the weekly bottom line - td bank · 2013/06/07 · higher. excluding autos, sales should rise at a...
TRANSCRIPT
THE WEEKLY BOTTOM LINE
TD Economics
HIGHLIGHTS OF THE WEEK
• SinceFederalReserveChairmanBernankesaidtheFedcouldreducethesizeofassetpurchases“inthenextfewmeetings”,volatilityinfinancialmarketshasbeenrising.
• ThisweeksawthissagaclimaxinanticipationoftheU.S.payrollsreportforthemonthofMay.YesterdaytheVIXvolatilityindexregistereditshighestlevelsinceFebruary.
• Withareadingof175K,netnewjobswere12Kaboveconsensus.Thisisfarfromstellar.However,iftheU.S.labormarketmaintainsthispace,itwillendtheyearwithcloseto2.3millionnewjobsanditwillbewithinstrikingdistanceofclosingtheemploymentgapopenedbytherecession.
June 7, 2013
Current* WeekAgo
52-WeekHigh
52-WeekLow
Stock Market IndexesS&P500 1,623 1,631 1,669 1,309S&P/TSXComp. 12,409 12,650 12,879 11,330DAX 8,162 8,349 8,531 6,131FTSE100 6,381 6,583 6,840 5,432Nikkei 12,878 13,775 15,627 8,366Fixed Income YieldsU.S.10-yrTreasury 2.10 2.13 2.17 1.39Canada10-yrBond 2.07 2.06 2.09 1.58Germany10-yrBund 1.52 1.51 1.71 1.17UK10-yrGilt 2.02 2.00 2.21 1.44Japan10-yrBond 0.86 0.86 0.93 0.45Foreign Exchange Cross RatesC$(USDperCAD) 0.98 0.96 1.03 0.96Euro(USDperEUR) 1.32 1.30 1.36 1.21Pound(USDperGBP) 1.55 1.52 1.63 1.49Yen(JPYperUSD) 96.8 100.5 103.2 77.5Commodity Spot Prices**CrudeOil($US/bbl) 94.1 92.0 99.0 77.7NaturalGas($US/MMBtu) 3.92 4.03 4.37 2.18Copper($US/met.tonne) 7301.3 7280.8 8362.6 6761.8Gold($US/troyoz.) 1390.0 1387.9 1790.4 1348.0
THIS WEEK IN THE MARKETS
*asof9:45amonFriday,**Oil-WTI,Cushing,Nat.Gas-HenryHub,LA(Thursdaycloseprice),Copper-LMEGradeA,Gold-LondonGoldBullion;Source:Bloomberg
FederalReserve(FedFundsRate)BankofCanada(OvernightRate)EuropeanCentralBank(RefiRate)BankofEngland(RepoRate)BankofJapan(OvernightRate)Source:CentralBanks,HaverAnalytics
GLOBAL OFFICIAL POLICY RATE TARGETSCurrentTarget
0.10%0.50%
0-0.25%1.00%0.50%
WEEKLY MOVES vs U.S. DOLLAR
-0.94
-0.88
0.25
0.57
1.6
1.72
2.08
2.31
3.15
-2.0 -1.0 0.0 1.0 2.0 3.0 4.0
N.Zealanddollar
Australiandollar
Brazilianreal
Mexicanpeso
Canadiandollar
Euro
Swissfranc
Britishpound
Japaneseyen
Source:Bloomberg,asat12:15am,June7,2013
%
Current Rate 20146/7/13 Q1 Q2 Q3 Q4F Q1F Q2F Q3F Q4F
FedFundsTargetRate(%) 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.252-yrGovt.BondYield(%) 0.29 0.25 0.28 0.30 0.35 0.40 0.50 0.60 0.8010-yrGovt.BondYield(%) 2.10 1.87 2.10 2.20 2.30 2.50 2.70 2.80 3.0030-yrGovt.BondYield(%) 3.27 3.10 3.15 3.40 3.50 3.75 3.95 4.05 4.10RealGDP(Q/Q%Chg,Annualized) 2.4(Q1) 2.4 1.5 2.4 2.8 2.6 3.2 3.3 3.1CPI(Y/Y%Chg.) 1.1(Apr-13) 1.7 1.3 1.3 1.3 1.5 2.1 2.1 2.1UnemploymentRate(%) 7.6(May-13) 7.7 7.5 7.5 7.3 7.2 7.1 7.0 6.9ForecastbyTDEconomics.Source:Bloomberg,TDEconomics
TD ECONOMICS KEY FORECASTS2013
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TD Economics | www.td.com/economics
June 7, 2013
ALL EYES ON U.S. (PAYROLLS REMIX)Since Federal Reserve Chairman Bernanke gave his
testimony before the Join Economic Committee on May 22nd, in which he signaled that the Fed could reduce the size of asset purchases “in the next few meetings”, volatility in financial markets has been rising. This week saw this saga climax in anticipation of the U.S. payrolls report for the month of May. For instance, in intraday trading yesterday, the VIX volatility index registered its highest level since February, and the U.S. dollar dipped 1.8% against a basket of currencies by mid-day.
