Investors Will Be Surprised If FOMC Renews QE Today

September 21, 2010

The FOMC meets today and will release a new statement around 18:15 GMT.  Commodity-sensitive currencies, the dollar and global bond yields are softer in advance.

The dollar lost 0.5% against the euro, 0.3% against the yen, 0.2% against the Swiss franc, and 0.1% against the yuan.  The greenback firmed 0.2% against sterling, however, aided by poor British public finance data, and its also edged higher against the loonie (0.2%), Aussie dollar (0.1%) and kiwi (0.1%).

Ten-year bond yields dipped by two basis points in Japan, which reopened after Monday’s holiday, and by one basis point in Germany and Britain.

The Japanese Nikkei fell 0.3% on continuing concern over Sino-Japanese geopolitical tensions.  Stocks in Australia also dropped 0.3% after hawkish central bank minutes were released, but most other bourses advanced following yesterday’s upward trend.  Stocks rose 1.8% in Sri Lanka, 0.5% in India and Singapore, 0.6% in New Zealand, 0.4% in Malaysia, and 0.3% in China and South Korea.  In Europe, the Paris Cac, German Dax and British Ftse are up 0.6%, 0.5%, and 0.4%.

Oil lost 0.9% to $74.22 per barrel, whereas gold prices edged up 0.2% to $1282.80 per troy ounce.

Japan’s former yen czar, Sakakibara, predicted dollar/yen would in 2010 eclipse the alltime low of 79.85 hit in 1995 and warned of possible criticism by U.S. officials of Japanese intervention.

The Chinese yuan briefly touched 6.6987 per dollar, its strongest level since 1993. U.S. President Obama complained that Beijing has not done everything promised to promote a stronger exchange rate.  A story in the Chinese press predicted new property tax measures will be introduced next month.  Japan and China still haven’t resolved their boat dispute.

Revised Japanese leading and coincident indices were released.  The diffusion index for the index of leading economic indicators was 36.4 in July, lowest since March 2009.  The diffusion coincident index of 50.0 was the lowest since April 2009, but the lagging index was at its highest diffusion level since May 2007.  The raw leading index had a score of 100.0, down from 100.3 in June.

Japanese machine tool orders recorded on-year growth of 170% in August, the same gain as seen between July 2009 and July 2010.

In Australia, Reserve Bank minutes from the policy meeting earlier this month said higher interest rates would be come necessary in the event that the baseline economic forecast plays out, but that tightening had been paused after 150 basis points of rate increases between October and May because of the perceived possibility of weaker global growth than envisaged.

Britain’s public sector net borrowings of Gbp 15.302 billion last month was the highest total for an August month since 1993.  The PSNB in August 2009 had been Gbp 13.548 billion.  The U.K.’s current budget deficit last month was Gbp 13.329 billion.  Over the first five months of FY2010-11, these gauges amounted to Gbp 58.1 billion and Gbp 46.1 billion, just 6% and 7.5% below the prior year’s record pace.

Headline Canadian CPI inflation eased to 1.7% in August from 1.8% in July, while core inflation held steady at 1.6%.  Seasonally adjusted consumer prices edged up 0.1% in August from July.

Hong Kong consumer price inflation of 3.0% in June-August from a year earlier was up from 1.3% in May-July, but the acceleration reflected technical factors and was anticipated.  Core CPI held steady at 1.9%.

The Swiss trade surplus unexpectedly dived 80% to CHF 568 million in August from CHF 2.84 billion in July.  Swiss M3 growth picked up to 6.6% in the year to August from 6.5% in July.

Debt sales by Ireland, Spain, and Greece today went a bit better than feared, soothing sovereign debt worries a bit for at least today.  A high central bank figure in Europe, Wellink, intimated that the spate of weakening economic signs in the United States may have stabilized.  His cautious optimism comes ahead of the latest FOMC pronouncement.  Fed officials are not expected to announce a fresh round of quantitative easing (QE). 

Aside from the FOMC decision and statement, U.S. monthly housing starts and weekly chain store sales data arrive today.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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