Daily Economic Briefing: March 10, 2010

Daily Economic Briefing: March 10, 2010

Click here for the full Research and disclosures.

Page 1 of 2: Global data summary

• China trade flows were very strong in February, with exports rising 4.8%m/m and imports rising 4.0%m/m. The increases compensate for unexpected declines in January, leaving underlying growth on a very strong track. It is curious that trade data from both China and Korea contradict the expected pattern in which the Lunar New Year holidays should have boosted January shipments at the expense of February (for example, as seen in Taiwan’s data). While China’s seasonally-adjusted exports surpassed their previous all-time high in February, imports have risen even more impressively. Thus, China’s trade surplus is only about 2/3 the average reached in 2007-08, helping to explain the continued reticence to permit currency appreciation.
•
• Whereas the Lunar New Year holidays have disrupted trade flows in Asia, it appears that weather may explain the big export losses reported this week by Germany and the UK for January. This appears to have been less of a factor for production, meaning some output intended for export went into inventory. Although UK output fell in January, it rose strongly in Germany, France and Italy. All told, it looks like Euro area factory output rose 1.5%m/m in January. This hints at a reacceleration in manufacturing in 1Q, which will cushion the weather-induced hit to construction activity.
•
• One factor that is fueling the surge in global trade and industry is a recovery in capital spending. We can track global capex fairly accurately based on orders and shipments from the major manufacturers in the G-3. With Japan reporting its orders today, this closes the books on January. Our tally shows that the underlying trend in G-3 orders growth remains very strong, at 19% annualized (3m/3m), while shipments rose at a 16% pace. Taken at face value, these data would point to 15%-20% gains in global equipment spending in 4Q09 and 1Q10.
•
• The Bank of Thailand held its policy rate at 1.25% today; however, its rhetoric turned more hawkish, raising the odds of a hike in April (JPM: June) The BoT clearly took note of BNM's recent hike as the statement opened up referencing the beginning of monetary policy normalization “in some countries”. In Norway, headline inflation rose from 2.5%oya in January to 3.0% in February, adding some pressure on the Norges Bank to tighten policy later this month (JPM: +25bp).
•
• Today our colleague Gabriel Casillas pushed back the expected onset of Mexico’s tightening cycle from June to October. Despite the recovery in the economy and headline inflation, Gabriel made the change based on (1) benign reports on wage negotiations; (2) well-anchored inflation expectations; and (3) dovish comments from new central bank governor Agustín Carstens.
•

Click to enlarge

Page 2 of 2: Global auto sales remained elevated in Feb

Our global proxy of auto sales—derived from 20 countries plus the Euro area—moderated in February to 53mn units (saar) from its all-time high of 54.2 the previous month. However, the underlying message is that auto sales are holding in at their recent elevated level—slightly above the pre-recession high—despite the expiration of numerous government auto sales incentives. (See Monday’s DEB for more details on government incentives.)

As we have been highlighting, the bounceback in global auto sales owes largely to rapid growth in the EM, and in particular China. Indeed, China accounts for more than half of the total global 2009-2010 rebound with current sales that are roughly twice their pre-recession pace. Other EM countries—including Brazil, India, and Korea have also experienced rapid auto sales growth (albeit more moderate than in China) and are similarly at levels well above their pre-recession pace.

Auto sales in developed markets (DM) have also improved considerably from their 2008-2009 troughs; however, the recovery has not been as strong as in the EM. In particular, US sales remain extremely depressed compared to the typical pace over the last expansion. Elsewhere in the DM, auto sales generally did not fall as much, thanks partly to the earlier rollout of government auto incentives that were in effect for most of 2009.

We are encouraged by the resiliency of auto sales this year in the face of expiring government incentive programs. However, as discussed in the aforementioned DEB, it is still too early to determine the ultimate impact of these schemes on sales. Incentives in several countries have only just expired, and several others will end after March. Therefore, it will take time for a “clean” incentives-free trend to emerge. Further, a great deal of the recent surge in auto sales is due to China, which extended auto sales benefits through the end of 2010.

Click to enlarge

Click to enlarge

Click to enlarge

ENDS

ENDS

© Scoop Media