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THE WEEKLY BOTTOM LINE
TD Economics
HIGHLIGHTS OF THE WEEK
• Thisweekhasbeenloadedwithfirst-tiereconomicdatareleasesathomeandsubstantivecentralbankactionabroad.IntheU.S.,weakerthanexpectedpurchasingmanagerindexsurveysandajumpininitialjoblessclaimswereharbingersofadisappointingpayrollsreportforthemonthorMarch.
• Altogether,theseindicatorssuggesttheU.S.economyendedthefirstquarteronasoftnote,providingaweakhand-offtoasecondquarterthatwewerealreadyexpectingwouldshowaslowerpaceofexpan-sion.
• StockmarketsinEuropeandtheU.S.reactednegativelytothenewsandsovereignbondyieldshavefallenintandem,asinvestorsunwoundriskierpositions.
April 5, 2013
Current* WeekAgo
52-WeekHigh
52-WeekLow
Stock Market IndexesS&P500 1,547 1,569 1,570 1,278S&P/TSXComp. 12,300 12,750 12,879 11,281DAX 7,660 7,795 8,058 5,969FTSE100 6,251 6,412 6,529 5,260Nikkei 12,834 12,398 12,834 8,296Fixed Income YieldsU.S.10-yrTreasury 1.69 1.85 2.18 1.39Canada10-yrBond 1.73 1.87 2.13 1.58Germany10-yrBund 1.21 1.29 1.79 1.17UK10-yrGilt 1.63 1.77 2.21 1.44Japan10-yrBond 0.53 0.55 1.00 0.45Foreign Exchange Cross RatesC$(USDperCAD) 0.98 0.98 1.03 0.96Euro(USDperEUR) 1.30 1.28 1.36 1.21Pound(USDperGBP) 1.53 1.52 1.63 1.49Yen(JPYperUSD) 97.1 94.2 97.1 77.5Commodity Spot Prices**CrudeOil($US/bbl) 92.8 97.2 106.2 77.7NaturalGas($US/MMBtu) 3.94 4.10 4.10 1.84Copper($US/met.tonne) 7411.8 7509.8 8564.0 7283.0Gold($US/troyoz.) 1567.1 1598.8 1790.4 1539.6
THIS WEEK IN THE MARKETS
*asof11:45amonFriday,**Oil-WTI,Cushing,Nat.Gas-HenryHub,LA(Thursdaycloseprice),Copper-LMEGradeA,Gold-LondonGoldBullion;Source:Bloomberg
FederalReserve(FedFundsRate)BankofCanada(OvernightRate)EuropeanCentralBank(RefiRate)BankofEngland(RepoRate)BankofJapan(OvernightRate)Source:CentralBanks,HaverAnalytics
GLOBAL OFFICIAL POLICY RATE TARGETSCurrentTarget
0.10%0.50%
0-0.25%1.00%0.75%
WEEKLY MOVES vs U.S. DOLLAR
-0.89
-0.81
-0.72
-0.39
-0.24
0.51
0.54
0.56
0.57
-2.0 -1.0 0.0 1.0 2.0
CanadianDollar
JapaneseYen
AustralianDollar
N.ZealandDollar
MexicanPeso
BritishPound
Euro
SwissFranc
BrazilianReal
Source:Bloomberg,asat10:30am,April5th2013
%
Current Rate 20144/5/13 Q1 Q2 Q3 Q4F Q1F Q2F Q3F Q4F
FedFundsTargetRate(%) 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.252-yrGovt.BondYield(%) 0.22 0.25 0.28 0.30 0.35 0.40 0.50 0.60 0.8010-yrGovt.BondYield(%) 1.69 1.90 2.05 2.20 2.30 2.50 2.70 2.80 3.0030-yrGovt.BondYield(%) 2.85 3.05 3.15 3.40 3.50 3.75 3.95 4.05 4.10RealGDP(Q/Q%Chg,Annualized) 0.4(Q4) 2.5 1.4 2.5 2.8 2.7 3.2 3.3 3.1CPI(Y/Y%Chg.) 2.0(Feb-13) 1.8 2.2 2.2 2.2 2.3 2.3 2.3 2.3UnemploymentRate(%) 7.6(Mar-13) 7.8 7.8 7.7 7.6 7.5 7.4 7.2 7.0ForecastbyTDEconomics.Source:Bloomberg,TDEconomics
TD ECONOMICS KEY FORECASTS2013
2
TD Economics | www.td.com/economics
April 5, 2013
SOFT PAYROLLS UNDERLINE RISK-OFF INVESTOR SENTIMENTThis week has been loaded with first-tier economic data
releases at home and substantive central bank action abroad. In the U.S., weaker than expected purchasing manager index surveys and a jump in initial jobless claims were harbingers of a disappointing payrolls report for the month of March. Altogether, these indicators suggest the U.S. economy ended the first quarter on a soft note, providing a weak hand-off to a second quarter that we were already expecting would show a slower pace of expansion. Stock markets in Europe and the U.S. reacted negatively to the news and sovereign bond yields have fallen in tandem, as investors unwound riskier positions. The yield on 10-year U.S. Treasuries fell to 1.69%, its lowest level in almost four months, and the S&P 500 index was trading 1.7% lower than last week’s closing.