This morning, all eyes were watching for the number that could prove pivotal in a week already characterized by sharp fluctuations in equities, currencies, and fixed income yields. At 175K, net new jobs came 12K above consensus, causing equities to move higher in tandem with yields, and the U.S. dollar to regain some footing.
In spite of the gain in employment, the unemployment rate edged higher, from 7.5% in April to 7.6% last month. This resulted from additions to the labor force surpassing net employment gains. All things considered, the former is a positive signal of the overall strength in the labor market, as it suggests potential job seekers are feeling more posi-tive about their chances of finding a new job, which pushes them to resume the search. From a macroeconomic per-spective, the creation of less than 200K jobs is not a stellar performance. However, if the U.S. labor market maintains this pace, it will end the year with close to 2.3 million new jobs and it will be within striking distance of closing the employment gap opened by the recession.
Under that scenario, which aligns with our forecast, the
message telegraphed by Mr. Bernanke could well prove certain before the end of this year. But, other pieces of the puzzle will also have to fall in place before the Fed begins tapering asset purchases. Chief among them, inflation should at least have stabilized at its current low levels and economic momentum should have recovered from its ongo-ing second quarter weakness. And, the Fed would also feel more comfortable if the economic outlook turned brighter abroad, not just at home. We still believe the story of a stronger second half is still in play for the global economy. How much stronger will depend largely on both Japan and China showing some acceleration, and the euro zone finally reaching the bottom of its recession.
The latest trade and manufacturing data, as well as recent surveys, indicate that the odds are more favourable for Asia than for the euro zone, but at least the German economy is showing some signs that it has left behind the cold it caught in the first quarter. Data released today showed industrial production and exports bounced back nicely in April. Furthermore, given Germany’s dominant role as a global exporter, the latter also tells a good story for global demand momentum.
The bottom line is that, even if financial markets’ volatility make you want to scream and shout, the global macroeconomic outlook is pointing in the right direction, and we should see stronger economic activity as we move forward to next year.
Martin Schwerdtfeger, Senior Economist 416-982-2559
THE PROSPECTS OF FED TAPERING CAUSE SPIKE IN FINANCIAL VOLATILITY
11
13
15
17
19
21
5/1/139:30 5/10/1312:15 5/21/1315:00 6/3/1311:0080
81
82
83
84
85
Source:Bloomberg,TDEconomics
VIXVolatilityIndex-lhs- DXYU.S.dollarIndex-rhs-
U.S. NON-FARM PAYROLLS
-1,000
-800
-600
-400
-200
0
200
400
600
2005 2006 2007 2008 2009 2010 2011 2012 2013
PublicPayrolls
PrivatePayrolls
Source: U.S. Labor Department, TD Economics
Monthlychange,thousand'speople
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TD Economics | www.td.com/economics
June 7, 2013
UPCOMING KEY ECONOMIC RELEASES
*ForecastbyRatesandFXStrategyGroup.Forfurtherinformation,contactTDRates&[email protected].
