- ECB purchases are well on track in first three days of QE, while yields rise for the first time on day four
- US retail sales impacted partly by bad weather and slowdown set to be only temporary
- Decline in eurozone’s industrial output in January reflects a temporary lull
Strong start of ECB purchases while yields rise for the first time on 4th day of QE
ECB board member Coeure and German central bank President Weidmann revealed yesterday eurozone central banks bought EUR 9.8bn of securities in the first three days of QE. The average duration was around 9 years. Of the total EUR 9.8bn, EUR 2.1bn of German sovereign bonds were bought, which equates to 21% of the total purchases. The amount bought suggests that the QE programme has started on a good note. We estimate that national central banks will have to buy on average of around EUR 2bn of sovereign and national agency debt per working day. Meanwhile, on the fourth day of QE, yields have risen for the first time. The yield on 10y Bunds increased by 3.5bps to 25bps. We continue to think there is significant further downside. Meanwhile, country spreads of 10 year government bonds declined further, a trend we expect to continue.
US retail sales, impacted partly by bad weather…
Meanwhile, retail sales in the US continued to be dragged down by falling gasoline prices and bad weather. February marked the third month of falling retail sales. Retail sales declined by 0.6% after a 0.8% fall the previous month. Auto sales have been trending down in the past few months as consumers stayed away from show rooms. Retail sales ex. autos, gasoline, building materials and food services in the control category was unchanged in February. This category corresponds mostly to the consumer spending component of GDP. We expect first quarter GDP growth to be weak, partly on account of the disappointing consumer data. There should, however, be a rebound going forward.
…but slowdown in consumption temporary
This report follows strong jobless claims released yesterday, which fell to 289K from 320K the previous month. We think that given the strong labour market, and as households see that the extraordinary income gain from lower oil prices is more “long lasting”, that they will start to spend more freely. Indeed, the negative weather effect should also dissipate.
Eurozone industrial production edges lower …
Industrial production in the eurozone fell by 0.1% mom in January, following a 0.3% expansion in December. The outcome was lower than the consensus forecast of a small rise. Still, output had expanded non-stop during every month following August 2014 and we think the decline in January merely reflects a temporary lull. Compared to January 2014, output expanded by 1.2%, up from 0.6% in December. Not all individual member states have published January data yet, but of the ones that have, the strongest numbers were recorded in Ireland, France, Germany and Spain, whereas Portugal, Finland and Italy all reported weak numbers.
… but should pick up again soon
We see the eurozone’s industrial sector picking up again in the coming months, as it should benefit from the collapse of the euro, low energy prices and easing financial conditions in general due to the ECB’s QE programme. Robust growth in the eurozone’s industrial sector was already signalled by a further rise in the orders component of the manufacturing PMI in January and February (to 51.0 from 50.2 in December), which lifted the orders/inventory ratio component of this PMI to its highest level since July of last year.