US: mixed economic data
In March, the durable orders rose a stronger than expected 3.4% M/M following an already upwardly revised increase of 2.4% M/M in February, previously reported as 1.7%. Orders ex transportation rose 1.5% M/M, but this came only on the back of an upwardly revised 0.4% M/M decrease in February and a 3.3% M/M drop in January. Shipments of non-defence capital goods less aircraft, a good proxy for business investments, rose only 0.7% M/M in March. The continued weakness in this number poses a downward risk towards Friday??™s GDP release.
New home sales rose 2.6% M/M in March, to an annual rate of 858.000 units, up from 848.000 the prior month, but even so this is below the consensus expectation of 890.000. While this is not dramatic, it does highlight ongoing concerns about the housing market, as existing home sales disappointed a day earlier. The time to clear the inventory of homes could take 7.8 months, slightly lower than the 8.1 months in the prior month of February. The median sales price of a new home rose 2.200 $, from 251.800$ to 254.000$ in March.
EMU: German IFO rises back to the December highs
Following two consecutive declines in the IFO business climate index in January and February, businesses are again almost as confident in the German economic outlook as in December last year, the all-time high. In April, the business climate index rose to 108.6 from 107.7 in March driven by both the current assessment and the expectations. As such, the strong appreciation in the euro and the US slowdown has not yet dented the German economic outlook. According to the IFO, ???Germany is profiting from the extraordinary international investment boom, which due to Germany??™s specialisation is having a stronger cyclical impact than in other major European countries??™. Among the different sectors, manufacturing, wholesale trade and retail trade all improved, but construction remained nearly unchanged. The improvements in the trade sectors suggest that the VAT increase at the start of the year has been digested well. The improvement in German business sentiment comes on the heels of a larger than expected rise in Belgian business confidence, while Dutch producer confidence stabilized at an elevated level. The ongoing strength in the business surveys puts the risk also on the upside with regard to the French and Italian business confidence surveys on Thursday and Friday.
Other: UK Q1 GDP growth up more than expected
In Q1, GDP growth in the UK exceeded expectations for a 0.6% Q/Q growth rate at 0.7% Q/Q, the same pace as in Q3 and Q4. Growth was again mainly driven by the services sector (0.8% Q/Q), even while there was a slight deceleration compared to the previous quarter (0.9% Q/Q) due to slower growth in distribution, hotels and restaurants. This was however offset by a strengthening in production and agriculture, despite a fall in manufacturing. Hence, the UK economy continued to grow above trend for the fifth consecutive quarter, despite recent interest rate increases and the strength in the sterling exchange rate. Strong growth and elevated inflation levels will set the stage for a 25bp rate hike at the May meeting.
In Norway, the central bank left rates unchanged at 4% whereas an increase to 4.25% was expected. In the subsequent statement, the Bank nevertheless reiterated that will raise rates gradually and sees the deposit rate in a 4-5% range in the period to late June.