U.S. non-farm payrolls added 88K net new jobs in March, less than half the amount expected by market analysts. On the positive side, net revisions added 61K to payrolls in the previous two months. March employment numbers were undoubtedly very poor; however, taking into account net revisions still leaves the first quarter employ-ment gains slightly ahead of our recent forecast and broadly in line with annual job creation of 2.2 million.
What is really worrisome is the decline in the participa-tion rate. The household survey showed an improvement in the unemployment rate to 7.6% because of a sharp drop in the labor force. The labor force participation rate now stands at 63.3%, its lowest level since May 1979. This raises concerns over the ability of the labor market to draw workers back from inactivity even as employment levels increase on a continual basis. It could be a signal that unemployment is now structurally higher than it was prior to the recession.
These considerations will remain front and center in the internal debate at the Federal Reserve’s FOMC when it meets on April 30 – May 1. Several committee members have signaled in recent days that the Fed could start reducing its monthly purchases of financial assets towards the end of this year if the outlook for the labor market remained on a healing trend. However, Chairman Bernanke has repeat-edly warned that improvements should be substantial and sustained. He will be watching closely whether job creation this spring/summer will repeat the decelerations it suffered around the same time in the previous two years. Based on this premise, and in light of today’s payroll figures, we could expect the cautious Fed tone to persist at the end of this month, with no clear guidance on the alteration of the size of monthly asset purchases.
Perhaps affected by the limited effectiveness of the Fed’s largesse in stimulating job creation, global investors were skeptical in the face of yesterday’s announcement of a mas-sive monetary expansion by the Bank of Japan. The BoJ’s bold policy move did little to improve risk sentiment beyond Japanese borders. In its quest to end deflation and achieve 2% annual inflation on a sustained basis, the BoJ announced a set of measures to further extend “quantitative easing”. First, it set monetary base targets with an aim to double the monetary base by the end of 2014. Second, it announced an increase in purchases of Japanese government bonds (JGB), as well as riskier assets, such as exchange-traded funds and real estate investment trusts. But, the BoJ also introduced “qualitative easing” by extending the maturity of JGBs eli-gible for purchase to 40 years, which will lengthen average duration of its JGB holdings from 3 to 7 years.
These massive liquidity injections will drive up the size of the BoJ’s balance sheet from roughly 35% of GDP currently, to 60% at the end of 2014; more than double the the estimated 25% of U.S. GDP on the Fed’s balance sheet by that time. Needless to say, this is a risky policy move, which could fail to boost Japanese economic growth, even if it succeeds in generating higher inflation. That could lead to higher interest rates on Japanese sovereign debt, which would undermine both the country’s debt sustainability and its banking system financial stability.
All in all, these concerns combined with the disappoint-ing U.S. payrolls reinforced the risk-off mood across global financial markets this week.
