Still on Track for a Robust Recovery Even After Soft Data This Week
- The worse-than-expected outcomes for February retail sales, industrial production and housing starts were in part due to the severe winter weather that hit much of the country last month. However, other factors contributed to each sector’s decline, including payback for January’s stimulus-fueled spending spree in retail sales, semiconductor shortages holding back manufacturing production and rising costs crimping building activity.
- With the largest direct checks of the COVID crisis hitting household bank accounts this week, we do not believe retail sales are starting to roll over. Similarly, the supply challenges roiling the manufacturing sector are only a temporary setback. Demand for manufactured goods remains exceptionally strong, evidenced by the Philadelphia Fed manufacturing survey hitting nearly a 50-year high this week. And while housing activity may be cooling from its exceptionally strong pace late last year, low inventories should continue to support home-building even as mortgage rates move somewhat higher. In other words, we still expect a robust recovery in the coming months despite much of this week’s data coming in below expectations.
Emerging Central Banks Surprise Market Participants
- It was a busy week for global economic data and central bank announcements. Swedish inflation unexpectedly slowed, with headline CPI and CPIF inflation easing in February and extending the period of below-target prices.
- Among the G10 central banks, the Norges Bank unanimously opted to hold the current policy rate at zero percent, but more notably, the central bank indicated that the policy rate will likely be raised in the latter half of 2021. Elsewhere, the Bank of England voted to keep its Bank Rate at 0.10% and maintained the pace of its government bond purchases.
- On the emerging market front, Brazil’s central bank surprised markets with a 75-bp rate hike to 2.75%, the first rate increase in roughly six years. The Central Bank of the Republic of Turkey delivered a large 200-bp rate i