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This February belonged to Greece and Germany

Feb. 27: The feel-bad couple push a bailout deal through for the kids, plus, all the inflation analysis that’s fit to print on a Friday


 

MORNING-PLAYBOOK-STORY

Nobody went to the Acropolis, we didn’t go island-hopping, it was very, very cold, and nobody ate moussaka (unless, of course, you did!).

Instead, when we talked about Greece this month (which we did ad nauseum), as the days ticked down to today’s deadline for Greek’s bailout extension, we talked debt-to-GDP ratio, youth unemployment, tax reform, nail-biting negotiations, Germany, the euro, and the fashion choices of the now-infamous Yanis Varoufakis.

If there was ever a moment to make a terrible Opa! pun, today is it: this morning, the German parliament approved the new extension of the Greek bailout extension. But the drama is far from over.

When we had time to look away from Greece and the eurozone, this month offered plenty of crisis, scandal and intrigue, most notably the HSBC Swiss secrets scandal, fraud charges for SNC-Lavalin, a leadership shakeup for Bombardier, massive budget cuts for Alberta, and an emergency bailout for Ukraine.

Yesterday also offered a major check-up on slowing inflation for both Canadian and the U.S. But while many other countries are fighting deflation, the economic picture in Europe looks a little brighter than expected this morning, with new inflation numbers ticking up slightly in Germany and Italy, slowing deflation in Spain, and bouncy fourth quarters for both Sweden and Denmark.

Germany’s parliament approves the Greek bailout extension. And the award for the most strained – and yet, most crucial – European relationship goes to the unhappy marriage of Greece and Germany. Everybody compromises (or nobody does—in this saga it has often been hard to tell), and everybody’s angry, but the other eurozone countries just seem relieved the two managed to push through the resentment, anger, and lots of overt references to the Second World War. Today is a milestone in that sense: this morning, the German parliament passed the four-month Greek bailout extension, despite substantial dissent within the ranks of Angela Merkel’s party. But this is far from the end of the crisis, as Greece must find a source of cash to tide them over until the extension kicks into force (an extension that is tied to reforms.) Another detail worth noting: this bailout extension is only for four months.

Canadian inflation takes another hit. Yesterday’s inflation numbers confirmed that price rises have decreased substantially in the last few months, largely as a result of the drop in the price of oil. In January, the consumer price index was up by one per cent in January compared to the year earlier – a 0.2 per cent drop for the month – compared to a 1.5 per cent year-to-year increase in December. If we take out gas and food (to get a number called the Core CPI), inflation is actually above the Bank of Canada’s target pace of two per cent – at 2.2 per cent – and while it has fallen, the drop has not been nearly so swift. In general, the drop was not actually as low as economists expected, a sign of the impact of a weaker loonie on price drops (which was back under 80 cents at closing yesterday). Yesterday also saw the release of payroll employment, earnings and hours, which can often fill in some of the details of the more high-profile Labour Force Survey. The numbers, for December 2014, show an increase in wages, and a slight decrease in hours, compared to the previous year: overall, weekly wages were up by two per cent compared to December 2013, but average hours ticked just below 33 hours a week, unchanged from the previous month.

The rate of inflation is also falling in the U.S. Overall inflation for January, on a year-to-year basis, also fell in the U.S., by 0.1 per cent, marking the first decline in the rate of price increases in five years. From the previous month, inflation fell by 0.7 per cent. Prices had actually risen by 0.8 per cent in December. If you take out food and energy to find the “core” rate of inflation, prices rose an average of 0.2 per cent from the previous month, and were up by 1.6 per cent from the year before. Enough with all the numbers: why does it matter? While Canadians are watching the inflation rate for signs of a cut to the benchmark rate by the Bank of Canada next week, the world is watching the U.S. economy’s every move for how it could impact Janet Yellen’s decision to raise, or keep steady, the Fed’s rate. But Yellen has noted the mixed picture for the U.S. economy as recently as this week: while the job market for Americans has surged, inflation has clearly been less robust. With much of the world, including the eurozone, fighting outright deflation, even starting quantitative easing programs, investors and central bankers are hoping a U.S. recovery can be an engine of wider growth. An upcoming survey by the University of Michigan on consumer confidence is likely to add some colour to this picture today. The current Fed benchmark rate is 0-0.25 per cent, where it has been parked since the depths of the financial crisis.

Jobs and the GDP for the U.S. This morning, the U.S. will update an earlier fourth-quarter GDP report. Bloomberg, for one, is predicting that the economy was not quite as bright as first predicted: the predicted jump of 2.6 per cent growth was largely attributed to stronger consumer spending, but trade may not have been as strong. Take the numbers with a grain of salt: they’ll get another update next month, when corporate profit numbers come in. A closely watched oil rig count in the U.S. will also be released this afternoon, which can have a big impact on the price of oil (even if, as was the case last time these numbers were released, the drop in rigs seemed to have no bearing on actual supply.)

 

Greek yogourt is killing the cereal star. Mega-brand Kellogg is seeing changing tastes undercut its popularity (not unlike other mega-brands like McDonalds and Coke, for example). Sales of its cereal brands have been decreasing, and Americans seem to be making more “time-intensive” and healthy breakfasts: including yogourt and fruit, oatmeal and pancakes.

Need to know:
TSX: 15,241.16 (+12.59), Thursday
Loonie: 79.83 (-0.67 cents), Thursday
Oil (WTI): $48.89, Friday (6:45 a.m.)


 

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