Despite weak employment growth and a soft economic backdrop we expect retail sales activity to improve fur-ther in May. During the month, we expect headline sales activity to rise at a respectable 0.4% m/m pace as warmer weather and strong auto sales push the headline number higher. Excluding autos, sales should rise at a slightly more subdued 0.3% m/m pace. The underlying tone in overall household spending activity should also be quite construc-tive, with core retail sales rising at a relatively decent 0.2% m/m, reversing the disappointing performance the month before. Overall, the tone of this report should be fairly encouraging, pointing to continued positive momentum in spending activity – consistent with the recent buoyancy in household sentiment.
U.S. Retail Sales - May*Release Date: June 13, 2013April Result: Total 0.1% M/M; Ex-autos 0.6% M/MTD Forecast: Total 0.4% M/M; Ex-autos 0.3% M/M Consensus: Total 0.4% M/M; Ex-autos 0.3% M/M
Despite the dramatic slowing in US economic growth momentum in Q2 we expect industrial output to rebound in May, with production activity boasting a respectable 0.5% m/m advance. The pick-up in activity will partially undo some of the weakness seen in April, and the rebound is expected to be mostly on account of strong manufacturing and utility output. Motor vehicle production should rise sharply, more than compensating for the weakness in other manufacturing areas, with overall manufacturing sector activity boasting a 0.4% m/m rise ending two consecutive monthly declines. Utility production should also rise, as warmer weather and the unwind of the sharp drop in April push utility output up 2.0% m/m. Mining activity should be
weaker. The rise in industrial output should push the pace of factory usage higher, with the rate of capacity utilisation rising to 78.1% down from 77.8%. Despite the rebound in May, the soft economic backdrop should persist in the com-ing months, as the economy continues to navigate against the domestic fiscal headwinds and weak global backdrop.
U.S. Industrial Production - May* Release Date: June 14, 2013April Result: Industrial Production -0.5% m/m;Capacity Utilization 77.8%TD Forecast: Industrial Production 0.5% m/m;Capacity Utilization 78.1%Consensus: Industrial Production 0.2% m/m;Capacity Utilization 77.9%
U.S. RETAIL AND FOOD SERVICES SALES
-1.0
-0.5
0.0
0.5
1.0
1.5
Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13
Total
Excl.AutomotiveDealers
Source:U.S.DepartmentofCommerce/HaverAnalytics
M/M%Chg.
U.S. INDUSTRIAL PRODUCTION
-1.0
-0.4
0.2
0.8
1.4
Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-1376
77
78
79IndustrialProduction(lhs)
CapacityUtilization(rhs)
M/M%Chg. %
Source:BureauofEconomicAnalysis
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TD Economics | www.td.com/economics
June 7, 2013
RECENT KEY ECONOMIC INDICATORS: JUNE 3-7, 2013Release
Date Economic Indicator/Event Data for Period Units Current Prior