Martin Schwerdtfeger, Senior Economist 416-982-2559
U.S. NON-FARM PAYROLLS
-1,000
-800
-600
-400
-200
0
200
400
600
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
PublicPayrolls
PrivatePayrolls
Source: U.S. Labor Department, TD Economics
Monthlychange,thousandpeople
3
TD Economics | www.td.com/economics
April 5, 2013
UPCOMING KEY ECONOMIC RELEASES
*ForecastbyRatesandFXStrategyGroup.Forfurtherinformation,contactTDRates&[email protected].
Despite higher pump prices, seasonal factors should push spending on gasoline lower in March and be the main driver for weaker retail sales activity. We expect spending activity to decline for the first time since October with a 0.2% m/m decline. Spending on autos should also dip modestly in March, though sales excluding autos should also decline at a 0.2% m/m pace. However, with the posi-tive tone in overall spending activity expected to remain relatively intact, core retail sales should rise at a respectable 0.2% m/m pace, even as this marks a deceleration from the recent positive momentum in this indicator. The tone in personal expenditures should remain relatively subdued over the next few months as the hit from higher taxes and the impact of sequestration lower take-home pay, and pos-sibly suppress spending momentum.
U.S. Retail Sales - March*Release Date: April 12, 2013February Result: Total 1.1% M/M; Ex-autos 0.4% M/MTD Forecast: Total -0.2% M/M; Ex-autos -0.2% M/M Consensus: Total 0.0% M/M; Ex-autos 0.3% M/M
U.S. RETAIL AND FOOD SERVICES SALES
-1.0
-0.5
0.0
0.5
1.0
1.5
Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13
Total
Excl.AutomotiveDealers
Source:U.S.DepartmentofCommerce/HaverAnalytics
M/M%Chg.
U.S. Michigan Confidence - April*Release Date: April 12, 2013March Result: 78.6TD Forecast: 77.4 Consensus: 78.3
We expect US consumers’ mood to sour in April as the combination of weakening economic and labor market growth momentum tempers sentiment towards the recov-ery. And even though the sustained recovery in housing market activity should continue to provide a modest lift for confidence (as rising housing wealth and sales activity buttress housing equity) we expect the headline Michigan confidence number to retreat modestly, falling to 77.4. The weakening tone in household attitudes should persist in the coming months as the drag from higher taxes and spending cuts continue to moderate economic growth.
U. OF MICHIGAN CONFIDENCE
50
55
60
65
70
75
80
85
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13
Source:UniversityofMichigan/HaverAnalytics
Index
4
TD Economics | www.td.com/economics
April 5, 2013
RECENT KEY ECONOMIC INDICATORS: APRIL 1-5, 2013Release
Date Economic Indicator/Event Data for Period Units Current Prior
