Waiting and Seeing on Multiple Levels

December 11, 2019

The FOMC will reveal its decisions later today from its final scheduled review of U.S. monetary policy in 2019. Financial markets in advance have been marking time ahead of the revelations of any policy action today, when interest rates are likely to be moved next and in what direction, and what factors are currently attracting the greatest attention of the policymakers. New forecasts for growth,  inflation, unemployment, and of officials’ own interest rate projections will be unveiled, and as always the formal statement will be followed by a one hour press conference by Chairman Powell.

Fed officials also are in a wait and see mode. The U.S. economy’s slowdown hasn’t intensified. The three rate cuts in mid-year may have been enough. November labor market figures were stronger than forecast, and U.S. CPI data released earlier today unexpectedly showed the highest total inflation rate in a year. It wouldn’t be surprising if some FOMC members are starting to become more predisposed to rate tightening. The majority view, however, will be to leave policy as is, and some others on the committee are no doubt more comfortable thinking that the next needed rate change will be another easing.

Tomorrow’s British election is cause for waiting and seeing on yet another level. Brexit hinges on the result, and although the Conservatives are widely expected to win, latest polls suggest the margin above Labour’s support has narrowed.

The dollar, gold and oil prices are little changed from Tuesday closing levels.

Share prices rose 0.8% in Hong Kong, 0.7% in Australia, 0.6% in Taiwan, 0.4% in China and South Korea, but just 0.2% in China. Japan’s Nikkei dipped 0.1%. The German Dax is up 0.4%, but the British Ftse is down 0.2%. The U.S. market is little changed.

Besides the Fed, two other central banks are deliberating policy today. No announcement has emerged yet from the Central Bank of Brazil, but in Iceland, the central bank decided to keep its 7-day repo rate unchanged at 3.0%. Following cuts totaling 150 basis points between May and November, today’s result is not really surprising, since a statement after the November cut affirmed that Brazil’s rate structure was appropriate. Today’s statement from the Central Bank of Iceland notes that inflation has fallen but that inflation expectations are aligned with the target and that Brazil’s growth, while low, has been closed to what officials have been expecting.

U.S. consumer prices in November rose 0.3% on month and accelerated 0.3 percentage points in on-year terms to 2.1%. That’s up from 1.5% last January. Energy prices, which posted back-to-back monthly increases, was a main factor behind the higher inflation rate. Core inflation was unchanged at 2.3% in November, and the on-year advance of real average hourly earnings dipped marginally to 1.1% in the month.

Japanese domestic producer price inflation rose half a percentage point to a 6-month high of 0.1% in November, but export prices (down 5.9%) and import prices (down 11.2%) continued to show big on-year declines.

In a separate Japanese data release, the Ministry  of Finance’s quarterly survey of business sentiment found deep deterioration in confidence among large manufacturing and non-manufacturing firms during the final quarter of 2019 but also hopes for noticeable improvement in the first quarter of 2020. The more widely followed corporate survey of the Bank of Japan, known as the Tankan survey, gets published this Friday.

South Korean unemployment rose to 3.6% in November from 3.5% in October, 3.4% in September, and 3.1% in August, but joblessness remained below last January’s 2019 high of 4.4%.

According to the Westpac measure of Australian consumer confidence, sentiment had improved sharply in November but then sagged anew in December.

Canadian capacity usage fell 1.6 percentage points in the third quarter to 81.7%. A year earlier, such had been 83.1%.

Turkey’s current account surplus of $1.549 billion in October was a 3-month low and down from $2.64 billion a year earlier.

Swedish CPI inflation accelerated 0.2 percentage points to a 5-month high of 1.8% in November. Core inflation rose to 1.7%.

Portuguese CPI inflation of 0.3% last month also represents a 5-month high, and Romanian CPI inflation of 3.8% was above expectations and at a 3-month  high.

South African CPI inflation dipped 0.1 percentage point to 3.6% in November, its lowest pace since end-2010.

South African retail sales were just 0.3% above their year-earlier level in October. That’s a 7-month low.

A 4.2% on-year rise in Brazilian retail sales, in contrast, was the largest advance in three months.

According to the Conference Board, Germany’s index of leading economic indicators fell 0.2% in October, marking the sixth slide in seven months.

The European Central Bank is one of many monetary authorities scheduled to announce interest rate decisions tomorrow. It will be ECB President Lagarde’s first post-Council meeting press conference.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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