The World Overall

One Financial | Andrei Wogen| finance.wogen@gmail.com|For the Week of: 02/22

Last Week in Review

KRW South Koreas central bank left rates steady at 2% at their
meeting last week. The Bank is encouraged by the recent uptick in US
and Euro Zone growth but continues to see downside risks from the
weakness in emerging markets in particular. The BoK is also concerned
about weak domestic fundamentals which include weak sentiment and
a negative output gap that they expect will persist for some time. Other
concerns of theirs is the continued high household debt and a weak
export sector while low oil prices and capital flows are also on their
radar. However, they are encouraged by the recent increases in the
number of employed, seen especially in the services sector. As for
inflation the Bank expects it to rise going forward while current inflation
is actually staying quite strong. Overall though the bank looks like it is
comfortable with where it is at in terms of policy.
JPY The Bank of Japan left rates alone during their monthly meeting
last week. In their statement though, they sounded a bit more optimistic
on the Japanese economy. For the first time since the tax hike occurred
(way back in April of last year) the Bank did not mention it in their
statement as being a problem for the economy. They actually upgraded
their assessment on the Japanese economy which included the export
and industrial production industries. They did however voice their
concern about the weakness in consumer spending. Really though, the
Bank sounded more optimistic than in the past on the economy and if
this optimism continues then the Bank could very well cut back on their
QE program. However, I think we are quite a ways off from them doing
that at this point and with expectations being that the Bank will ease
further, there will need some clear indications that the Bank does indeed
want to start puling back on QE before we see any changes in those
expectations by the markets. As for data last week, exports rose the
most in a year while imports continued to decline. So a mixed bag there
while the trade balance continued to fall further into deficit territory.
USD Meeting minutes released by the FOMC from their January
meeting, showed that the Fed is still a ways away from raising rates. In
the minutes, it showed that Fed is concerned about the geopolitical
events around the world, the weak economic growth and some slowing
in conditions in the States. Their was also worry about inflation that was
evident in the minutes with members opting to keep rates low for some
time yet. Overall, the Fed it would seem wants to see more positive
economic developments in not only the US, but globally as well and
they want to see higher inflation before raising rates. It was some
dovish meeting minutes and in my mind helps to solidify my bet that
the Fed will wait and not raise this year. Other data last week showed
the housing sector is slowing a bit recently with builders sentiment,
housing starts and building permits all coming in weaker than last

months. This could very likely though be more seasonally related and
so as the summer months come, we will hopefully get a better picture of
how the housing market is doing in the US. It should be mentioned
though that the weakness in the housing market was one of the
concerns the Fed talked about in their minutes. Other data also showed
industrial production improving from last month while capacity
utilization slowed from last month a bit.
EUR As for the Euro Zone as a whole last week (minus Greece) the
big release last week was the release of the ECBs first ever meeting
minutes from their January meeting. Within the minutes we got a bit
more of a look at the decision surrounding QE and the surprises were
few. Overall, the Germans in particular are against the program while
the overall vote was in favor of doing QE overall but split down the
middle. The one encouraging part of the minutes was were it was
mentioned that all members agreed that QE is a policy tool. This could
help stem any legal action that is or could come from Germany in
particular or any other opponents of QE. But like I said, not a whole lot
of surprises in the minutes. As for data German and Euro Zone
sentiment numbers improved, both for investors and consumers while
monthly manufacturing and services data from France, Germany and
the Euro Zone showed manufacturing continuing to weaken overall
while the services sector continues to improve.
Greece The story in Greece continues but with a different ending
then we have seen over the past few weeks. Greece and the Eurogroup
(and Troika) agreed to a four month extension plan for Greeces current
debt program. Bank recapitalization by the ECB will also continue
throughout this four month period while Greece has agreed to honor all
of its obligations in full. This deal also paves the way for a new deal to
happen in four months time which is code for, well try and hash out a
better agreement later on and just kick the can down the road some
more for the time being. On the whole, this agreement appears to be a
step in the right direction but I am not very encouraged by the fact that
something more concrete could not be agreed upon. This agreement
simply allows the Greek government more time to figure out a way to
get out of their current bailout program (through some other avenue
aside from their European partners) and gives the rest of Europe time to
figure out whether they can really indeed live without Greece in the
Euro Zone anymore. But maybe Im being too pessimistic. With this
extension it would seem that Greece is may not so keen on getting out
of their bailout program (because it would mean a boot from the Euro
Zone) and even Germany seems to be willing to play ball somewhat
while still keep a tight lid on Greece. And I hope that I am being too
pessimistic because if the next negotiations dont go well it could very
well be the beginning of the end of the Euro Zone and this would be
very bad indeed.
CNY data was light from China last week with the country on
holiday for their New Year. Its the year of the Sheep and people born in
this year are expected to be meek and will follow more than lead.
Something that parents in China dont like overall and for this reason
the rate of births in the last few weeks has been high, even if the newly
borns were not quite ready to be born. Anyway, theres your lesson for
the week in the social norms and beliefs of the Chinese people. So as for
the data, this showed new loans weakening a huge amount versus last
months data as the lending and banking sector continues to slow amid
reforms and crackdowns by the central government towards this sector

