JP Morgan Weekly Economic Report

JP Morgan Weekly Economic Report

• Key economic indicators released in Australia last week were mixed. The unemployment rate rose further in December, and other data showed that home loan demand was strong in November, owing to a significant reduction in mortgage rates. This week’s consumer confidence numbers should show that sentiment improved for the third straight month in January, in the wake of the 100bp cut to the official cash rate the RBA delivered in early December. The improvement in confidence will be mainly owing to falling petrol prices, reductions to the cash rate, some stabilization in equity markets, and the flow on impact of the bonus payments delivered by the government in early December.

• In New Zealand, the economic data flow picks up this week, with retail sales and consumer price data scheduled for release. Retail sales probably fell for the second consecutive month in November. Kiwi consumers are becoming increasingly reluctant to spend, owing largely to heightened anxiety about job security. While consumers are reining in spending amid growing recession fears, lower interest rates and falling petrol prices probably will have prevented an even larger contraction in sales in November. Other data should show that headline inflation eased in 4Q, but will remain well above the RBNZ’s target range of 1-3%.

• Last quarter delivered a 4.5% fall in global GDP, the sharpest decline in over a quarter century. Increasingly, the evidence suggests that the global economy will contract at a similar pace this quarter. Although industrial indicators have posted dismal outcomes into year end—with output tracking a 20% annualized decline last quarter, this news is not the source of our pessimism for this quarter. Instead, it is the disappointing flow of news on final sales. A very weak US December retail sales report, along with other weak spending indicators, including a more downbeat profile in Japan, has led us to lower our estimate of global consumption for last quarter. At the same time, the downturn in global capital spending is worsening, with G3 capital goods orders down 44% annualized in the three months through November.

• Falling consumer prices remained an important support to growth at the turn of the year. On the whole, global inflation looks to have moved down to a 2% pace on an over-year-ago basis last month after reaching a decade-high just five months earlier. This dramatic move in such a short period of time has encouraged central banks to ease policy more aggressively. Last week’s CPI releases for December underscore that consumer prices (m/m) were either in outright contraction (US, Euro area, Sweden) or decelerating sharply (Argentina, Hungary, Poland) at year end. The remarkable sequential plunge in consumer price inflation, from 6.5%3m/3m, saar to an estimated -3.1% in December, provided a huge boost to household purchasing power just as the global recession was heating up.

For this week's full report, see… JP Morgan Weekly (pdf)

© Scoop Media