It’s Federal Open Market Committee, or FOMC decision-and-communication day.
Fed Chairman Janet Yellen’s press conference could give us somewhat clearer forward guidance.
The Fed has tried to assure the markets their monetary policy decisions would be “data-dependent.” But we saw how revisions to retail sales have changed the picture of the consumer (which is extremely important to the U.S. economy) at the start of 2016. With such important swings, it becomes really intriguing trying to understand what precisely are the determent elements that define the FOMC to act or not to act.
Of course, retail sales is not consumer spending. The sharp rise in service sector inflation in the U.S. by 3 percent y/y ex-energy may have negatively impacted consumers, leaving them less money for retail purchases.
Whatever the reason is, it’s a fact we had sizable downward revisions to the January retail sales. Nevertheless, and that's the good news, the overall y/y picture remains positive and still delivers the best performance since 2013 while the better performance trend
remains in place.
Also so far, real disposable personal income, improved household balance sheets and moderate increases in credit seem to be set for consumer spending
to continue around the same trend as at present or better in 2016.
As the FOMC will probably not raise rates today, this retail sales “blip” will not influence the Fed.
Let’s hope Yellen gives us a little bit more clarity. Hopefully she will explain how trends or pure data (or both and in what proportion) really guide the Fed. Maybe I’m asking too much …
Meanwhile, the second “Super Tuesday” primary votes gave us somewhat better clarity on the likely lineup for the U.S. presidential election.
Putting pure politics aside, a possible Donald Trump presidency is starting to have greater macro-economic consequences, such as the future of the Trans-Pacific Partnership trade deal.
In Europe as well as in the United States there is also a broader trend that's becoming visible whereby we see a rise of the “anti-party” or “anti-politics,” which are political positions defined primarily as being against something, normally against minority groups of foreigners rather than political positive politics that is defined as in favor of something.
Please don’t understand me and I am not talking about being in favor for or against these emerging trends. But from economical and investor standpoints, this is concerning in a longer-term structural sense because this sort of prejudice is damaging to economic growth in the median term. This trend is something that undermines productivity, particularly in a world where return on human capital is rising in importance.
Such issues are for now most visible in Europe where German Chancellor Angela Merkel's position is subjected to broad-based increased scrutiny in the wake of the weekend’s regional state election results.
For long-term investors, these trends could become very important as we could be at the very early stages, so far in the developed economies at least, of “de-globalization” and “protectionism.”
Finally, and talking about China for a moment, Premier Li Keqiang just made some typical Chinese remarks. “We are confident that as long as we continue to reform and open up, China's economy will not suffer a hard landing … Economic productivity is being held back by unnecessary government interference and we need to create a more level playing field and more oversight … Instead of resorting to massive stimulus measures, we have chosen a more sustainable but more painful economic path, pursuing structural reforms,” Li said.
Interestingly, Li also added it was “impossible” to miss economic targets
I sincerely hope China succeeds and thereby avoids a hard landing, which is still in the cards, because if that were to be the case, the already lackluster global growth would probably derail completely with consequences that go far beyond most investors’ imagination and which isn’t, even not in part, priced-in in markets anywhere.
Investors could do well only concentrating on the hard economic facts of China.
I this context it might be noteworthy mentioning China’s electricity consumption
for manufacturing was, again, down over the last 3 months year-on-year by 1.80 percent …
Etienne "Hans" Parisis
is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.
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