Import prices (Oct): annual rate much less negative
UMI consumer sentiment (Nov): slight improvement
Initial jobless claims went down by 20k in the week ending 31 October. This was the lowest level since the second week of January, but jobless claims above 400k continue to signal job cuts in the US economy. We expect initial jobless claims in the week ending 7 November to have risen slightly to 515k after their marked decline.
The federal government recorded a total budget deficit of $1.4 trillion in fiscal year 2009, about $960bn more than in 2008. The deficit as a share of GDP rose from 3.1% to 9.9% - the highest ratio since 1945. The Congressional Budget Office (CBO) estimates that the deficit in October, the first month of fiscal year 2010, will amount to $175bn, compared to -$156bn in the previous year. The deterioration will have been entirely due to lower receipts.
The trade deficit narrowed by $1.1bn in August, as imports fell despite higher oil prices, and exports only rose slightly. The high level of the ISM export component indicates that exports will have risen more markedly in September due to the global recovery. But the fact that domestic demand rebounded in the 3rd quarter could have pushed imports up, just as the Commerce Department assumed in its first GDP estimate for Q3. Moreover, nominal petroleum imports which fell in August might have gone up too, supported by a moderate increase in oil prices. We forecast that the trade deficit will have widened from $30.7bn to at least $32.5bn in September.
Import prices had only increased slightly by 0.1% mom in September; however, as oil prices rose by around 2% in the statistically relevant first third of the month, import prices could have gone up by about 0.5% mom in October. The annual rate will have remained negative, but, at -6.1%, it will only be about half the August rate.
Due to uncertainty about the economic outlook, the University of Michigan's (UMI) consumer sentiment fell back from 73.5 to 70.6 in October. But as the preliminary level was only 69.4, late respondents in the survey were much less pessimistic. We thus predict that UMI's preliminary November consumer sentiment will go up to 71.5. Reports about the growth rebound in the 3rd quarter could have lifted consumer mood, but it is unlikely to have reached September's level, because the unemployment rate has hit a 27-year high.
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U.S. Review Almost Everything Is Improving Except Hiring
Nonfarm employment fell by 190,000 jobs in October, with declines as broad based as in recent months. The unemployment rate rose to 10.2 percent.
The ISM manufacturing index rose 3.1 points to 55.7 in October, led by a 7.6 jump in the production component. The employment index rose above 50 for the first time in 14 months.
Productivity surged during the third quarter, with rebounding manufacturing output and broad based cutbacks in the service sector accounting for most of the increase.
Almost Everything Is Improving Except Hiring
This week’s busy schedule of economic reports brought mostly good news, even if it did end on a somewhat disappointing note. Several of the more leading indicators of economic growth posted strong gains, suggesting that the recovery process is well underway. We still suspect that the second quarter shutdown and third quarter restart of motor vehicle output is responsible for much of the swing in economic activity. The near doubling in motor vehicle production casts a broad shadow over the entire economy and is lifting orders and production in a number of industries.
October’s 3.1 point rise in the ISM manufacturing index started the week on a positive note. The ISM manufacturing index is one of the best ways to measure swings in the factory sector, which typically produces the cyclical impulse for the broader economy. Most of the increase was in the production series, which surged 7.6 points. The biggest surprise, however, was the 6.9 point increase in the employment component, which brought that series above 55 for the first time in 14 months. The more leading components of the index, inventories and new orders, were mixed. Inventories and customer inventories remain low but the new orders series dropped during the month, suggesting that future ISM numbers may not be as robust.
Motor vehicle sales rebounded solidly in October, with sales coming in at a 10.4 million unit pace. Sales had plummeted to a 9.2 million unit pace in September, reflecting the abrupt end to the cash-for-clunkers program. Averaging the two months sales might provide a better indication of the underlying sales pace, putting it at around 9.8 million units.
Third quarter productivity numbers came in stronger than expected. Nonfarm productivity surged at a 9.5 percent annual rate and productivity figures for the second quarter were revised modestly higher. The improvement reflects a rebound in production and incessant cost cutting. Output rose at a 4.0 percent annual rate during the third quarter and hours worked plunged at a 5.0 percent pace. Over the past year output has fallen 3.5 percent and employee hours have fallen even more, 7.5 percent. Productivity surged by an even stronger 13.6 percent pace in the factory sector. Most of that increase was in the auto sector, which helped boost productivity in the durable goods sector at a 21.2 percent pace. The stronger productivity numbers suggest a pick up in hiring is not that far off.
Nonfarm payrolls fell by 190K jobs in October, and the unemployment rate surged to 10.2 percent, despite continued shrinkage of the labor force. However, improvements in the average workweek in manufacturing and overtime suggest a turn in the cyclical forces on employment. In addition, the index of hours worked is close to a bottom and this is consistent with gains in total output. These improvements are solid signals that there is a modest recovery—but not a boom—in place. We expect hiring to turn positive on sustained basis sometime in the next six to nine months, which would be an earlier turnaround for employment than in either of the past two recoveries.
U.S. Outlook
U.S. Trade Balance • Friday
Third quarter GDP showed a modest widening in the U.S. trade deficit to $348.3 billion from $330.4 billion, as both exports and imports rose at a double digit annualized rate on recovering demand. The trade balance subtracted a little more than a half a percentage point from GDP growth in the quarter, after adding 1.7 percentage points in Q2 and 2.6 percentage points in Q1. The September trade balance figure released on Friday will help fine-tune this estimate. We expect the trade deficit to widen to -$32.4B for the month of September as imports rebound from a modest 0.6 percent decline in August. Investors will be looking for continued signs the global recovery in the report and the weaker dollar is having a noticeable impact on the ability to sell U.S. products abroad. The government has noted that the recovery will be inordinately reliant on this growth driver as U.S. consumer demand remains soft.
Previous: -$30.7B Wells Fargo: -$32.4B
Consensus: -$-31.0B
Import Prices • Friday
Import prices likely jumped 1.6 percent in October, primarily due to large increases in imported oil prices. Excluding volatile oil prices, the import price index will likely rise a more modest o.2 percent. Trade prices fell rapidly during the last five months of 2008, and began forming a trough in the first quarter of 2009. More recently, import prices have begun rising as oil prices have more than doubled from their low, and a weaker dollar begins to have an impact on foreign producers’ ability to discount U.S.-bound merchandise. Still, given the drop in consumer demand in the U.S., import prices are expected to remain 5.0 percent below year-ago levels. Export prices are also likely to also rise in October, reversing a September decline as foreign demand continues to recover, though the gains should prove more modest. Deflation is now rapidly dissipating, at least from a trade perspective.
