Judgement Day at the FOMC

September 21, 2011

The Federal Open Market Committee will release a scheduled policy statement at 18:15 GMT.  Markets expect some sort of easing gesture but wonder about its effectiveness.  U.S. existing home sales get released this morning as do Canadian consumer prices.

Investors continue to believe that a Greek default is unavoidable and wonder if that event will trigger a run on other peripheral members of EMU.

Bank of England minutes from the September 8 policy meeting revealed a 9-0 unanimous approval of keeping the Bank Rate at 0.5% and an 8-1 vote for retaining a GBP 200 billion limit on asset purchases, with Adam Posen again dissenting in favor of bumping such up to GBP 250 billion.  The majority conceded that it appears that inflation risks in the medium term are becoming more skewed to the downside and that, if confirmed subsequently, an eventual further round of quantitative easing would become necessary.

Iceland’s central bank left its 7-day collateralized lending interest rate steady at 4.5%.

Hong Kong’s Monetary Authority retained a base rate of 0.5%.  Hong Kong domestic monetary policy is subordinated to enforcing the Hong Kong currency’s pegged value to the U.S. dollar and so moves in lock-step with changes in the federal funds rate.

European share prices have eased on concerns about Greek debt.  The Paris Cac, German Dax and British Ftse have traded down 0.8%, 0.7%, and 0.2% so far.

In the Pacific Rim, equities were mixed with gains of 3.0% in China, 2.6% in Pakistan, 0.9% in South Korea, 0.8% in Australia, and 0.6% in Malaysia, New Zealand and Taiwan but losses of 1.5% in Indonesia, 1.0% in Hong Kong, 0.5% in Sri Lanka, 0.4% in The Philippines and 0.2% in India.  Japan’s Nikkei edged 0.2% higher after dropping on Tuesday.

The dollar is unchanged against the Australian, New Zealand and Chinese currencies.  The greenback gained 0.5% against the Swissie and sterling, 0.2% versus the loonie, and 0.1% against the euro but is 0.2% softer against the yen, which appears to be supported by capital flows associated with the approaching midpoint of Japan’s fiscal year at end-September.  There was chatter in the market that the Bank of Japan may have been checking dollar/yen rates.

Oil prices slipped 0.2% to $86.76 per barrel.  Gold firmed 0.2% to $1813.10 per ounce.

The yields on ten-year German bunds and British gilts edged up three basis points, while that on Japanese JGBs slid a basis point and just below unity.

Japan’s all-industry index in July rose 0.4% on month but was 0.8% lower than a year earlier.  While industrial production also rose 0.4%, construction, services, and public spending each posted small declines.  The all-industry index surpassed the quake-affected second-quarter level by 2.2%.

Japanese customs trade on a seasonally adjusted basis was in deficit for a fifth straight month, showing a JPY 294 billion shortfall after a July deficit of JPY 160 billion.  The unadjusted balance also was in the red to the tune of JPY 775 billion, with imports at 19.2% above a year earlier and exports up just 2.8%.

Swiss reserves went up CHF 5.9 billion last month.  Swiss M3 growth accelerated to a 12-month rise of 7.6% in August from 6.0% in the year to July.

According to the Nationwide index, British consumer confidence slid a point to a four-month low of 48 in August.  U.K. public sector net borrowing of GBP 13.16 billion and public sector net cash requirement of GBP 11.83 billion in August were greater than forecast and than a year earlier.  The debt-to-GDP ratio of 61.4% was the same as in July but up from 55.3% in August 2010.

China’s index of leading economic indicators rose 0.6% in July, down from a 0.9% increase in June.  The index of coincident indicators also posted a smaller advance of 0.4%. South Korea’s jobless rate fell to 3.0% in August, lowest in roughly three years. Malaysia recorded a 3.0% jobless rate in July and a 3.3% 12-month CPI inflation rate in August.

France’s indices of leading and coincident indicators for July reflected a stalled economy with respective readings of negative 0.2% and +0.1%.

Retail sales in Hungary dropped 0.3% and 1.3% on year in July.  Norway’s unemployment in June-August averaged just 3.2%.  Norway’s central bank meeting is tomorrow.

South African CPI inflation remained steady at 5.3% in August. 

New Zealand’s current account swung to a NZD 921 million deficit last quarter from a NZD 90 million surplus in the first quarter of 2011.  The deficit over the year to 2Q11 equaled 3.7% of GDP. 

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

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