German Consumer Sentiment Improves but Uncertainty is Still King
Economic news and commentary for March 29, 2023
Germany GfK Consumer Climate
The GfK German Consumer Sentiment index is expected at -29.5 in April, up from -30.6 in March. This would be the 6th consecutive monthly gain, suggesting that sentiment in Germany continues to be on the right path in 2023 after the sharp decline in 2022. However, it is worth noting that the momentum has noticeably weakened compared to previous months. The renewed rise in consumer sentiment can be primarily attributed to the positive development in the income outlook. For the sixth time in a row, the indicator increased, rising by three points to -24.3 in March. This is the highest value in the last ten months, when it stood at -23.7 pts in May 2022. Despite an improvement in sentiment in March, general economic expectations decreased slightly, by -2.3 pts to 3.7. The small step back was not enough to drop expectations below the long-term average of 0 pts, and the reading is actually up 12.6 pts from a year ago. Whether a recession can be avoided in Germany has recently become more doubtful again. At the very least, a technical recession, which means two consecutive quarters with a decline in GDP, has become more likely again. For now, we can only say that consumer sentiment has improved from its worst state, and that in general, the economic outlook is very uncertain for consumers as the forward view on the path of inflation and interest rates remains murky.
Still to come…
10:00 am (EST) - US Pending Home Sales
10:00 am - US State Street Investor Confidence Index
10:30 am - US EIA Petroleum Status Report
11:00 am - US Survey of Business Uncertainty
Morning Reading List
Other Data Releases Today
In the UK, borrowing by large firms grew 3.1% YoY in February, down from 5.8% YoY in January. Small & medium firms saw a contraction in borrowing of -3.9% YoY. The average cost of borrowing grew 58 bps to 5.82% in February, up 379 bps from December 2021.
US Consumer Confidence
Macro Insights: US consumers shrug off banking fears, and the missing case of yen safe-haven (Saxo Bank) - The upside surprise in US consumer confidence for March despite the banking sector concerns is reflective of a still-tight labor market being more meaningful to an everyday consumer. If banking sector concerns don’t flare up and US economy and inflation remain firm, the Japanese yen could give up more of its gains in the near-term. But the pinch of the incoming recession will likely bite US consumer into H2 as credit supply tightens. Policy tweak from incoming BOJ Governor Ueda is also still not ruled out, and scope for further gains in yen remains.
Unfazed: Confidence Edges Higher Despite Banking Situation (Wells Fargo) - Consumers may not love the present conditions, but a slightly more upbeat take on where things are headed was enough to give overall confidence a nudge in the right direction in March. The banking crisis is not high on the list of consumer worries at present.
Consumer Confidence Increased Slightly in March (NAHB) - Consumer confidence rose slightly following two months of declines thanks to the optimism in the short-term outlook. Even though confidence rose in March, consumers are planning to spend less on highly discretionary categories such as concerts and dining. As a result, consumers are planning to spend more on less discretionary categories such as home maintenance and repair.
US sentiment holds firm despite banking stresses (ING) - US consumer confidence improved in March despite concerns about bank failures and what it might mean for deposits. It supports a narrative of near-term spending strength, but higher borrowing costs and reduced access to credit are major headwinds while falling house prices and the potential restart of student loan repayments are additional challenges.
A March Up In U.S. Consumer Confidence (BMO) - Consumer confidence, as measured by the Conference Board, surprisingly did not wilt in March despite fears of a looming recession, elevated borrowing costs, persistent underlying price pressures and the banking sector fallout. A robust labour market is shoring up Main Street... for now.
US
Tracking Bank Stress Contagion (TD Bank) - Recent events in the banking sector have put financial conditions in sharp focus. The cost and availability of credit is an important driver of the economic outlook, substituting for tighter monetary policy in slowing economic activity.
FOMC Hikes Rates, But End of Tightening Cycle Coming Into View (Wells Fargo) - The FOMC raised its target range for the federal funds rate by 25 bps at today's policy meeting. Fed policymakers have raised rates by 475 bps over the course of the past 12 months, the fastest pace of tightening since the early 1980s.
Examining the Rapid Rise of U.S. National Wealth since 2012 (St Louis Fed) - In a stable economy, national wealth and gross domestic product (GDP) are generally expected to rise and fall together closely, resulting in a wealth-to-GDP ratio that remains relatively constant. The U.S. wealth-to-GDP ratio, however, rose rapidly over the last decade. What could account for this increase?