Previous: 0.1% Wells Fargo: 1.6%
Consensus: 1.0%
Michigan Sentiment • Friday
Consumer sentiment slumped in October to 70.6 as labor market weakness and slowing income growth weighed heavily on consumers’ minds. September’s sentiment reading at 73.5 marked the highest level since January 2008. But even with October’s decline, consumer sentiment remains well above the November 2008 low of 55.3. Recent weakness has been led by the expectations component, while the current component has continued to improve at a gradual pace. Stock market declines over the past two weeks may also weigh on preliminary November sentiment as the S&P 500 dropped about 5.0 percent from recent highs before rebounding yesterday. The rebound in consumer confidence, so far, is somewhat disappointing after such a steep recession, suggesting that consumer spending growth will remain weaker than usual, sapping the vigor out of this economic recovery.
Previous: 70.6
Consensus: 71.0
Global Review
European Central Banks Remain Accommodative
The Bank of England’s Monetary Policy Committee (MPC) announced this week that it will continue its program of bond purchases, but the pace of those purchases will be dialed back somewhat. The MPC decided to keep its main policy rate at 50 basis points, as was widely expected.
Across the English Channel, the European Central Bank (ECB) also opted to keep its key policy rate at 1 percent. ECB President Trichet said that the recovery is taking shape in-line with the bank’s expectations, and the current rate level is “appropriate.”
London Fog Lifting
The rate decision from the Bank of England (BoE) was widely expected but slowing the pace of bond purchases took some by surprise. The BoE’s asset purchase program was extended to £200B ($332B USD); the consensus was looking for £225B.
Analysts had expected the BoE to increase the size of its quantitative easing program because “hard” economic data from the United Kingdom in recent weeks have generally been weaker than expected. U.K. GDP data that were released just a few weeks ago show that the British economy contracted for the sixth consecutive quarter. The BoE’s Monetary Policy Committee (MPC) is keenly aware of the challenges that still confront the U.K. economy, but it is also keeping an eye on current developments that are more encouraging. Indeed, in its official press release the MPC observed that while growth contracted in the third quarter, “indicators of spending and confidence…suggest that a pickup in economic activity may soon be evident.” U.K. purchasing managers’ indices (PMIs) attest to the resurgence in confidence. The construction PMI has recovered on trend, but has yet to break through the 50 line that separates contraction from growth. The services and the manufacturing PMIs, however, are well-north of 50 and firmly in expansion territory.
With inflation under control and the U.K. economy still in the early stages of recovery, the Bank’s MPC has cover to maintain an accommodative policy stance, at least with respect to keeping rates where they are for now. That said, with the outlook improving, we suspect the BoE will not increase the size of its asset purchase program any further.
European Renaissance
In the Euro-zone, economic recovery appears to be on track as well. Industrial production (IP) in the Euro-zone increased 1.1 percent in the month of August. There has not been a larger month-over-month jump in IP since May 2006. As we saw in the U.K. purchasing managers’ data, both the manufacturing and services PMIs in the Euro-zone have recently broken into expansion territory. Euro-zone business confidence has improved for seven straight months, and other regional measures of confidence like the ZEW survey also show economic sentiment improving across Europe. While the Euro-zone economy contracted mildly in the second quarter, we expect growth to return in the third quarter. In the context of this story of recovery, it comes as little surprise that the ECB opted to leave its target rate at 1 percent. After signaling that the ECB has little intention of raising rates by calling the current rate level “appropriate,” the ECB President Trichet said the Bank would monitor inflation along with the overall economy as it considers future decisions. He also hinted that the ECB would consider scaling back some of its lending to banks. We don’t expect any significant moves from the ECB in the near future. As the recovery picks up steam and we move into the second half of 2010, the ECB will start to normalize monetary policy eventually culminating in a decision to slowly raise its main policy rate.
Global Outlook
U.K. Unemployment Rate • Wednesday
The unemployment rate in the United Kingdom has taken off over the past year. It currently stands at 7.9 percent, the highest rate in 13 years. Although the economy is showing signs of stabilization, there are few indications yet of an increase in hiring activity. It appears the jobless rate will continue to climb in the foreseeable future. The consensus expectation is that the jobless rate climbed to 8.0 percent in September; the number prints on Wednesday.
Also on Wednesday, we can expect the publication of the Bank of England’s quarterly Inflation Report. With U.K. CPI currently at 1.1 percent, inflation is at the low boundary of the Bank’s target range of 1 to 3 percent. As the recovery gets under way, we suspect inflation will gradually rise, particularly in the second half of next year. The report will lend perspective on the Bank of England’s assessment of the situation.
Previous: 7.9%
Consensus: 8.0%
Chinese Industrial Production • Wed.
Chinese economic growth strengthened from 7.9 percent in the second quarter to 8.9 percent in the third quarter, due in part to fiscal stimulus.
Monthly industrial production and retail sales data can be a good harbinger of Chinese GDP growth. The year-over-year rate of industrial production growth is expected to rise to more than 15 percent from 13.9 percent in September. Retail sales growth likely maintained its fast pace of year-over-year growth north of 15 percent. Both of those numbers print on Wednesday.
Consumer prices are down on a year-over-year basis, but the rate of contraction likely slowed between September and August. Markets will know for sure when Chinese CPI data are also released on Wednesday.
Previous: 13.9% (Year-over-Year)
Consensus: 15.5%
Euro-zone GDP • Friday
Industrial production (IP) in the Euro-zone has stabilized over the past few months, but it remains depressed relative to the level of a year ago. As discussed in the Global Review section of this report, the manufacturing purchasing managers’ index points in the direction of stronger production. Does strong survey data necessarily translate into stronger IP data? We will find out when IP is released on Thursday.
The next day European bourses will get a first look at economic growth in the Euro-zone when GDP data are published. The Euro-zone economy contracted in the second quarter, but it was the slowest pace of contraction in this cycle. We suspect growth likely turned positive in the third quarter as it has in other major economies as a broader global recovery begins to take hold.