United StatesJune3 ConstructionSpending Apr M/M%Chg. 0.4 -0.8 RJune3 ISMManufacturing May Index 49.0 50.7June3 TotalVehicleSales May Millions 15.24 14.88June3 DomesticVehicleSales May Millions 11.95 11.76June4 TradeBalance Apr USD,Blns -40.3 -37.1 RJune5 ADPEmploymentChange May Thousands 135.0 113.0 RJune5 FactoryOrders Apr M/M%Chg. 1.0 -4.7 RJune5 ISMNon-ManufacturingComposite May Index 53.7 53.1June6 ChallengerJobCuts May Y/Y%Chg. -41.2 -6.0June6 HouseholdChangeinNetWorth 1Q USD,Blns 3003.0 1397.0 RJune7 ChangeinNonfarmPayrolls May Thousands 175.0 149.0 RJune7 ChangeinPrivatePayrolls May Thousands 178.0 157.0 RJune7 ChangeinManufacturingPayrolls May Thousands -8.0 -9.0 RJune7 UnemploymentRate May % 7.6 7.5June7 AvgHourlyEarningAllEmp May M/M%Chg. 0.0 0.2June7 UnderemploymentRate(U6) May % 13.8 13.9
CanadaJune4 InternationalMerchandiseTrade Apr CAD,Blns -0.57 0.00 RJune5 BuildingPermits Apr M/M%Chg. 10.5 6.0 RJune6 IveyPurchasingManagersIndexSA May Index 63.1 52.2June7 LaborProductivity 1Q Q/Q%Chg. 0.2 0.1June7 UnemploymentRate May % 7.1 7.2June7 NetChangeinEmployment May Thousands 95.0 12.5June7 FullTimeEmploymentChange May Thousands 76.7 36.0June7 PartTimeEmploymentChange May Thousands 18.2 -23.6June7 ParticipationRate May % 66.7 66.5
InternationalJune2 AU TDSecuritiesInflation May Y/Y%Chg. 2.2 2.1June3 JN VehicleSales May Y/Y%Chg. -7.3 2.0June3 UK PMIManufacturing May Index 51.3 50.2 RJune3 AU CurrentAccountBalance 1Q AUD,Blns -8.5 -14.8 RJune4 AU RBACashTarget 4-Jun % 2.75 2.75June4 UK PMIConstruction May Index 50.8 49.4June4 EC Euro-ZonePPI Apr Y/Y%Chg. -0.2 0.6 RJune4 AU GDP 1Q Y/Y%Chg. 2.5 3.2 RJune5 UK PMIServices May Index 54.9 52.9June5 EC Euro-ZoneGDPSA 1QP Y/Y%Chg. -1.1 -1.0June5 EC Euro-ZoneRetailSales Apr Y/Y%Chg. -1.1 -2.2 RJune5 AU TradeBalance Apr AUD,Mlns 28.0 555.0 RJune6 FR ILOUnemploymentRate 1Q % 10.8 10.5 RJune6 UK BOEAnnouncesRates 6-Jun % 0.50 0.50June6 EC ECBAnnouncesInterestRates 6-Jun % 0.50 0.50June7 GE TradeBalance Apr Euros,Blns 18.1 18.8June7 GE CurrentAccount Apr Euros,Blns 17.6 20.4 RJune7 FR TradeBalance Apr Euros,Mlns -4515.0 -4456.0 RJune7 UK TotalTradeBalance Apr GPB,Mlns -2579.0 -3249.0 RJune7 GE IndustrialProductionNSAWDA Apr Y/Y%Chg. 1.0 -2.4 R
*EasternStandardTime;Source:Bloomberg,TDEconomics
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TD Economics | www.td.com/economics
June 7, 2013
UPCOMING ECONOMIC RELEASES AND EVENTS: JUNE 10-14, 2013Release
Date Time* Economic Indicator/Event Data for Period Units Consensus
Forecast Last Period
United StatesJune11 7:30 NFIBSmallBusinessOptimism May Index -- 92.1June11 10:00 WholesaleInventories Apr M/M%Chg. 0.2 0.4June11 10:00 WholesaleSales Apr M/M%Chg. -0.3 -1.6June11 10:00 JOLTsJobOpenings Apr Thousands -- 3844.0June13 8:30 AdvanceRetailSales May M/M%Chg. 0.4 0.1June13 8:30 RetailSalesExAuto&Gas May M/M%Chg. 0.3 0.6June13 8:30 InitialJoblessClaims June7 Thousands -- 346.0June13 8:30 ContinuingClaims June1 Thousands -- 2952.0June13 8:30 ImportPriceIndex May M/M%Chg. 0.0 -0.5June13 9:45 BloombergConsumerComfort June9 Index -- -29.7June13 10:00 BusinessInventories Apr M/M%Chg. 0.3 0.0June14 8:30 ProducerPriceIndex May M/M%Chg. 0.1 -0.7June14 8:30 PPIExFood&Energy May M/M%Chg. 0.1 0.1June14 8:30 CurrentAccountBalance 1Q USD,Blns -112.4 -110.4June14 9:15 IndustrialProduction May M/M%Chg. 0.2 -0.5June14 9:15 CapacityUtilization May % 77.9 77.8June14 9:15 Manufacturing(SIC)Production May M/M%Chg. 0.1 -0.4June14 9:55 UniversityofMichiganConfidence JuneP Index 84.5 84.5
