of further quantitative easing.

The officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting released today in Washington.

The minutes showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment, with some saying an earlier end to purchases might be needed, and others warning against a premature withdrawal of stimulus.

The FOMC at its January meeting decided to continue buying $45 billion a month of Treasuries and $40 billion in mortgage- debt without setting a limit on the duration or total size of the purchases. Policy makers also affirmed their pledge to keep the target interest rate near zero “at least as long” as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.

A number of officials said that their evaluation of costs and benefits of the policy “might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” according to the minutes.

‘Substantial Improvement’..”

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The State of the Consumer


“Think the Walmart “disastrous” sales memo was a one-off event, which net of Walmart’s damage should be completely ignored (something the market has been perfectly happy to oblige with)? Then listen to a separate perspective on the US consumer, this time from a very different angle: that of Town Sports International which operates such gyms as New York Sports Club, and specifically its CEO David Gallagher, who in last night’s conference call just confirmed what everyone knows: “As we moved into January membership trends were tracking to expectations in the first half of the month, but fell off track and did not meet our expectations in the second half of the month. We believe the driver of this was the rapid decline in consumer sentiment that has been reported and is connected to the reduction in net pay consumers earn given the changes in tax rates that went into effect in January.

It goes on….”

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$CAT Sales Show the Gravity of the Global Economy

“While CAT’s CEO puts on a brave face, the results from his company are clearly indicative of the slowing global growth that everyone (apart from nominal equity indices) knows is occurring. For months, talking heads have used CAT’s results as a proxy for growth and as they are rising confirming their inherent BTFD biases; however, this month’s terrible results – with Asia/Pac down 12% on a 3-month rolling basis and North America down 11% – appears to confirm what has been evident in the lagging global GDP data for over a year – things are not picking up….”

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Housing Starts and PPI Data

Housing Starts: Prior 954k, Market Expects 914k, Actual 890k

PPI: Prior -0.2%, Market Expects 0.3%, Actual 0.2%….yoy up 1.4%, Core comes in at 1.8%

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Inflation Slows to 5.4% in South Africa

“South African inflation slowed to a five-month low in January after the statistics office adjusted the consumer price basket and food and fuel prices eased.

The inflation rate fell to 5.4 percent from 5.7 percent in December, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 19 economists was 5.7 percent. Prices rose 0.3 percent in the month.

The government cut the price of gasoline by 1.2 percent in January as a stronger rand in the previous month helped to curb import costs. Since then, the currency has plunged 4.8 percent against the dollar and fuel prices climbed, adding to pressure on inflation.

“All indications are that this is not going to last and the overall trajectory is still upward,” George Glynos, an economist at Econometrix Treasury Management, said in a phone interview from Johannesburg.

The rand strengthened after the release of the data, advancing 0.2 percent to 8.8371 against the dollar by 11:11 a.m. in Johannesburg. Investors pared back expectations of higher interest rates, with the yield on forward-rate agreements due as soon as six months dropping 5 basis points to 5.03 percent.

Interest Rates…”

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Japan’s Trade Deficit Hits a New Record

“Japan’s trade deficit swelled to a record 1.63 trillion yen ($17.4 billion) on energy imports and a weaker yen, highlighting one cost of Prime Minister Shinzo Abe’s policies that are driving down the currency.

Exports climbed 6.4 percent in January from a year earlier, the first rise in eight months, exceeding the median 5.6 percent estimate in a Bloomberg News survey of 24 economists. Imports increased 7.3 percent, the Finance Ministry said in Tokyo today.

Weakness in the yen that aids exporters such as Sharp Corp. and Sony Corp. also means the country pays more to import fossil fuels needed as nuclear reactors stand idle after the Fukushima crisis in 2011. That burden may encourage the government to limit the currency’s slide, with Deputy Economy Minister Yasutoshi Nishimura signaling in a Jan. 24 interview that the government may prefer a yen stronger than 110 per dollar.

“The trade deficit means the yen can’t just keep weakening,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “Abe will probably restart some nuclear plants after the upper house elections in July as, without them, the costs to the economy are too great.”

The yen fell after the data were released, before reversing course to trade 0.1 percent higher at 93.51 at 12:33 p.m. in Tokyo. The Nikkei 225 Stock Average was 0.8 percent higher.

Nearly 80 percent of Japan’s imports were denominated in foreign currencies in the second half of last year, compared with about 60 percent of exports, according to the Finance Ministry.

Export Increase….”