Previous: -0.8% (CAGR)
Consensus: 2.0%
Point of View
Interest Rate Watch
FOMC Anchors Short Rates
This week’s statement from the Federal Open Market Committee (FOMC) reinforced market expectations that the federal funds rate, and thereby short-term market rates, will remain low for the rest of this year and at least into the first half of next year. Two fundamentals are driving these expectations: slow growth and low inflation. Our outlook remains for no change in the federal funds target range until third quarter 2010 at the earliest.
“Economic activity…weak for a while”
From the FOMC release we read that the Fed considers household spending to be constrained and businesses are still cutting back on fixed investment and staffing. Our outlook remains for below-trend (3 percent) growth for the next four quarters. Yes, this is a recovery, but the pace of recovery dos not appear to be quick enough to pick up the slack in the economy to generate conditions anywhere near full employment. Our expectation is that the unemployment rate will remain above 9 percent through the first half of next year.
“Inflation…subdued for some time”
At great lengths, the FOMC goes on to inform us that with “substantial resource slack …and with longer-term inflation expectations stable, inflation will remain subdued for some time.” Economic slack appears to be the driving factor here. This model for inflation is based upon what is commonly called a Phillips curve approach which argues that trends in unemployment are associated with trends in the opposite direction for wages—and thereby inflation. For now, the consensus view is that the slack (high unemployment rate) in the economy dictates that the FOMC is far from raising interest rates anytime soon.
Problem for Decision-makers: Are We Repeating Old Mistakes?
Low, stable interest rates driven by central bank policy has been blamed for some of the excesses of the 1990s. When interest rates are low and are expected to stay there for an “extended” period of time, then investors/speculators finance investment activities at a very low apparent cost of capital and thereby take on too many risks. Caution is warranted here.
Consumer Credit Insights
Jobs Will Extend Consumer Struggle
Job losses and rising unemployment suggest continued consumer struggles with modest spending gains, rising delinquencies and continued structural job challenges for many local areas. The employment report for October revealed continued high unemployment in production and construction sectors. In contrast, there were signs that employment opportunities were improving in education/health as well as business services. For households and regional economies, skills and employment characteristics do not adjust as quickly as for the national economy. Therefore, households whose skills are in production and construction sectors and communities whose employment base is over weight in those sectors will suffer from above average delinquency and credit problems. In the U.S. recent experience has shown that delinquencies/foreclosures are very concentrated in a small set of states—given the employment data this will likely persist for the next 12 months. Corrections in the residential and commercial real estate sectors and the associated high level of the unemployment rate suggest that households who are currently unemployed will likely be unemployed for some time. Therefore, their credit experience will continue to suffer. There is no “V” shaped recovery for the economy or for credit quality. Modest economic recovery is associated with a gradual recovery in consumer credit quality.
Topic of the Week
Did the Nation Overdose on Debt?
Fiscal year 2009 for the United States government drew to a close on Sept. 30, when the closing bell sounded to the sour tune of a $1.417 trillion deficit. The stock of debt held by the public, as a percentage of gross domestic product (GDP) has never been as high during peacetime. Wartime spikes in debt levels were temporary, however. In contrast, the current path of indebtedness shows a permanent venture into economically unfavorable territory. As a result, some of the financial flexibility of a lower debt load is lost. The United States benefits from high global demand for dollar-denominated assets, especially in turbulent economic environments when the safety trade is in play. Yields on 10-year Treasury notes remain low, implying that there is still a market for additional U.S. debt. While the nation is certainly not in the worst position relative to the rest of the world, its fiscal position does not leave room for complacency and free spending, especially given its dependence on capital inflows. The foremost holders (and primary market buyers) of Treasury securities are foreign investors, public and private, who held nearly 50 percent of Treasury securities outstanding in Q2 2009.
Despite the diminishing effects of short-term deficit drivers, the recession and the financial crisis, a quick bounce back to sustainability is off the table. Underlying the cyclical deficit story is the more meaningful long-run factor of entitlements, and a recession serves to accelerate the severity and immediacy of the problem. The primary federal entitlement programs, Medicare and Social Security, already pose serious threats to fiscal sustainability. It is clear that the nation faces difficult choices about the extent of debt servicing responsibility it is willing (and able) to take on and the extent to which it wishes to pass on the debt burden to future generations. Policymakers who evade the responsibility in the present merely postpone the day of reckoning.
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U.S. ISM indexes paint a muddled picture of the U.S. recovery. Manufacturing index jumps to 55.7 from 52.6, while non-manufacturing dropped slightly to 50.6 from 50.9.
FOMC statement keeps to the script, leaving interest rates at “exceptionally low levels” and expecting them to remain there “for an extended period.” Statement also adds flavour on the conditions that would lead the Fed to change its mind: resource utilization, inflation trends, and inflation expections. We comment on the prospects for all three.
U.S. payrolls shed 190,000 jobs in October and the unemployment rate tops 10.2%, its highest level since 1983. Upward revisions to past data add 91,000 to payrolls.
U.S. weekly jobless claims drop by 3.5%. Continuing claims also drop, likely reflecting expiring benefits more than renewed job growth.
U.S. nonfarm productivity rises by a better than expected 9.5% Q/Q annualized in the third quarter - its fastest pace since 2003.
Canadian labour market sheds 43,000 jobs in October; unemployment rate rises to 8.6%.
Value of building permits in Canada rose 1.6% in September.
UNITED STATES - GOTTA GET, GET JOBS, JOBS, JOBS
With an FOMC meeting, ISM reports and - last but not least - the U.S. jobs report out this week, to say it was a busy week in economics, would be putting it lightly. The week began on an uplifting note courtesy of the ISM index of manufacturing activity, which rose to 55.7, its highest level since 2006. Unfortunately, the outturn was not matched by the larger non-manufacturing index, which fell slightly to 50.6 from 50.9. The relative outperformance of the manufacturing index is more reflective of the greater pace of past declines in the goods producing sector than it is of burgeoning demand. The slower pace of recovery in the services sector reveals the soft underbelly of the U.S. recovery. As the Fed outlined in its statement on Wednesday, week job and income growth, continued household deleveraging, and still tight credit conditions will continue to restrain the pace of growth in the broader U.S. economy.
