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US GDP Disappoints

Fourth Quarter Growth in the US Shows Further Deceleration

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In its latest monetary policy decision released during the prior week, the Federal Reserve remarked that the state of economy remained concerning, with expansion slowing additionally since the Central Bank opted to raise interest rates. Reports by the Bureau of Economic Analysis validated the statements, with GDP growth tapering sharply since the third quarter report.

Chinese Manufacturing Activity Contracts

China’s factory activity continues to deteriorate, widening the gap even further between the manufacturing and services sector amid the ongoing emphasis on transitioning the economy. The Chinese Logistics Information Center reported that January’s Manufacturing Purchasing Manager’s Index continued to contract, dropping even further since December’s 49.7, reporting a value of 49.4 and underlining 6th consecutive month of declines. The Caixin Manufacturing PMI, reported by Markit, showed a slight improvement to 48.4 for January compared to 48.2 for December, but still below the expansion threshold sitting at the 50 mark. Economists warn that manufacturing activity will continue to decline shrink over the coming year as a result of a global economic downturn and softer trade fundamentals.  A focus on emissions and transitioning towards the services and consumption oriented economy will also continue to detract from manufacturing over the long-term.

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US Growth Decelerates

The United States Bureau of Economic Analysis reported that the preliminary fourth quarter gross domestic product figure rose by 0.70%. GDP expansion declined versus the third quarter’s reported value of 2.00% while also missing the consensus estimate of 0.80%. Consumers and firms have reduced spending as evidenced by the most recent trends in durable goods while the country’s trade balance remains firmly in a deficit due to slumping export activity amid a strong dollar according to the report. The abrupt braking of growth was reported by the Federal Reserve earlier last week, remarking that growth had declined markedly since policymakers moved to normalize rates. The US dollar did not show any empathy against most of its rivals, continuing to gain strength over the Euro while recording a low price of 1.0861 during the report before recovering modestly.

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Euro Inflation Pickup

The preliminary results of the headline Euro Area consumer price index displayed an annualized increase of 0.40% for the month of January, the biggest gain in underlying inflation since October 2014. The data beat both estimates and the previous values of 0.20%. Core inflation excluding volatile items such as fuel also spiked higher to 1.00%, exceeding the previous month’s results and estimates of 0.90%. However, despite the recent gains, comments earlier in the month from ECB President Mario Draghi highlighted the potential for Europe’s inflation to sustain continued declines over the year as commodity prices continue to tumble. With no early indications of a recovery in China and other emerging markets, the Central Bank will find its goal for restoring inflation harder to accomplish. Final inflation data will be announced on the 25th of February with the values expected to be reflected in the ECB’s next monetary policy decision.

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Russia Leaves Rates Untouched

Policymakers at the Central Bank of Russia left existing monetary policy unchanged with interest rates kept at 11.00%, matching expectations after the Ruble touched new record lows. The Central Bank has slashed rates 5 times since the all-time high of 17.00% seen back in December 2014. Decision makers warned that if inflation shows any signs of escalation officials will not hesitate to tighten policy. Furthermore, it was stated that rates were left untouched as higher than desired inflation looked to be gradually improving, reporting a decline from 15.00% to 12.90% in December, but still managing to elude the Central Bank’s goal of 4.00%. The continued burden of declining oil prices combined with a sliding currency and an ongoing economic contraction raise concerns among analysts that the recession may last another year. The start of the year saw the Ruble fall further versus the US dollar with USDRUB reaching a never seen before high of 85.9230.

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