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Freight Shipment Finds a Fourth Consecutive Month of Free Fall, Worst Levels Hit in Two Years

“Freight shipment volumes are rather obviously seasonal, but as Bloomberg Brief notes, the Cass Freight index shows shipment volumes have slumped for four consecutive months and are back to their worst levels in two years. This is the first year-over-year contraction since the 2007-2009 Great Recession – and places the reality of the dismal Q4 GDP print in context. If that wasn’t enough good news about the real economy, the cyclicality of the shipments are losing momentum (i.e. each seasonal rebound in the last three years has been weaker – just as we saw in the lead up to 2008) and freight expenditures fell in January leading to a 1.6% drop over the last year – compared to a 27.2% rise in January 2011, and 22.2% rise in January 2012. As Cass noted, these volumes will not be enough to “have a significant impact on the unemployment numbers.” …”

Full article and charts

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Inflation Cuts Into Russian Retail Sales

“Russian retail sales grew at the slowest pace in almost three years in January as unemployment surged and inflation sapped household purchasing power.

Retail sales advanced 3.5 percent from a year earlier, down from 5 percent in December, the Federal Statistics Service in Moscow said in a report today. Economists forecast a 4.8 percent increase, according to the median of 19 estimates in a Bloomberg survey. Unemployment jumped to 6 percent, the highest in 10 months, from 5.3 percent.

The world’s largest energy exporter is counting on the household spending that accounts for about half the economy to maintain growth as the euro area’s slump hurts demand for commodities. The government forecasts consumer-price growth will accelerate again this month, threatening consumer optimism and spending power and keeping pressure on the central bank not to use lower borrowing costs to spur growth.

“We expect consumption to continue steadily trending down,” Elina Ribakova, an economist at Citigroup Inc. in Moscow, said by e-mail before the release. “In the first half of 2012, consumption was boosted by pre-election spending, but since then growth has been slowing.” …”

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U.K. Retail Sales Fall Unexpectedly

“Feb. 15 (Bloomberg) — U.K. retail sales unexpectedly fell in January for a second consecutive month as cold weather kept consumers at home and incomes remained under pressure, hurting spending on food, household goods and auto fuel.

Sales including fuel fell 0.6 percent from December, when they dropped a revised 0.3 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for a 0.5 percent increase. From a year earlier, sales declined 0.6 percent.

Bank of England Governor Mervyn King said this week that inflation may accelerate in the coming months, intensifying a squeeze on consumers that has curbed spending. With snowfall also likely to have disrupted construction last month, today’s data raise the possibility that the economy will shrink in the first quarter, according to Rob Wood, a London-based economist at Berenberg Bank….”

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Recession in Europe Grows More Than Expected

“The euro-area recession deepened more than economists forecast with the worst performance in almost four years as the region’s three biggest economies suffered slumping output.

GDP fell 0.6 percent in the fourth quarter from the previous three months, the European Union’s statistics office in Luxembourg said today. That’s the most since the first quarter of 2009 in the aftermath of the collapse of Lehman Brothers Holdings Inc. and exceeded the 0.4 percent median forecast of economists in a Bloomberg survey.

The data capped a morning of releases showing that the economies of Germany, France and Italy all shrank more than forecast in the fourth quarter. European Central Bank PresidentMario Draghi said last week that confidence in the 17-nation bloc has stabilized and the ECB sees a gradual recovery beginning later this year, though the situation is “fragile.”

“The outlook for 2013 remains subdued,” said Peter Vanden Houte, an economist at ING Group NV in Brussels. “While a gradual improvement of the world economy is likely to support European exports, domestic demand is bound to remain very weak as fiscal tightening and rising unemployment will take their toll on household consumption.”

The euro extended its decline against the dollar after the data were released. It fell 0.9 percent to $1.3328 as of 10:34 a.m. London time. The single currency also weakened versus the pound and the yen. European stocks erased gains, U.S. equity- index futures fell, and German bunds advanced.

Japanese Surprise…”

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Japan’s GDP Falls 0.1%…Where is Samurai Abe?

“Japanese Q4 GDP came in at a miss.

Analysts expected a rise of 0.1%. Instead it was a fall of 0.1%.

More shocking was the 0.4% fall in nominal GDP. That’s worse than the expectation of 0.0% nominal GDP…”

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$AMAT Posts a 71% Drop in Profits


“Feb 12 (Reuters) – Chip gear maker Applied Materials’ first-quarter profit fell 71 percent, hurt by lower orders.

Net income fell to $34 million, or 3 cents per share, from $117 million, or 9 cents per share, a year earlier. Excluding items the company earned 6 cents per share.

Revenue fell 28 percent to $1.57 billion.”

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