Speaking of the Fed statement, with the federal funds rate firmly at its lower bound, the task of parsing out the FOMC's statement has turned increasingly to tone and nuance. For the most part, this week's statement kept to the playbook and importantly maintained the expectation that the federal funds rate would be kept at “exceptionally low levels…for an extended period.” What was interesting about this statement was the Fed's characterization of the conditions behind the need to keep rates “exceptionally low.” In particular, the Fed specified, “low rates of resource utilization, subdued inflation trends, and stable inflation expectations” as the key factors it is watching. With these three conditions specified, the FOMC threw some meat to Fed watchers looking for indicators to track the future path of monetary policy. So, from one information carnivore to another, a quick assessment: In terms of resource utilization, capacity utilization has seen modest improvements over the last three months but still remains at its lowest levels since the data series began in the 1960s (and for the manufacturing sector since the 1940s). Likewise, with the unemployment rate topping 10.2% (more on this later) we're into pretty unprecedented territory in terms labor market slack. As for inflation, while core CPI inflation has remained fairly steady at 1.5% over the past several months, other indicators of price pressures such as core PPI and unit labor costs show an unambiguous downward trend, weakness that will likely begin to show in the CPI numbers in the months ahead. Finally, in terms of inflation expectations, market based measures such as the spread on nominal and real return bonds show a modest upward movement but for the most part remain relatively well anchored. As real time measures of inflation continue to trend down, it is not unreasonable to expect inflation expectations to move along with them.
Of course the biggest data release to come out this week was the U.S. jobs report. While the median headlines will inevitably focus on the 10.2% unemployment rate (the highest in twenty-six years), several other details of the report are also worth mentioning. On the positive side, the pace of job losses improved slightly from September and revisions to past data added 91,000 to the total number. Even more positive, weekly initial jobless claims continued to point to a slower pace of lay-offs by the end of October. Likewise, strong gains in labor productivity (up a whopping 9.5% in the third quarter), mean that firms are in very good position to begin hiring as the economy continues to improve.
Unfortunately, while there are glimmers of hope in the labor market there are at least as many deep, dark pools of gloom. Foremost on this list, broader based measures of labor market weakness are even bleaker than the headline number. The full scale of job market slack in the U.S., which is measured by adding discouraged workers and people in part time work for economic reasons to the official number, rose to 17.5% and while data only goes back to 1994 the spread between the official rate and this broader measure has shot up dramatically over the course of the recession. Perhaps even more discouraging, both the mean and median duration of unemployment continued to rise in October with average duration reaching an all time high of 26.9 weeks and the median duration rising over a full week from 17.3 to 18.7. So, while we continue to look for improvement on the job front in the months ahead, it is going to take a long time before the U.S. is operating anywhere near its full potential.
CANADA - LABOUR MARKET GIVES BACK RECENT GAINS
Although the Canadian economy has begun to shown signs of improvement, the road to recovery is likely to be long and bumpy. Markets got a dose of this reality this morning with the release of October's Labour Force Survey. The recent strength in the Canadian labour market - which added nearly 60,000 jobs in August and September - has proven to be unsustainable, as it gave up two-thirds of those gains in October. A net 43,200 jobs were lost during the month, pushing the unemployment rate up to 8.6%, from 8.4% in September. The losses in October were concentrated in part-time work, which shed 60,000 jobs for a second consecutive month, while full-time employment experienced a modest increase.
Despite the disappointing headline figure, the report did bear some positive news. The average hourly wage rate of permanent employees jumped from 2.3% Y/Y in September to 2.9% Y/Y in October, partly reflecting the strong performance of the labour market over the past couple of months. Unfortunately, with the economy recovering at only a tepid pace, this large uptick in wage growth is unlikely to be sustained, just as the rapid rate at which the economy was adding jobs proved to be unsustainable. Both wage and employment growth is likely to be volatile on a monthly basis, though the overall trend should be positive.
Overall, October's drop brings the tally of jobs lost in Canada since peaking a year ago to about 400,000. Employment in the private sector has been hit the hardest (down 450,000 jobs or 4%), while public sector employment has held up better (down 55,000 jobs or 1.6%). Self-employment, however, has been moving in the opposite direction, growing by over 100,000 jobs or 3.9%. This trend is not surprising given that self employment typically rises during recessions, as people take a stint at being their own boss when opportunities for payroll jobs are slim.
With the number of self-employed people on the rise in Canada, it came as welcome news when the federal government announced this week that it intends to increase employment insurance benefits for these workers. The new proposal would give self-employed workers the option of buying employment insurance, though coverage would be limited to maternity, parental, sickness and compassionate-leave benefits - hence, they would be excluded from the regular unemployment benefits. The cost would be 1.73% - the standard employee contribution (not the employer contribution) - which accounts for about 40% of the total premium paid for coverage for public and private sector workers.
In other employment insurance news, it was also announced that Human Resources and Skills Development Canada and Statistics Canada will begin tracking exhaustion rates of beneficiaries. While data indicating the number of people currently receiving employment insurance benefits is available, there is no such data for people who have run out of benefits before finding a new job. As such, when looking at the employment insurance statistics - which showed a drop (M/M) in beneficiaries for two consecutive months in July and August - it is unclear as to whether beneficiaries departed for a new job or if they exhausted their benefits and are still unemployed. Tracking exhaustion rates would provide a better indication of the real situation in the market, and could have important implications for social assistance programs.
U.S.: UPCOMING KEY ECONOMIC RELEASES
U.S. International Trade - September
Release Date: November 13/09
August Result: -$30.7B
TD Forecast: -$30.0B
Consensus: -$31.8B
U.S. International Trade - September Release Date: November 13/09 August Result: -$30.7B TD Forecast: -$30.0B Consensus: -$31.8B
CANADA: UPCOMING KEY ECONOMIC RELEASES
Canadian Housing Starts - October
Release Date: November 9/09
September Result: 149.3K
TD Forecast: 160.0K
Consensus: 154.0K
After plunging by a staggering 57% from its cyclical peak of 273.0K units, new residential construction is yet to catch the bug that is now powering the Canadian real estate activity to its best growth performance in many years. This, we believe, is about to change. Indeed, with residential permit approvals rising at a double-digit pace in both August and September and construction employment rising for the third straight month in October, we expect building activity to rise to 160.0K in October. This will mark the highest level of new residential building activity since December last year. Most of the gains are likely to be in the volatile multi-units component, though single-family construction is also expected to advance. However, with Canadian economic activity likely to remain tentative in the coming months, and the soft labour market conditions likely to keep a lid on housing demand, the recovery in Canadian residential construction should remain somewhat subdued relative to historical norms.
