US: Durable orders report disappoints

Following a very weak January report, durable orders failed to post a convincing rebound in February. In February, headline orders posted only a monthly rise of 2.5% following a downwardly revised plunge of 9.3% and orders ex transportation even declined 0.1% following a decline of 4% in January. Capital goods shipments excluding aircraft, a good measure for business investments, rose 1.2% M/M, but was down 6.4% on a three-month annualized basis indicating that business investment remains weak. This contains no good news for the economic outlook, as economists are betting on business investments to bridge the current mid-cycle weakness and safeguard another up-leg in the cycle.

EMU: M3 money supply growth accelerates, but lending slows

In February, M3 money supply growth continued to accelerate and grew at a record pace of 10% Y/Y compared to an upwardly revised 9.9% Y/Y in January. The preferred 3 month average accelerated too to 9.9% Y/Y. Private sector loans however slowed to 10.3% Y/Y from 10.6% Y/Y in the previous month due to a slowing in both non-financial corporations and household borrowing. It was the first month in a long time that lending to non-financial corporations slowed. The slowing in lending suggests that higher interest rates are starting to affect the economy, even while it is still buoyant. As such, money supply and lending growth is still likely to remain a concern for the ECB for a longer period of time.

German headline inflation for March rose slightly more than expected at 0.3% M/M and 2.1% Y/Y compared to 1.9% Y/Y in February. The increase was mainly due to higher petrol prices. The strong rise in oil prices in recent days may push euro zone headline inflation earlier than first expected back above the 2% level, which may raise the inflation concerns within the ECB.

Other: UK Q4 GDP revised down to 0.7% Q/Q

In the UK, Q4 GDP growth was revised down from 0.8% Q/Q to 0.7% Q/Q, due to lower services growth. The annual growth level was however left unrevised at 3% indicating that the downward revision was only very modest. As such, we still expect another rate hike of the Bank of England by April or more likely May, when the new inflation report will be released.

The current account deficit increased more than expected in Q4 from an already downwardly revised GBP 10.5 B to 12.7 B. The increase was mainly due to the larger trade deficit and a decline in the income surplus. As a result, the current account deficit as a percentage of GDP rose from 2.4% in 2005 to 3.4% in 2006, the highest level since 1990.