Europe
Digitalised production chains are central to manufacturing’s productivity puzzle (ING) - Manufacturers must digitalise faster to stay competitive and be more sustainable. Accelerating the digitalisation of industrial production chains is also one of the ways to solve the industrial productivity puzzle.
The French social contract is definitely broken (Saxo Bank) - Macron’s 2022 election was often portrayed as the establishment’s last chance to avoid voters turning away from government parties. The least we can say is that Macron has not been very successful until now. Many voters find him insufferable.
China
China’s central bank pumps more liquidity into market (ING) - The People's Bank of China has already cut its Required Reserve Ratio and has continued to pump liquidity into the money market over the past few days. Is this about global market volatility or is it more about the domestic economy?
Australia
Australia: Softer inflation hints at pause in rates (ING) - The Reserve Bank of Australia's (RBA) recent hint that rates were close to a peak and that a pause may soon be appropriate got a further boost from the February inflation report, which showed a steeper slowdown than expected.
NAB Business View: Economic growth and inflation in focus (NAB) - Just how resilient is the Australian economy in 2023? From consumer confidence to business spending, hear directly from NAB Chief Economist Alan Oster and Metro & Specialised Banking Exec Julie Rynski. Watch now.
Canada
Green Energy Goals, Red Ink Realities (BMO) - The 2023 Federal Budget is set against a backdrop of still-elevated inflation, disruption in the global financial sector and a likely looming recession. Despite uncertainty on a number of fronts, and a weaker-than-expected underlying budget balance, Ottawa continues to roll out net new stimulus to the tune of $4.8 billion in FY23/24, and $43 billion over six years.
Federal budget 2023: a healthy meal, but skipping desert (CIBC) - A windfall tied to full employment and healthy nominal GDP growth allowed Ottawa to continue to climb down from huge deficits in the past year. However, as revenue growth slows, fresh items on the policy menu would not only threaten that progress, but could give a push to inflation in what is for now a fully-employed economy. The 2023 budget still makes a healthy meal out of new initiatives, but attempts to save some fiscal calories by skipping desert, trimming spending in government operations, repurposing money that had been allocated in past budgets for other programs, and raising taxes here and there.
Markets
Market turmoil leaves credit in limbo (ING) - Recent market turbulence might get you asking 'just what sort of crisis is this?'. We think it's one that will be reflected in both short and long-term spreads. And this changes the investment decision. Initially, we'll see more volatile spread movements; later, higher funding costs. But many areas of value will be created.
Credit conditions and real estate are back in focus (Saxo Bank) - Leading indicators are still weakening suggesting the US economy could slip into a recession this year and if it does it will most certainly be driven by deteriorating credit conditions which undoubtedly will be a knock-on effect from the current banking crisis. Higher funding costs and more equity issuances in the European banking sector will drive up credit conditions and worsening the slump in European real estate which down 2% again today with Aroundtown down 10%. Sweden will on a country level be the testing ground for how a weakening real estate sector will impact the economy and banks.
Commodities
The strategic approach to critical raw materials (ABN AMRO) - The EU recently published its Critical Raw Materials Act. The EU set targets for domestic capacity and aims to limit the supply from a single country by 2030. It also updated its list of critical raw materials and released a list of strategic raw materials. The US and the UK had have already published their strategies. The EU approach is similar to that of the US.
Volatile Commodity Prices Reduce Growth and Amplify Swings in Inflation (IMF) - Resurgent volatility in commodity markets will likely pose economic challenges in coming years even as prices decline.
Outlook
Major forecasts: Eyes wide shut (Nordea) - Financial market turbulence has cast fresh doubts about how much more central banks need to hike rates and has introduced new negative risk scenarios for the economy. We think the central banks still have more work to do to tame inflation pressures.
Banking Stresses the Outlook (Northern Trust) - The Northern Trust Economics team shares its outlook for growth, inflation, employment, and interest rates.
Argentina Economic Outlook. March 2023 (BBVA) - 2023 is a year with a heavy electoral calendar, in a context of growing social concern regarding macroeconomic imbalances and a historic drought. We expect sustained pressures in the FX market throughout the year, with consequences on the GDP and financial volatility.
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