Canadian International Trade - September
Release Date: November 13/09
August Result: -$2.0B
TD Forecast: -$2.2B
Consensus: -$2.1B
Canadian trade is unlikely to benefit much from the improving U.S. and global economies, as the strong domestic currency continues to erode the competitiveness of Canadian products on the global market. In September, we expect the Canadian trade deficit to widen to $2.2B, which will be the highest level of trade deficit on record. During the month, exports are expected to rise marginally, though higher imports should offset any gains in export trade. In the months ahead, with the strong Canadian dollar continuing to wreak havoc on the Canadian export-base, we expect net exports to remain relatively unsupportive to overall economic activity
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G20 and Eurozone Fin. Min.'s may lend USD verbal support
Bank of England set to revise up near-term inflation forecasts
QE could be phased out by February
Somber US employment report makes for ominous outlook
Key data and events to watch next week
Risk assets are levitating a la Wile E. Coyote
News that the US unemployment rate rose to a 26-year high of 10.2% failed to dent risk appetites as seen in stocks, at least in the immediate aftermath on Friday (more on the data below). Commodities, however, did register the pain of rising unemployment and the implicit hit to demand, with the CRB index dropping to its lowest level this month, and now down about 5% from the Oct 21 high. JPY-crosses also responded appropriately to the downbeat labor market news, erasing most of the week's gains. The USD, however, failed to see much strength overall. In a sense, that's to be expected after the Fed reaffirmed its commitment to maintain exceptionally low rates for an extended period of time, a decision which was reinforced by the soft jobs news. But there's also the 'risk on/risk off' correlation, and while stocks managed to rebound, the USD remained under pressure.
In a scene reminiscent of the Wile E. Coyote/ Roadrunner cartoons, stocks seem to have run off a cliff, but are hanging in mid-air until they stop, take a look down and then plunge into the canyon. We view this past week's rebound in stocks and accompanying set-back in the USD as a correction after the larger reversal seen in the last week of Oct. The S&P 500 is holding below the broken trend line that guided the move higher since March, currently at 1070/71, along with the 21-day sma. A re-test of a technical break point is normal and we think that's the case with this past week's price action. EUR/USD followed shares higher after basing out above key trend line support, basically the equivalent of the S&P trend line, at 1.4600/20. The euro effectively retraced 61.8% of the decline from the 1.5060 high to 1.4620 low, another very normal corrective movement. We think a combination of excessive USD-short positioning, increasing risk aversion in light of the weak US data, and possibly some verbal support are likely to return to weigh on risk assets and support the USD.
G20 and Eurozone Fin. Min.'s may lend USD verbal support vs. the EUR in the approach to Nov MPC
The G20 is gathering in St. Andrew's Scotland on Friday and Saturday and a communique is expected to be released before noon EST on Saturday. The main topic of the meeting is to orchestrate so-called exit strategies, with the main message likely to be a slower withdrawal of stimulus. On FX, the Chinese will be pressed to allow the Yuan to strengthen, but comments from PBOC head Zhou on Friday suggest the pleas will fall on deaf ears. The Europeans are also expected to press the US Treasury to step up its defense of the USD, and there is minor potential for a revision to the wording of the US strong dollar mantra. In terms of the communique, we think the standard language on currency volatility being undesirable for global growth will be retained. Any bolder comments on USD weakness, EUR strength, or currency volatility are most likely to come from individual participants. On Monday, Eurozone finance ministers will gather for a regular monthly meeting, which will continue on Tuesday, and comments on FX could be heard beginning Monday evening European time. The Europeans are the most concerned about USD weakness/EUR strength as it may undermine their export competitiveness, which is the key to their nascent recovery.
Bank of England set to revise up near-term inflation forecasts
The Bank of England has already warned that "inflation is likely to rise sharply to above the 2% target in the near term, reflecting higher petrol price inflation and the reversal of last year's reduction in VAT". The revision to BoE inflation forecasts can be expected in the Bank's Quarterly Inflation Report due on November 11 but crucially upward revisions to inflation are unlikely to have any significant impact on expectation for BoE interest rate policy. Over the past couple of months the BoE have taken every opportunity to warn of the forthcoming rise in near-term inflation forecasts. At the same time the Bank has continued to stress that excess capacity will continue to bear down on price pressures over the medium-term. Despite signs of improvement in the UK economy, GDP failed to turn positive in Q3 suggesting the recovery in the UK economy is lagging that of most other G10 nations. While this year's rise in oil prices has shown up in the 2.6% m/m rise in Oct PPI input, the lagging impact of last year fall in oil is still having an impact; PPI y/y remains subdued. Even if the weaker pound vs the EUR and higher oil prices push input costs higher, the weakness of the consumer sector suggests that producers/retailers have little pricing power. UK interest rates are likely to remain at their 0.5% low at least until the latter half of 2010.
QE could be phased out by February
Low expectations for medium term inflation in the UK combined with disappointing growth in money supply meant that many proponents of quantitative easing were disappointed that the BoE opted for a relatively conservative allocation of GBP25 bln in November. While QE has no doubt played an important part in helping the financial system move away from crisis, the lack of response in either money supply or inflation indices could be illustrating that it is a policy unable to lend significant support to the real economy. By opting for GBP25 bln this month rather than GBP 50 bln, the BoE was probably hedging its bets but it seems likely this will be the last extension of the plan meaning that QE could be phased out by February.
While the change in the BoE's inflation forecasts this week is unlikely to bring forward rate hikes, the news could lead some short-term support and encourage cable back towards the USD1.6680 recent high. Significant upside in cable could be difficult, however, failing a break by EUR/GBP below 0.8900. The 0.8920/00 area is likely to continue providing solid support for EUR/GBP.
Somber US employment report makes for ominous outlook
US nonfarm payrolls slipped a touch more than expected in October, falling -190K on the month. The real shock was the jump in the unemployment rate to an eye-popping 10.2% from a prior 9.8%. This will make for some bold headlines over the weekend and should weigh on consumer confidence further in the short-term. The details of the report also suggest that the labor market has still not bottomed and we retain our cautious view with regards to risk assets and short-term constructive view on the USD and JPY specifically.
The surprise in the unemployment rate will without a doubt lead to a ratcheting up in forecasts for where that number will peak. Indeed, that we will eventually surpass the 11% mark sometime next year now looks like a foregone conclusion. The leading indicators of the employment market (mainly jobless claims and hours) have yet to show any marked improvement. For all the talk of the downturn in the trend of initial jobless claims, continuing claims remains near all-time highs. Indeed, those folks in state and federal programs still total around 9 million and this metric has merely moved sideways in recent weeks.