continues. House prices also continued to decline which is another

negative for the Chinese economy now and in the future. The domestic
picture continues to weaken in China.

What to Watch this Week

EUR This week for data from the Euro Zone, the key data will be
final 4th Quarter GDP from Germany, Greece and Spain. Growth is
looking a bit better, especially in comparison to last year and so more
evidence of this will be watched for. The other data that will be watched
will be inflation data from he Euro Zone and other countries in the Euro
Zone. Inflation continues to be weak and any improvement in inflation
will also be an encouraging sign. Also, based on last weeks ECB
meeting minutes, inflation has become much more important as the
longevity of (as well as possibly the total size of) QE is dependent upon
inflation and inflation expectations, both which continue to deteriorate.
I expect then that inflation from he Euro Zone will begin to be cared
about by the markets a whole lot more now, even more than it has been
in recent months. Expectations though are for inflation to continue to
fall lower due mostly to the continued weakness in energy. The other
big event this week, aside from any developments in Greece, will be the
release of the ECBs latest TLTRO auction. Take up has not been as good
as some would like and improvement in these auctions would be very
welcome indeed as it would show that banks could very well be lending
more since a bigger take-up could mean more demand for the money
from bank customers including businesses. This week, ECB Draghi will
also be testifying before European Parliament and in light of their recent
QE announcement and with Greece on the front pages everywhere, this
particular speech could present some interesting words from the
President. Overall though, Greece will continue to be the front story as
negotiations still seem far from happening between Greece and its
creditors and the Troika.
GBP The important data will be preliminary fourth quarter GDP on
Thursday. Expectations have been that UK growth will have and has
slowed some especially in the last few months leading up to the end of
last year. The question really is though, has it slowed even more than
expected. If it has this will very likely push back rate hike expectations
some. In my opinion though, looking at the Euro Zone GDP data from
last week and the overall condition of the United Kingdom, I am not
expecting anything lower than what is expected and actually I think
there is more risk for a better growth number than not. Mortgage
applications, which have continued to weaken over the past few
months, and consumer confidence will also be released this week.
USD Fourth Quarter GDP, January inflation figures and January
Durable Goods orders data will be in focus for the states this week. As
for the GDP data, expectations are that growth for the fourth quarter
will be lower than the third quarter of last year but full year growth too
will also be in focus. The hope and expectations have been that growth
in the US last year came in close to or even at three percent and so
fourth quarter dat will be a big determinant of that. We did though see
some slowing in the economic picture as the year ended last year and so
I am personally not so optimistic on both the fourth quarter number and
the full year growth number. As always though, what counts is what is

