Spotlight on Fed and Other Central Banks

January 26, 2011

The Federal Open Market Committee meets today for the first of eight scheduled dates in 2011.  A statement at 19:15 GMT is not expected to modify policy.

Minutes from the Bank of England’s January 12-13 meeting revealed a second dissenter in favor of raising the Bank Rate by 25 basis points and a majority somewhat more inclined toward that view but wanting to at least wait until next month’s quarterly inflation report when a fuller review of medium-term inflation risks will be possible.

The Bank of Japan’s monthly economic assessment this month was unchanged from December’s.  Japan still shows signs of moderate recovery but recovery seems to be pausing.  The view on housing was upgraded, while that on exports got downgraded.  All other components of demand, activity, and pricing pressure had the same assessment as before.

Norway’s central bank will announce its latest rate decision and thinking later this morning.  A rate increase is not generally expected. 

Likewise, the Reserve Bank of New Zealand, whose decision will become known this afternoon in New York (Thursday morning down under), is also expected to retain the 3.0% existing cash rate level.

Sterling got a lift from the Bank of England minutes and is 0.3% stronger against the dollar after slumping sharply on Monday.  The U.S. currency otherwise has gained 0.4% against the Swiss franc, 0.3% versus the Chinese yuan, and 0.2% relative to the kiwi.  The greenback shows no change against the yen and has eased 0.1% against the euro, Australian dollar and Canadian dollar.

Equities are mostly higher.  In the Pacific Rim, stocks rose 1.4% in China, 1.1% in South Korea, 2.0% in Indonesia, 1.3% in Singapore, 0.7% in Taiwan and 0.2% in Hong Kong.  The German Dax and British Ftse have rallied 1.2% so far in European hours, while the Paris Cac is 0.9% stronger.  Japan’s Nikkei defied this upbeat tone and fell 0.6% on the day.

The yields on ten-year German bunds and British gilts advanced by three and five basis points, while their Japanese counterpart slid by two basis points.

Oil and gold prices firmed 0.7% and 0.2% to $86.81 per barrel and $1335.20 per troy ounce.

Aussie markets were closed for Australia Day, while markets in India were shut for Republic Day.

President Obama and the Republican Party rebuttal presented different ideological visions for America last night.  Obama urged both parties to work together on an agenda to rebuild infrastructure, improve education and cut the deficit by some $400 billion over the next 10 years. Representative Paul Ryan of Wisconsin struck a tone of eleventh hour urgency lest America become the next Greece for limiting the size of government much more drastically than the Democrats are recommending.  He singled out the repeal of health care reform as a proper place to begin.

In the Bank of England minutes, Martin Weale, who joined the Monetary Policy Committee last August, joined the hawkish Andrew Sentance in voting for a 25-basis point hike in the base rate to 0.75%.  Adam Posen again dissented in favor of a GBP 50 billion increase in the central bank’s asset purchase program ceiling to GBP 250 billion.  Posen acknowledged some reconsideration of his belief that inflation could fall below the 2% target in the medium term, citing such risks as further rises in commodity prices, strong global demand, and sterling’s vulnerability.

According to British Bankers’ Association figures, mortgage loans contracted 3.3% last month to 28,726, a lower level than market expectations.

Japanese corporate service prices fell another 0.2% last month to end 2010 some 1.3% below their end-2009 level.  During the second half of 2010, the CSP index dropped at a 2.2% annualized pace.  Japanese small business sentiment, according to the Shoko Chukin index, edged downward to 45.8 this month from 45.9 in December.  Such had been also at 45.8 in November, bottomed at 24.8 in January 2009 and hasn’t printed above the breakeven 50 level since 2007.

South Korean GDP growth slowed in 4Q10 to 0.5% on quarter, worst in a year, but average economic growth of 6.1% in 2010 was the best calendar year performance since 2000.  Services rose 1.3% in the latest quarter, but both manufacturing and construction contracted.  Consumption increased just 0.3%, whereas exports grew by a robust 2.4% in the quarter.  GDP in 4Q was 4.8% higher than in 4Q09.

Factory output in Singapore sank 11.8% in December, almost four times more sharply than anticipated.  The 12-month rate of rise slowed to 9.0% from 40.5% in November.

Credit card spending in New Zealand fell 1.4% in December, nearly slicing its on-year pace in half to 2.0%.

German import prices jumped 2.3% last month on top of a 1.2% increase in November, lifting the on-year rate of increase to 12.0%.  Import prices had dropped 1.0% in the year to December 2009 and by 8.6% on average in calendar 2009, but such went up 7.8% in 2010, the most in a decade.  Energy prices leaped 7.7% on month and 34.2% on year in December, while non-oil import prices rose 1.3% on month and 9.2% on year.  German export price inflation accelerated to 5.2% last month from 4.5% in November and minus 0.4% in December 2009.

Sweden recorded another strong trade surplus of SEK 10.9 billion in December versus SEK 4.6 billion in December 2009.  Export prices were 21.4% greater than a year earlier.  The monthly average surplus in 2010 was SEK 6.26 billion.  Icelandic consumer price inflation slowed to 1.8% in January from 2.5% in December.  Italian retail sales fell 0.3% in November but were 1.7% higher than a year before.

Scheduled U.S. data today include new home sales and weekly oil inventories and mortgage applications, but the main focus will be the FOMC statement.  The World Economic Forum in Davos, Switzerland begins today.  Another snowstorm is predicted in the U.S. northeast corridor tonight.  Signs have been emerging that adverse weather conditions are hurting retail shopping in America and Europe.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

Tags: , ,


Comments are closed.