The monthly drop in aggregate hours worked is also ominous. Historically, the annual rate of hours has bottomed and bounced sharply as the recession comes to an end. This data point remains well in negative terrain on an annual basis and has shown little improvement on a sequential basis to boot. We know much has been made about the increase in temp employment but this is only a good leading indicator of employment activity if the pace of job declines in other sectors slows significantly - something that has yet to happen.
Fundamentally weak labor markets in the US suggest a market that will trade in choppy fashion into year-end at best, and much lower at worst. Keeping in mind recent inter-market correlations that are unlikely to break over the next couple of months, a major stock market correction would still favor USD and JPY the most. This also makes for a sideways USD/JPY market so selling other yen crosses on rallies makes more sense.
Key data and events to watch next week
The United States calendar is on the light side in the week ahead. The NFIB business optimism index and the IBD/TIPP consumer sentiment indicator kick things off on Tuesday. The usual initial jobless claims, oil inventory numbers and monthly budget statement are on deck Thursday while Friday rounds out the week with the trade balance and the University of Michigan sentiment index.
It is not terribly busy in the Eurozone either. Monday starts the action with French business confidence, German trade and German industrial production. The German ZEW economic sentiment survey, French industrial production, German consumer prices, and the Eurozone ZEW survey are all up on Tuesday. Friday closes out the week with Eurozone GDP reports. Look for the Eurozone Finance Ministers meeting starting
Monday evening CET and continuing on Tuesday - remarks on currencies are always possible.
The economic calendar in the UK is heavily weighted to early in the week. Tuesday has the BRC retail sales monitor and the trade balance on tap while Wednesday brings the employment report and the Bank of England's quarterly inflation report.
Japan has a characteristically light week. The trade balance will be important to watch on Monday while machine tool orders are the highlight Tuesday. Friday rounds out the week with industrial production and consumer confidence.
Canada also has a limited amount of events lined up. Housing starts are due on Monday while new home prices are up on Thursday. International trade and new motor vehicle sales close things out on Friday.
It is pretty busy down under. In Australia we'll see home loans on Monday, business conditions and consumer confidence on Tuesday, and inflation expectations and the employment report on Thursday. New Zealand has credit card spending on Monday and retail sales on Wednesday.
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Economic data and a lack of surprises from the Fed helped US equity markets break two weeks of downward momentum this week. Anticipation ran high ahead of Wednesday's FOMC decision as market participants speculated whether the Fed would change its commitment to keeping rates low for an "extended period" of time. The comment remained untouched and another key line was changed to read household spending is "expanding" (rather than the "seeing signs of stabilization" verbiage in the prior statement). In the latter half of the week, investors obsessed over three days of US employment data. Wednesday's October ADP employment report showed slightly more job losses than expected, although the numbers declined by the smallest month-over-month loss since July 2008. On Thursday the weekly jobless claims numbers hit their lowest levels since the very beginning of 2009. On Friday, the annualized October unemployment rate popped over 10% and the decline in Oct nonfarm payrolls was bigger than expected. But traders took some comfort from the August and September nonfarm payroll revisions which were bumped up by a total of about 90 thousand jobs, contributing to an improving three-month moving average. After all the data was out on Friday, PIMCO's Paul McCulley said he expects job creation to be a "very slow slog." Front month crude ended the week just above where it began, at $77.50, while gold pushed out to another record high of $1,100 on Friday. For the week, the DJIA, Nasdaq Composite and S&P 500 Index each gained about 3.2%.
Warren Buffet's big play for Burlington Northern dominated headlines mid-week. Berkshire Hathaway said it would acquire the 77% of the railroad firm it did not already own for $100/share in cash and stock, in a deal valued at $44B. Buffet noted that the stock component was a sweetener to BNI holders "for tax purposes" and called the deal a "bet on America." In the aftermath of the announcement, Berkshire's board approved a 50-1 split of its class B stock in order to accommodate smaller holders of BNI and S&P placed the company's AAA ratings on watch negative. In other M&A news, investment firms TPG Capital and CPP Investment Board announced a deal to acquire IMS Health for more than $5B in cash.
Health insurance stocks have made impressive gains thanks to a strong Republican showing in Tuesday's elections and solid quarterly earnings out of sector-leading firms. Many commentators called the Republican gubernatorial wins in Virginia and New Jersey a referendum against the healthcare plans of President Obama and the Congressional Democrats. Aetna, Cardinal Health and Cigna exceeded expectations in quarterly earnings reports. Note that Aetna trimmed its full-year guidance range, and warned that the uncertain employment situation in 2010 may constrain the business. Casualty insurer Allstate missed top- and bottom-line estimates.
In other earnings, Cisco Systems lead the broader tech sector higher after beating estimates and adding even more funding to the company's giant stock buyback program. CVS remains down significantly after the company said its pharmacy benefits management business may decline as much as 12% in 2010. Kraft beat bottom-line expectations and missed revenue targets. The company said it remains interested in Cadbury but also said it is "well positioned with or without Cadbury." Ford reported its first profitable quarter since early 2008 and said the firm would be "breakeven or better" by 2011. Toyota reported a loss for the first half of FY09. GM's Finance arm GMAC disclosed that its quarterly loss doubled on a sequential basis in Q3, with credit losses more than doubling.
The New York Times took a pot shot at Citigroup on Sunday, asking in a headline whether the bank will be able to "carry its own weight." The article discussed looming problems in Citi's huge credit card portfolio and called the bank's financial architecture "rickety." Rochdale's Dick Bove commented on the piece, saying "Citigroup is dead, a smaller Citicorp will arise." The drumbeat of negative commentary on commercial real estate intensified this week. "Two years into a substantial economic downturn, loan quality is poor across many asset classes and … continues to deteriorate," said Jon Greenlee, the Fed's associate director of banking supervision. Greenlee said commercial real estate problems would put pressure on bank earnings.
Meredith Whitney reaffirmed her long-term cautious view on the sector, warning that profits will pressured by more deleveraging, restructuring, regulatory uncertainty and further withdrawal of credit from the system.
Financial basket cases AIG and Fannie Mae reported third quarter results. AIG managed to rack up its second straight quarterly profit, although it was a fraction of the $1.8 billion gain in Q2 (and much better than last fall's $24B loss). The latest results included $1.95B in special gains, including improvement in the value of securities held by the infamous AIG Financial Products. Fannie Mae lost nearly $19B and asked the US Treasury for another $15B in funding. Fannie said it expects home prices to decline another 6% in 2009, with weakness in real estate to continue into 2010.