United StatesApr1 ConstructionSpending Feb M/M%Chg. 1.2 -2.1Apr1 ISMManufacturing Mar Index 51.3 54.2Apr2 FactoryOrders Feb M/M%Chg. 3.0 -1.0 RApr2 IBD/TIPPEconomicOptimism Apr Index 46.2 42.2Apr2 TotalVehicleSales Mar Millions 15.22 15.33Apr2 DomesticVehicleSales Mar Millions 12.00 11.99Apr3 ADPEmploymentChange Mar Thousands 158.0 237.0 RApr3 ISMNon-Manf.Composite Mar Index 54.4 56.0Apr4 ChallengerJobCuts Mar Y/Y%Chg. 30.0 7.0Apr5 TradeBalance Feb USD,Blns -43.0 -44.5 RApr5 ChangeinNonfarmPayrolls Mar Thousands 88.0 268.0 RApr5 ChangeinPrivatePayrolls Mar Thousands 95.0 254.0 RApr5 ChangeinManufact.Payrolls Mar Thousands -3.0 19.0 RApr5 UnemploymentRate Mar % 7.6 7.7Apr5 AvgHourlyEarning,AllEmployment Mar M/M%Chg. 0.0 0.1 RApr5 UnderemploymentRate(U6) Mar % 13.8 14.3
CanadaApr5 InternationalMerchandiseTrade Feb CAD,Blns -1.02 -0.75 RApr5 UnemploymentRate Mar % 7.2 7.0Apr5 NetChangeinEmployment Mar Thousands -54.5 50.7Apr5 FullTimeEmploymentChange Mar Thousands -54.0 33.6Apr5 PartTimeEmploymentChange Mar Thousands -0.4 17.2Apr5 ParticipationRate Mar % 66.6 66.7Apr5 IveyPurchasingManagersIndexSA Mar Index 61.6 51.1
InternationalApr1 AU RBACashTarget Apr1 % 3.00 3.00Apr2 UK PMIManufacturing Mar Index 48.3 47.9Apr2 UK M4MoneySupply Feb Y/Y%Chg. 0.5 -0.8Apr2 EC Euro-ZoneUnemploymentRate Feb % 12.0 12.0 RApr2 GE ConsumerPriceIndex MarP Y/Y%Chg. 1.4 1.5Apr2 AU TradeBalance Feb AUD,Mlns -178 -1215 RApr3 UK PMIConstruction Mar Index 47.2 46.8Apr3 EC Euro-ZoneCPIEstimate Mar Y/Y%Chg. 1.7 1.8Apr3-4 JN BOJTargetRate Apr4 % 0.1 0.1Apr4 UK PMIServices Mar Index 52.4 51.8Apr4 EC Euro-ZonePPI Feb Y/Y%Chg. 1.3 1.7 RApr4 UK BOEAnnouncesRates Apr4 % 0.50 0.50Apr4 EC ECBAnnouncesRates Apr4 % 0.75 0.75Apr5 EC Euro-ZoneRetailSales Feb Y/Y%Chg. -1.4 -1.9 R
*EasternStandardTime;Source:Bloomberg,TDEconomics
5
TD Economics | www.td.com/economics
April 5, 2013
UPCOMING ECONOMIC RELEASES AND EVENTS: APRIL 8-12, 2013Release
Date Time* Economic Indicator/Event Data for Period Units Consensus
Forecast Last Period
United StatesApr8 19:15 Bernanke Speaks at Atlanta Fed Conference in GeorgiaApr9 7:30 NFIBSmallBusinessOptimism Mar Index 90.8 90.8Apr9 10:00 WholesaleInventories Feb M/M%Chg. 0.5 1.2Apr9 10:00 WholesaleSales Feb M/M%Chg. 1.5 -0.8Apr9 10:00 JOLTsJobOpenings Feb Thousands -- 3693.0Apr10 14:00 MonthlyBudgetStatement Mar USD,Blns -- -203.54Apr10 14:00 Fed Releases Minutes from the Mar 19-20 FOMC MeetingApr11 8:30 ImportPriceIndex Mar M/M%Chg. -0.5 1.1Apr11 8:30 InitialJoblessClaims Apr6 Thousands 360.0 385.0Apr11 8:30 ContinuingClaims Mar30 Thousands -- 3063.0Apr11 9:45 BloombergConsumerComfort Apr7 Index -- -34.1Apr12 8:30 AdvanceRetailSales Mar M/M%Chg. 0.0 1.1Apr12 8:30 RetailSalesExAuto&Gas Mar M/M%Chg. 0.3 0.4Apr12 8:30 ProducerPriceIndex Mar M/M%Chg. -0.1 0.7Apr12 8:30 PPIExFood&Energy Mar M/M%Chg. 0.2 0.2Apr12 9:55 U.ofMichiganConfidence AprP Index 78.3 78.6Apr12 12:30 Bernanke Speaks at Conference on Low Income Communities
CanadaApr8 10:30 BoCSeniorLoanOfficerSurvey Q1 Index -- -3.40Apr8 10:30 BusinessOutlookFutureSales Q1 % 17.50 16.00Apr9 8:15 HousingStarts Mar Thousands 175.0 180.7Apr9 8:30 BuildingPermits Feb M/M%Chg. 3.0 1.7Apr11 8:30 NewHousingPriceIndex Feb M/M%Chg. 0.1 0.1
