3 Numbers: Italian Industry On The Cusp, India CPI, U.S. Yields
James Picerno | Apr 13, 2015 02:07AM ET
Monday’s a sleepy day for economic reports. The monthly release on industrial production for Italy is the main exception for Europe. Meanwhile, the stronger macro trend in India is in focus today with the monthly update on consumer price inflation, which has decelerated during the past year. The question now: Is disinflation/deflation still lurking?
In the US, there are virtually no economic releases for Monday (other than new budget numbers for the federal government due at according to a Markit economist.
update of its leading indicators points to an “easing” growth rate in China and a “firming” for India's economy.
The upbeat outlook for the economy has provided a tailwind for India’s stock market, which has been one of the stronger performers lately, rising roughly 28% over the past year - double the gain relative to the US (S&P 500), for instance.
One potential weak spot has been recent worries that disinflation/deflation risk was on the march in India, a trend that could complicate the prospects for growth. The potential for trouble triggered a surprise rate cut earlier this year in a bid to keep weaker-than-expected inflation from sliding further.
The latest inflation data reflect mixed messages. The widely watched wholesale price index fell for the fourth straight month in February, dropping 2.1% in annual terms. The news renewed forecasts that the Reserve Bank of India (RBI) will cut rates again at some point in the near term. Consumer inflation is still rising: 5.4% in February against the year-earlier level, although that’s less than half the pace from late-2013 and below the RBI’s six-percent target. The central bank governor, Raghuram Rajan, last week said that keeping disinflationary forces under control is still a priority. "This is where we cannot relax our guard quickly, we cannot say we are out of the inflation woods,” he explained.
Given this backdrop, today’s update on consumer inflation will be widely read. Analysts think that we’ll see signs of stabilization, with prices more or less continuing to rise in the mid 5% range for the CPI data. A sharply lesser rate, however, would raise new questions about India’s new-found status as a darling among emerging markets.
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estimate for Q1 implies that growth came to a virtual standstill in the first three months of this year.
The consensus view at the moment, however, continues to interpret the recent slowdown as a temporary setback against the start of a deeper slide. The Treasury market’s on board with that view, or so it appears based on last week’s mild rise in yields. The benchmark 10-year Treasury, for instance, inched up to 1.96% on Friday - 11 basis points above the previous week's close. Yes, that's a small rise, but the fact that yields increased at all after the dismal news in the March payrolls report implies that the crowd still expects that the economy will continue to grow in the months ahead and so the Federal Reserve will begin raising interest rates later this year.
Ultimately it's all about the incoming data, and tomorrow's monthly update on retail sales for March will offer a key test for deciding if the economy's poised to rebound from the winter blues. Meantime, the benchmark 10-year yield will offer a crucial proxy for the "wisdom" of the crowd today. It's likely that yields will remain in a holding pattern until new economic numbers provide an incentive to move rates one way or the other. Signs of stronger growth will probably kick yields higher; another round of disappointment for retail spending will deliver the opposite.
Briefing.com's consensus forecast anticipates that tomorrow's retail sales data will reflect a solid rebound: a 1.0% rise in March for the monthly comparison against February's 0.6% slide for the headline data. The outlook implies that the 10-year yield today will hold steady if not rise a bit relative to Friday's 1.96%.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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