CanadaJune10-13 International Economic Forum Conference in MontréalJune10 8:15 HousingStarts May Thousands 176.0 174.9June12 9:00 Teranet/NationalBankHPI May M/M%Chg. -- 0.2June13 8:30 CapacityUtilizationRate 1Q % -- 80.7June13 8:30 NewHousingPriceIndex Apr M/M%Chg. -- 0.1June14 8:30 ManufacturingSales Apr M/M%Chg. 0.1 -0.3
InternationalJune9 19:50 JN AdjustedCurrentAccountTotal Apr Yen,Blns 380.0 342.4June9 19:50 JN TradeBalance-BOPBasis Apr Yen,Blns -729.9 -219.9June10 1:00 JN ConsumerConfidence May Index 44.7 44.5June10 2:45 FR IndustrialProduction Apr Y/Y%Chg. -4.1 -2.5June10 2:45 FR ManufacturingProduction Apr Y/Y%Chg. -3.5 -4.9
June10-11 JN BOJTargetRate June11 % 0.10 0.10June11 4:30 UK IndustrialProduction Apr Y/Y%Chg. -0.6 -1.4June11 4:30 UK ManufacturingProduction Apr Y/Y%Chg. -0.2 -1.4June11 10:00 UK NIESRGDPEstimate May M/M%Chg. -- 0.8June12 2:45 FR CurrentAccount Apr Euros,Blns -- -2.9June12 2:45 FR CPI-EUHarmonised May Y/Y%Chg. 0.9 0.8June12 4:30 UK ILOUnemploymentRate(3mths) Apr % 7.8 7.8June12 5:00 EC Euro-ZoneInd.Prod.Wda Apr Y/Y%Chg. -1.3 -1.7June12 17:00 NZ RBNZOfficialCashRate June13 % 2.50 2.50June12 21:30 AU UnemploymentRate May % 5.6 5.5June13 4:00 EC ECB Publishes Monthly ReportJune14 4:30 UK ConstructionOutput Apr Y/Y%Chg. -4.1 -7.4
*EasternStandardTime;Source:Bloomberg,TDEconomics
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TD Economics | www.td.com/economics
June 7, 2013
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CONTACTS AT TD ECONOMICSCraig Alexander
Senior Vice President and Chief Economist [email protected]
TO REACH US Mailing Address 55KingStreetWest 21stFloor,TDTower Toronto,OntarioM5K1A2 Fax:(416)944-5536 [email protected]
CANADIAN ECONOMIC ANALYSISDerek Burleton, Vice President and Deputy Chief Economist [email protected]
Sonya Gulati Senior Economist, Government Finance and Public Policy [email protected]
Diana Petramala Economist, Real Estate [email protected]
Francis Fong Economist, Financial [email protected]
Dina Ignjatovic Economist, Autos, Commodities and Other Industries [email protected]
Leslie Preston Economist, Macro [email protected]
Jonathan Bendiner Economist, Regional [email protected]
Connor McDonald Economist [email protected]
U.S. & INTERNATIONAL ECONOMIC ANALYSISBeata Caranci, Vice President and Deputy Chief Economist [email protected] Marple Senior Economist [email protected]
Martin Schwerdtfeger Senior Economist, International [email protected]
Michael Dolega Economist [email protected]
Thomas Feltmate Economist [email protected]
Ksenia Bushmeneva Economist [email protected]