InternationalApr7 19:50 JN TradeBalance-BOPBasis Feb Yen,Blns -660.1 -1479.3
Apr07-12 GE WholesalePriceIndex Mar Y/Y%Chg. -- 1.4Apr8 6:00 GE IndustrialProd.(nsawda) Feb Y/Y%Chg. -0.9 -1.3Apr9 2:00 GE TradeBalance Feb Euros,Blns 15.0 13.7Apr9 2:00 GE ExportsSA Feb M/M%Chg. -0.3 1.4Apr9 2:30 FR BankofFranceBus.Sentiment Mar Index 95 96Apr9 2:45 FR TradeBalance Feb Euros,Mlns -5323.0 -5862.0Apr9 4:30 UK IndustrialProduction Feb Y/Y%Chg. -2.8 -2.9Apr9 4:30 UK ManufacturingProduction Feb Y/Y%Chg. -1.4 -3.0Apr9 4:30 UK TotalTradeBalance Feb GPB,Mlns -2800.0 -2362.0Apr9 10:00 UK NIESRGDPEstimate Mar M/M%Chg. -- -0.1Apr10 2:45 FR IndustrialProduction Feb Y/Y%Chg. -3.7 -3.5Apr10 2:45 FR ManufacturingProduction Feb Y/Y%Chg. -2.4 -4.5Apr10 21:30 AU UnemploymentRate Mar % 5.4 5.4Apr11 2:45 FR CPI-EUHarmonized Mar Y/Y%Chg. 1.0 1.2Apr11 4:00 EC ECB Publishes Monthly ReportApr12 5:00 EC Euro-ZoneInd.Prod.Wda Feb Y/Y%Chg. -2.5 -1.3
*EasternStandardTime;Source:Bloomberg,TDEconomics
6
TD Economics | www.td.com/economics
April 5, 2013
Thisreport isprovidedbyTDEconomics.Itisforinformationpurposesonlyandmaynotbeappropriateforotherpurposes.Thereportdoesnotprovidematerial informationabout thebusinessandaffairsofTDBankGroupand themembersofTDEconomicsarenotspokespersonsforTDBankGroupwithrespecttoitsbusinessandaffairs.Theinformationcontainedinthisreporthasbeendrawnfromsourcesbelievedtobereliable,but isnotguaranteedtobeaccurateorcomplete.Thereportcontainseconomicanalysisandviews,includingaboutfutureeconomicandfinancialmarketsperformance.Thesearebasedoncertainassumptionsandotherfactors,andaresubjecttoinherentrisksanduncertainties.Theactualoutcomemaybemateriallydifferent.TheToronto-DominionBankanditsaffiliatesandrelatedentitiesthatcompriseTDBankGrouparenotliableforanyerrorsoromissionsintheinformation,analysisorviewscontainedinthisreport,orforanylossordamagesuffered.
CONTACTS AT TD ECONOMICS
Craig AlexanderSenior Vice President and
Chief Economist mailto:[email protected]
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CANADIAN ECONOMIC ANALYSISDerek Burleton, Vice President and Deputy Chief Economist [email protected]
Sonya Gulati Senior Economist, Government Finance and Public Policy [email protected]
Diana Petramala Economist, Real Estate [email protected]
Francis Fong Economist, Financial [email protected]
Dina Ignjatovic Economist, Autos, Commodities and Other Industries [email protected]
Leslie Preston Economist, Macro [email protected]
Jonathan Bendiner Economist, Regional [email protected]
U.S. & INTERNATIONAL ECONOMIC ANALYSISBeata Caranci, Vice President and Deputy Chief Economist [email protected] Marple Senior Economist [email protected]
Martin Schwerdtfeger Senior Economist, International [email protected]
Michael Dolega Economist [email protected]
Thomas Feltmate Economist [email protected]
Ksenia Bushmeneva Economist [email protected]
