Awaiting the FOMC Statement and Yellen’s Press Conference

December 17, 2014

Stocks are lower and the dollar is firmer ahead of today’s FOMC news and the release of some U.S. data.  There’s already been some central bank news in the U.K., Czech Republic and Thailand.  The Asian Development Bank bumped projected 2015 growth and inflation in developing Asia slightly lower, and Japanese trade data for November revealed weak import demand.

The FOMC statement and new FOMC forecasts get released at 14:00 EST (19:00 GMT) and will be followed by Chair Yellen’s press conference at 14:30 EST.  Many analysts expect the “considerable time” forward guidance language to be dropped.  Even if that happens, the gestalt of the Fed’s policy message will not be complete until the end of the one-hour press conference.

The dollar has risen 0.7% against the yen and kiwi, 0.5% versus the Swiss franc, 0.4% relative to the euro and Aussie dollar, 0.2% vis-a-vis sterling and 0.1% against the loonie and yuan.

Equities in the Pac Rim were mixed, with price gains of 1.7% in China and 0.4% in Japan but drops of 1.4% in Taiwan, 0.4% in Hong Kong, 0.3% in India and 0.2% in South Korea.  More consistent weakness in European trading has stocks down 1.7% in Italy, 1.2% in Spain, 0.7% in the U.K., 0.6% in Germany, 0.4% in France and 0.3% in Switzerland.

The 10-year Japanese JGB and German bund yields are unchanged overnight at 0.35% and 0.59%, but the 10-year British gilt rose a basis point to 1.78%.

West Texas Intermediate oil fell 1.7% to $54.97 per barrel.  Comex gold is 0.4% higher at $1,199.20 per ounce.

Minutes from the Bank of England’s December policy meeting revealed the fifth straight 7-2 vote on the 0.5% bank rate, with Weale and McCafferty again voting for a 25-basis point rate hike but the majority saying no to that request because of perceived vulnerability in the recovery.  The decision to leave the asset purchase program unchanged at GBP 375 billion was again unanimous.

The Bank of Thailand retained a 2.0% benchmark interest rate, matching the expectation of most but not all analysts.  Some thought a cut was possible, and the decision by a 5-2 vote included two votes for a reduction of 25 basis points.  The interest rate has been at 2.0% since a 25-basis point cut last March.

Czech monetary policy settings will remain unchanged.  The two-week repo rate is 0.05%, and a koruna ceiling of 27 per euro, to be enforced by intervention if necessary, was reaffirmed.

Japan’s customs clearance trade balance showed an unadjusted JPY 892 billion deficit in November, down from JPY 1.301 trillion a year earlier.  Exports grew 4.9% on year, but imports unexpectedly contracted 1.7%.  The seasonally adjusted deficit was JPY 925 billion after shortfalls of 985 billion yen in October and 1.068 trillion yen in September.  Imports fell 0.3% on month after ticking up 0.4% in October but dropping 1.9% in September.  Japanese machine tool orders were confirmed to have posted a 36.6% rise between November 2013 and November 2014.

Business sentiment in China rose to an four-month high of 56.2 in December from 55.2 in November and 51.7 in October.

Labor cost inflation in the euro area slowed to 1.3% last quarter from 1.4% in the second quarter but surpassed the 0.9% advance between 3Q12 and 3Q13.

The flash estimate of Euroland CPI inflation in November was confirmed by the more complete second estimate.  Consumer prices fell 0.2% on month because of a 1.4% slide in energy, and on-year inflation slowed to 0.3% from 0.4% in October and 0.9% in November 2013.  Between the two successive Novembers, inflation slowed to 0.5% in Germany from 1.6%, 0.4% in France from 0.8%, and 0.3% in Italy from 0.7%.  In the latest 12 months, consumer prices fell by 1.2% in Greece and 0.5% in Spain, rose just 0.1% in Portugal, and were unchanged in Cyprus.

British labor statistics pointed to improvement.  The claimant jobless count fell 26.9K in November versus analyst expectations of a drop of 20K.  Average wage earnings in the three months to October accelerated to 1.4% on year overall and a rise of 1.6% for just regular pay that excludes bonuses.

The ZEW index of investor sentiment toward Switzerland improved 2.7 points in December to a reading of negative 4.9.  Spain’s trade deficit widened 36.7% on month to EUR 3.24 billion.

The French index of leading economic indicators edged up 0.1% in October versus a 0.2% gain in September, and the index of coincident economic indicators was unchanged on the month.

Malaysian CPI inflation was 3.0% last month, up from 2.8% in October.  South Korean producer prices fell 0.3% last month and were 0.9% lower than a year earlier.

New Zealand reported a NZD 5.01 billion current account deficit for the third quarter (NZD 2.5 billion seasonally adjusted).  Over the past statement year, the deficit cumulated to NZD 6.1 billion, a 6-year high and equal to 2.6% of nominal GDP.

Westpac’s index of Australian leading economic indicators dipped 0.06% in November, reversing October’s rise.

South Africa’s index of leading economic indicators fell 0.5% in October.

U.S. consumer prices and quarterly current account data get released today, but the main attraction will be what the FOMC has to say.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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