Short dated yields came under some pressure on Wednesday after the FOMC maintained its commitment to keeping rates exceptionally low for an extended period. The statement threw cold water on the notion the Fed needs to raise rates soon, a move that several major financial publications had called for over the weeks leading up to the November decision. The 2-year note yield fell some 5bps in the immediate aftermath of the announcement, with 2s and 10s steepening though 260bps for the first time since the middle of the summer. Friday's mixed employment reports saw buying return to the belly and long end, with the yield on the benchmark 10y Note briefly dipping back below 3.50%. Fed Fund futures are not pricing in any chance of a rate hike until likely the summer of 2010, but in contrast 10y TIPS breakeven spreads are sitting right at their highest levels of the year, and near levels last seen in August 2008. Next week, things remain interesting as the market faces $81B in refunding, with a significant drop in duration, as almost half of the supply is in longer parts of the curve.
In FX, the greenback tried its best to break key levels during the early part of the trading week and ditch the carry-trade funding reputation it has acquired since spring, but EUR/USD managed to hold the key 1.4630 March uptrend line. The dollar's price action sustained its inverse relationship to the equity and commodity markets, while the media continued focus on the fact that US Treasury officials are not expressing any concerns about dollar weakness and seem to believe current trading is not a major concern for the country. Dealing desks note chatter circulating about good selling pressure in USD/CNY long-dated forwards ahead of President Obama's visit to China later this month. Dealers are again speculating that these sorts of developments could prompt a weaker dollar again other Asian pairs in coming months.
Early in the week the dollar benefited from a spat of risk aversion stemming from the financial sector after the British government said it would provide more aid to Lloyds and RBS and CIT filed for bankruptcy protection. An EU Commission report complemented risk fears, warning of more banking sector losses in region. The Commission said losses in the sector could run as high as between €200-400B in 2009-10.
Meanwhile, an EU growth forecast highlighted some of the fiscal constraints on member state budgets over the next several years. Greece announced a one-off charge on its 300 biggest companies to raise just under €900M in funds. Fallout from the recession caused Fitch this week to cut Ireland's sovereign rating one notch, to AA+ from AAA.
US economic data whetted risk appetite in the latter half of the week, throwing the greenback on the defensive. Across the pond, the ECB and BoE both left key interest rates unchanged, as expected. The BoE added another £25B to its quantitative easing program, after recently completing its £175B program. Sterling firmed up in the aftermath of the announcement, given many analysts were seeking a £50B increase.
GBP/USD tested 1.6640 before consolidating in its post-decision range. In Frankfurt, ECB Chief Trichet said the bank would begin mopping up extra liquidity soon, and largely reiterated the usual barrage of rhetoric about rates being appropriate, signs of economic recovery emerging in 2009 and slow recovery arriving in 2010. The dollar managed to recover from session lows after Trichet's comment that a strong USD was in US's interest and reiterated the G7 position that excessive volatility was unwanted. Trichet did note that an orderly appreciation of emerging market currencies is a good way to correct global imbalances.
The Reserve Bank of Australia continued to lead the charge toward the exit from easy money policy with its second consecutive 25 basis point rate hike. After the decision, the RBA raised its 2009 GDP forecast to 1.75% from 0.5% and 2010 GDP view to 3.25% from 2.25%. The Aussie trade balance data for the month of September was better than expected, but still registered an 18-month high deficit, cooling some of the expectations for additional rate hikes in coming months. More concerning, exports to China fell for the second consecutive month, while iron ore exports saw a three-month low.
On Monday, the Chinese government reported the highest PMI figure since April 2008. Separately the World Bank lifted its outlook for China GDP for the current year by over 1%, forecasting 8.4% growth versus the prior estimate of 7.2%. That level is above the official Chinese target of 8.0% and more in line with recent target views out of Chinese economic research and planning bodies. In 2010, World Bank forecasts a slightly higher rate of growth at 8.7%, but noted that it was premature to implement a major policy tightening in China.
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Global PMI increased to 55.7 in October indicating a further strengthening of global growth in the next couple of quarters.
Signs of a recovery in domestic demand are emerging, but the markets are still questioning the sustainability of the recovery in the developed countries.
BoE expanded asset purchases slightly less than expected and was slightly more optimistic in its rhetoric on the economy. BoE is not likely to deliver more QE.
ECB kept rates on hold and was slightly more hawkish than expected. Trichet signalled that the 12-month auction in December could be the last with full allotment.
Fed made no changes to its policy and continued to signal exceptionally low rates for an extended period.
Market movers ahead
In US focus is on Fed's Senior Loan Officer Opinion survey and Michigan Consumer confidence.
In Euroland Q3 GDP, IP and ZEW are on the agenda.
Asia will have a busy week, with most important indicators being published in China.
In Sweden CPI and industrial data are on the agenda.
In Norway CPI and PPI data as well as a couple of Gjedrem speeches will attract attention.
Global update
Still upbeat
Global leading indicators continue to look strong (see Global Business Cycle Monitor, October). Global PMI climbed further to 55.7, the highest level since June 2007, indicating global growth above trend. OECD leading indicators are also rising sharply pointing to more strength in coming 3-6 months. However, some of the very early indicators such as the order-inventory balances from the PMI statistics are starting to level off, which is in line with our expectation that global growth will level off after Q1 2010. On the positive side in the short term is also the sharp pick-up in US home sales. Although partly boosted by the tax credit for first-time buyers it will help to clear inventories fast.
Sustainability indicators also improving - although more mixed
PMI and leading indicators tell us something about the short-term growth picture, but do not say much about the sustainability of the pick-up. As we expect leading indicators to peak around March/April due to the dynamics of the inventory cycle, the market will increasingly look for signs that final demand growth picks up.
We believe we need to see US consumption growth around 2% in 2010 for growth to be sustained. For this to happen a) employment growth must pick up, b) oil prices must not rise too much and too fast (see last week's Weekly Focus) and c) the savings ratio must not rise too fast. During the past weeks we have seen some encouraging signs, although not all indicators support the sustainability case.
On the positive side we note the following:
US consumption growth excluding cars rose around 2% in Q3. Hence the improvement has not (as some suggest) been entirely due to the cash-for-clunkers scheme boosting car sales. It seems that the effect of the tax cuts during spring has come with a delay giving a boost to consumption in H2 2009.