coming up and so Durable goods this week for the month of January
will be in focus and possibly even more so than the GDP figures. I am
not expecting a good number form Durable Goods as weakness in the
manufacturing and consumer sectors will likely translate into a weaker
Durable Goods orders number. If this number is lower than expected
then this will cause expectations of first quarter growth for this year to
be lowered as well as expectations for a Fed rate hike this year. As for
the inflation data, this will more than likely continue to show weakness
in prices led by energy. Not too important as of right now though as the
Fed has opted to look through the recent weakness in inflation and has
opted instead to focus on their longer-term expectations which continue
to stay stable overall. Other data for the week will include services PMI,
consumer confidence and existing home sales and then to finish off the
week, along with GDP data Personal Consumption expenditures data
will be released which will give the markets another indication of
inflation in the States. The other key event this week for the US markets
will be a speech by Fed President Yellen who will be testifying before
the Senate and Financial committee throughout the week. There is much
anticipation that during this time Yellen will pave the way for a more
hawkish tone from the Fed at their meetings including the removal of
the patience word at their next meeting in March. However I am not
on this side of expectations. Rarely do we get policy changes or any sort
of meaningful change in the Feds tone during these testimonies.
JPY CPI data this week on Thursday will be in focus as will the BoJs
meeting minutes from their most recent meeting. As for CPI this has
likely continued its fall, along with the rest of the world while the effect
of last years tax hike on prices continues to taper off. As for the BoJs
meeting minutes, this will likely continue to show the same message
overall though I will be focused perennially on comments about their
current QE program. Recent comments have given a mixed message
about how the Bank is currently thinking about their QE program with
some comments suggesting that the Bank is getting uncomfortable with
their QE program while another comment, by the BoJ president himself,
suggesting that the QE program poses no real threat to the bond
markets at least. It should be noted though too, that the Banks
statement released lsat meeting showed the bank was a bit more
optimist on the economy overall and so we will see if this sentiment is
reflected in the minutes as well and how much.
CAD Inflation data will be in focus this week. As oil continues to
decline and as the Canadian economy continues to decline I am
expecting a continued lower reading. This data too will be in more focus
too, by the Bank of Canada in particular, especially after their recent rate
cut and downside expectations for the Canadian economy. Also, last
week we heard from the BoCs deputy governor who said that the
condition of the Canadian economy will the determinate in whether or
not the BoC cuts rates again.
Greece now with the fourth month extension plan in place there are a
couple of questions at hand: (1) what sort of reforms will Greece present
on Monday and will they be satisfying enough for their Euro Zone
partners? and (2) what about countries such as Spain, Portugal and
Italy? What are their next steps in light of this agreement?

Overall Sentiment Indicator

Asset

Overall
Sentiment

Strength

US Dollar

Positive

Euro

Negative

Pound

Positive

Canada Dollar

Negative

US Dollar

Positive

Japanese Yen

Negative

New Zealand
Dollar

Positive

Economic Calendar
Region

Event/Data

Japan

BoJ Monetary Policy Meeting Minutes

Germany

4th Quarter GDP q/q - Final

Germany

Expected

Date

Time (EST)

02/23

6:50pm

0.7%

02/24

2am

4th Quarter GDP y/y - Final

1.6%

02/24

2am

Euro Zone

CPI y/y

-0.6%

02/24

5am

United States

Consumer Confidence (Feb)

100.0

02/24

10am

United Kingdom

BBA Mortgage Approvals (Jan)

36.2

02/25

4:30am

Euro Zone

ECB Draghi Speech

02/25

9:30am

United States

Fed Gov. Yellen Speech

02/25

10am

Germany

GfK Consumer Confidence (Jan)

9.4

02/26

2am

Germany

Unemployment Change (Feb)

-10K

02/26

3:55am

Germany

Unemployment Rate (Feb)

6.5%

02/26

3:55am

United Kingdom

4th Quarter GDP q/q - Preliminary

0.5%

02/26

4:30am

United Kingdom

4th Quarter GDP y/y - Preliminary

2.7%

02/26

4:30am

Euro Zone

TLRO Take-up

02/26

5:15am

Canada

Bank of Canada CPI (Jan) y/y

02/26

8:30am

Canada

CPI (Jan) y/y

02/26

8:30am

United States

CPI (Jan) y/y

02/26

8:30am

United States

Core CPI (Jan) y/y

1.6%

02/26

8:30am

United States

Durable Goods Orders (Jan)

1.9%

02/26

8:30am

United States

Core Durable Goods Orders (Jan)

0.5%

02/26

8:30am

Japan

Tokyo Core CPI (Jan) y/y

2.2%

02/26

6:30pm

Japan

National Core CPI (Jan) y/y

2.3%

02/26

6:30pm

Germany

CPI (Feb) m/m - Preliminary

0.7%

02/27

8am

Germany

Harmonized CPI (Feb) y/y - Preliminary

02/27

8am

United States

4th Quarter GDP Annualized - Preliminary

02/27

8:30am

United States

4th Quarter GDP - q/q

02/27

8:30am

United States

4th Q Personal Consumption Expenditures q/q

02/27

8:30am

2.1%