Shocks and Surprises, Week Ending April 21st

·         US data shocks tell us we're back in a 'soft patch': industrial data, labour markets and real estate all reported results worse by 1SD or more from consensus.

·         Europe has a busy data-week, producing few shocks or surprises. Probably the most shocking event was ECB’s revisions to current account balances for 2010 and 2011, which cut the annual deficits by an average of 86%.

·         Japan's puzzling strength continues: March trade data was surprisingly strong, and so, just about, does domestic demand.

·         China and NE Asia released little data, and no challenge to consensus views.

US – The Soft Patch Arrives

Evidence for a 'soft patch' in the US came in thick and fast as no fewer than seven data-releases slid more than a full standard deviation below the range of estimates. From the industrial sector, the Empire State manufacturing index slid to just 6.6 from March's 20.2, and the Philadelphia Fed survey fell to 8.5 from 12.5 in March. These two surveys are among the earliest indicators for April's industrial activity, and both were shockingly weak. Industrial output data for March was flat MoM for a second successive month. This was a shock, but even worse, the output data hid a 0.2% MoM contraction in manufacturing, which was offset mainly by a 1.5% MoM rise in utilities output. This flatlining in the industrial sector found echoes in labour and property markets. Thursday brought a second successive week in which initial unemployment claims rose above the range of expectations. And finally, outcomes for housing starts, existing home sales, and the NAHB Housing Market Index all fell more than 1SD below the range of expectations.

Eurozone – Busy but Few Shocks/Surprises

Truly, Europe’s major surprise of the week came from the way the ECB revised the last two years' current account data, cutting 2010 and 2011 deficits by an average 86%.  Yes, data gets revised, but when such major revisions are made to such central data, it cannot help but make you question the basis upon which policies are made. Besides that, although the wires were busy, there were few shocks or surprises (tally: 17 datapoints on consensus; four surprising on the upside, and three shocking on the downside). Moreover, one of the surprises (UK's retail sales rising 1.8% MoM in March), and one of the shocks (Eurozone's construction output falling 7.1% MoM in Feb) told us more about the weather than the economy: Germany froze in February (construction fell 17.1% MoM), whilst March sun brought out clothes shoppers in the UK.

Japan – Baffling Run of Strength Extends One More Week

Japan's run of stronger-than-expected data extended to March's trade data, in which exports rose 5.9% YoY (vs an expectation of just 0.2%), and imports rose 10.5% YoY (vs expectation of 7%). The strength of export was largely attributable to a 44.7% YoY jump in auto-exports, whilst Japan's import bill was swollen by petroleum (up 22.8% YoY) and petroleum products (up 32.1%). (Soaring oil imports are what happens when Japan closes its nuclear power plants). Domestic demand indicators were less clear: March department store sales surprised with a 14.1% YoY jump, but convenience store same-store sales disappointed by rising only 0.4% YoY. The jump in condo sales in February was reversed to a 6.1% YoY fall in March, but average prices rose and inventory is getting cleared.

China and NE Asia – Little Data, No Surprises

Japan apart, Asia produced almost nothing to trouble consensus. In China:

·         FDI used during the first quarter was reported down 6.1% YoY;

·         a rise in news orders propelled the MNI Business Sentiment survey for April slightly higher;

·         the 70 cities real estate data showed prices of new residential property falling in a net 38 cities in March (vs a net 42 in February).

All three came in slightly higher than expectations or central trend, but in each case by less than a standard deviation: no need to revise the consensus.

Similarly, the little data released in NE Asia need not detain us: Taiwan export orders fell 1.6% in March, and S Korean export prices were flat YoY – both in line with expectations and trends. In fact the only surprise delivered by Asia ex-Japan this week was the 16.8% MoM collapse in Singapore's non-oil domestic exports – a puzzling collapse which was attributable neither to electronics, nor pharma, nor even Europe.