Eye on the Federal Reserve

September 13, 2012

Ahead of the eagerly awaited FOMC policy decision and press conference at 16:30 GMT and 18:15 GMT respectively, stocks are down, and five other central banks have announced their policy decisions.

  • The Reserve Bank of New Zealand’s Official Cash Rate was left at 2.5%, its level since March 2011.  Officials suggested a change is unlikely before the second half of 2013.  A weak global environment was noted.
  • The Bank of Korea surprised analysts by not cutting the 3.0% seven-day repo rate.  Such was the second straight monthly decision to leave the key rate as is following a reduction in July of 25 basis points.
  • Bank Indonesia’s reference interest rate remains at 5.75%, a percentage point below the level that prevailed from February through September of last year.  Officials then eased by 25 basis points last October, 50 bps in November and 25 bps to the current level in February of 2012.
  • Bangko Sentral ng Pilipinas’ overnight borrowing interest rate was kept at 3.75% as markets were expecting.
  • After a quarterly review, officials at the Swiss National Bank announced an unchanged zero to 0.25% three-month Libor rate target.  More importantly, resolute language was used to renew the policy of capping franc strength at 1.2000 per euro.  Some market players anticipated an even weaker franc target of 1.2200, which remains a future possibility nonetheless since Swiss monetary officials revised projected growth and inflation even lower.

Coming into the FOMC meeting, expectations of ease had been running wild earlier this week with talk of a third round of quantitative easing and a shift in the projected likely start of interest rate normalization getting pushed back to sometime in 2015.  Equities are down this morning on second thoughts that the Fed may not act so forcefully and instead leave some powder dry to handle any fiscal cliff surprises.

Chile’s monetary policymakers also are holding an interest rate meeting today.  No change there is expected.

Share prices fell by 0.9% in China and 0.5% in Australia but rose by 0.4% in Japan and 0.6% in the Philippines.  The tone of trading worsened in Europe, where equities are down 1.1% in Spain, 0.7% in Italy, 0.6% in France, and 0.4% in Germany.  The British Ftse is steady thus far.

Movement has been minuscule in the dollar, which has dipped by 0.2% against the yen and kiwi and 0.1% versus the euro, loonie and sterling.  The yuan is unchanged, and the Swissie has dipped 0.1% against the dollar.

Ten-year Treasury yields are indicated likely lower at the open, and sovereign debt yields slid by three basis points in Germany and a basis point in Britain.  In contrast, the JGB yield is two basis points firmer at 0.83%.  Italian auctions of 3- and 5-year debt resulted in significantly lower interest rates.  However, the financial press has been full of stories that unlimited conditional bond buying by the ECB is unlikely to make the euro irreversible.

Gold is steady at $1733.70 per ounce, while oil prices have firmed 0.3% to $97.26 per barrel.  Anti-U.S. sentiment has spread in the Middle East to Yemen where protestors have stormed Washington’s embassy.

Ruling centrist parties in the Netherlands appear to have narrowly defeated anti-EU factions on the Left in yesterday’s election, but the main VVD Liberals of Prime Minister Rutte did not secure an outright majority and will need to rely on the support of some smaller parties.

Switzerland’s PPI/import price index unexpectedly climbed 0.5% in August, cutting the on-year decline sharply to just 0.1% from 1.8% in July.  Domestic producer prices firmed 0.3% on year, whereas import prices fell by 1.0%.

Italian consumer prices rose 0.4% last month and by 3.2% over the past year.  Irish CPI inflation rose to 2.0% in August from 1.6% in July.  On-year Swedish CPI inflation held steady at 0.7% in August, with a core rate of 0.9%.  Sweden’s jobless rate of 7.8% seasonally adjusted was 0.3 percentage points higher in August than July.  Greek import price inflation accelerated a full percentage point to 3.4% in July.  Greek unemployment rose a full percentage point in the second quarter to 23.6%.  Dutch retail sales fell by 4.0% in value and 5.6% in volume terms in the year to July.

Japanese stock and bond transactions last week generated a net capital outflow of JPY 381 billion, which was 32% smaller than the net outflow in the prior week of September 1.

New Zealand’s business purchasing managers index fell further beneath the 50 no-change level to print at 47.2, a nine-month low, in August.  The reading in July was 49.4.

The MI-TD index of expected Australian inflation over the next dozen months held steady in September at 2.4% after falling from 3.3% in July.

Between 2Q11 and 2Q12, industrial production and producer prices in Hong Kong fell by 2.9% and 0.7%.

Aside from the FOMC decision, U.S. markets await release of producer prices, weekly jobless insurance claims, and the monthly federal budget.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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