Car sales in October rose stronger than expected to 10.45m vehicles up from 9.2m vehicles in September. Hence fears that car sales would fall back sharply after the cash-for-clunkers scheme ran out have so far been dismissed. On the contrary, the data suggest an improvement in the underlying trend.
Employment indicators are starting to improve. The ISM employment index posted a decent rise from 46.2 in September to 53.1 in October and the weekly jobless claims continue the downward trend falling to 512k this week. It peaked at 674k in March.
It has not all been positive, though.
Consumer confidence fell back in October and continues to be at a very low level. Although the correlation with private consumption is not very close, it still suggests that consumers are very vulnerable .
Oil prices have pushed higher to USD80 during the past month. As we wrote in Weekly Focus last week we are getting worried that the global growth pick-up fuels a self-destructive rise in oil prices leading to a renewed set back in US consumption early next year.
On balance we are still cautiously optimistic that the kick-start of the economy will trigger job growth and make the recovery sustainable. With risky assets having risen sharply this year this will become increasingly important.
Market movers ahead
Global
US: The Q4 Senior Loan Officer Opinion Survey is the most important event, as it will provide information about the development in US credit conditions. Apart from that the preliminary Michigan survey for November is the only key figure of interest.
Euroland: Third quarter GDP figures out of Europe are expected to arrive at a solid 0.4% q/q, with France and Germany likely to outperform the Euroland composite. Industrial production data for October are expected to be solid with a 1.6% m/m progress in Germany and a 1.4% m/m reading in Euroland. ZEW will be the first important sentiment indicator for November. We look for a small decline to 54.4 from 56.0 driven partly by the setback in DAX.
In Asia China will be in focus next week, when most important economic data for October will be released. Chinese growth appears to be accelerating slightly again into Q4 on the back of both stronger exports and some improvement in manufacturing investments. Deflationary pressure continues to ease, but the year-on-year increase in consumer prices will remain in negative territory in October.
Scandi
In Denmark the current account deficit for September, CPI for October and Q3 construction data are due next week.
There will be CPI and industrial data for October in Sweden, but neither is likely to have much market impact.
In Norway October CPI as well as a couple of Gjedrem speeches will attract attention. We look for underlying inflation to be unchanged at 2.4% in October.
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Fed: Interest rates to remain at exceptionally low levels for an extended period
BoE: Asset purchase scheme extended again
ECB: Less liquidity needed due to financial market recovery
During the course of the week, the euro firmed somewhat against the dollar. After the ECB had concluded the series of central bank meetings, EUR-USD was around 1.4870 on Friday lunchtime, marginally stronger than a week ago.
This week, particularly important indicators were released in the US. The data painted a mixed picture, however. The ISM manufacturing index, for instance, improved from 52.6 to 55.7. This is the highest level since April 2006 and suggests that Q4 GDP growth could turn out to be as high as in Q3. For the first time in a long time, the employment components signalled an increase in jobs. The ISM non-manufacturing index told a different story, however: it rose less than the previous month, because the employment component, which was already weak, fell sharply to 41.1. Like the ADP private employment figures, the official labour market report for October is thus likely to show significant job losses again of about 200,000, but this would be still an improvement over September.
However, the main topic of discussion was not the economic indicators, but the central bank meetings in four big countries. First on the agenda was the Australian central bank: on Tuesday, it raised interest rates for the second time in four weeks from 3.25 to 3.5%. As this had been generally expected due to the improvement in the economic situation in Australia, it had little impact on the Australian dollar, which had already gained over a third against the US currency in the last 12 months. Australia is tightening monetary policy, because the downswing there was relatively moderate, and the sharp rise in commodity prices is now boosting the economy.
Australia's step did not have a signal effect on the central bank meetings in other large countries. On Wednesday, the Fed made it clear that no radical shift in monetary policy stance was on the cards. The FOMC confirmed its near-zero interest rate policy unanimously, and stated that interest rates were likely to remain low for a long time to come. Although the US growth rate rose to 3.5% in annualised terms in Q3, the assessment of the economy in the FOMC statement was not much better than in September. Although “household spending appeared to be expanding, it remained constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit.” Furthermore “businesses were still cutting back on fixed investment and staffing”.
The Open Market Committee also saw exceptionally low levels of the federal funds rate likely to be warranted for an extended period due to “low rates of resource utilisation, subdued inflation trends and stable inflation expectations.” Thereupon, EUR-USD jumped to its highest level since the beginning of the previous week.
The UK central bank (BoE) kept the bank rate at 0.5%, but increased the size of its asset purchase programme to £200bn. Given that GDP had continued to fall in the third quarter, however, markets had been expecting a larger expansion; the pound therefore rose slightly against the dollar and the euro. The BoE is expecting economic recovery to be slow; thus under-utilised resources will continue to dampen inflation for some time to come. In the short term, however, this will be offset by the impact of sterling's depreciation, according to the BoE. This could explain why the expansion of the asset purchase programme was less than widely expected.
The ECB also still considers its low interest rate of 1% to be appropriate. It is expecting GDP growth rates to be back in positive territory in the second half of the year, and the economy to recover at a gradual pace in 2010. However, it concedes that the outlook is uncertain, as a high number of the supporting factors will only have a temporary effect. Against this background, price stability is expected to be maintained over the medium term. According to Jean-Claude Trichet, however, less liquidity measures will be needed in future due to improved conditions in financial markets. He said that the governing council would make sure that the extraordinary liquidity measures taken would be phased out in time to counter effectively any threat to price stability. When asked at the press conference whether the ECB would prolong the 1-year tender in December, Mr Trichet merely replied that markets were not expecting this. Compared to the Fed, there was more emphasis on the necessity for a timely exit from the extraordinary measures, which boosted the euro again somewhat on Thursday afternoon.
There are some important eurozone indicators on next week's agenda. The advance estimates of GDP in Q3, for example: for Germany, we are expecting growth to have doubled compared to spring to +0.6% quarter-on-quarter. Unlike in Q2, growth in the eurozone as a whole will probably have picked up again too, albeit not quite as much, to +0.4%. Just like new orders, German production figures and the ZEW indicator are also likely to have improved further, which should continue to support the euro. The European currency is generally boosted by improved data, even if these come from the US, because they tend to increase risk appetite and demand for higher-yielding assets.
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