All Eyes on the FOMC

June 18, 2013

Whether, when, and by how much to taper quantitative stimulus is the question of the day, as the FOMC meets on the first day of a 2-day meeting.  Creating even more uncertainty, President Obama while attending the G8 summit indicated that Chairman Bernanke had not originally planned to stay in that post as long as he already has done.  Bernanke leads the dovish faction of Fed officials that is responsible for the ultra-accommodative policy.

Today’s weakest major currency is the Australian dollar, hit by Reserve Bank of Australia dovish minutes that predicted further depreciation and identified a benign inflation outlook and possible scope to cut the 2.75% official cash rate even further in the future.  The greenback gain 1.1% against Australia’s currency overnight.

European Central Bank Pdt Draghi made some dovish remarks of his own about the availability of non-standard measures as well as the key interest rates to stimulate if such should prove necessary.

The lower house of the Swiss parliament rejected a bill that would have created greater sharing of bank deposit data with U.S. authorities.

Asian share prices closed mixed.  Stocks rose 2.8% in the Philippines, 1.4% in Indonesia, 0.9% in South Korea, 0.6% in China and 0.3% in New Zealand but down by 3.0% in Thailand, 0.5% in India  and 0.2% in Japan and Australia.  In Europe, equities are up 0.7% in Britain and Spain and by 0.5% in Italy, but the German Dax and Paris Cac are unchanged.

The dollar advanced 1.1% against the Aussie dollar, 0.9% relative to the yen, 0.6% versus sterling, 0.1% against the yuan, and 0.4% relative to the kiwi but has fallen 0.3% against the Swiss franc and 0.1% vis-a-vis the euro and loonie. 

The 10-year British gilt yield is six basis points higher after more elevated-than-forecast price data.  The 10-year Japanese JGB and British gilt yields edged a basis point higher.

In the U.K.,

  • CPI inflation accelerated to 2.7% last month from 2.4% in April.  The 2.0% target has been exceeded since December 2009. 
  • Core CPI inflation rose 0.4% on month and by a larger 2.2% from May 2012 after a 2.0% on-year pace in April.
  • Retail price and RPIX inflation each climbed to 3.1% from 2.9% in April.
  • Producer output price inflation increased by 0.3 percentage points to 1.2% in May.
  • The 12-month change in producer input prices swung from minus 0.1% in April to +2.2% in May.
  • House prices according to the ONS measure increased 0.4% on month and 2.6% on year in April.  This matched expectations.
  • These data diminish chances for expanded Bank of England asset buying even further.

The ZEW Institute released its indices of investor sentiment regarding Germany and the euro area.  The German expectations index rose 2.1 points to 38.5 in June, signaling optimism about strengthening activity later this year but still a slow rate of recovery.  The current conditions component ticked 0.3 points lower to a reading of 8.6.  The Ezone expectations index increased to a three-month high of 30.6 from 27.6 in May.  The Ezone current conditions measure went even more deeply below zero, dropping to minus 79.5 from -76.8 in May.

EU car sales fell 5.9% on year to a 20-year low in May.  Icelandic harmonized consumer price inflation slowed to 3.3% in April from 4.0%.

China had some unsettling data to report.  The Conference Boards index of leading economic indicators rose just 0.3%, a fifth as much in May as such had risen in April.  Foreign direct investment (+0.3% on year) also rose by less in May than April.  But house price inflation accelerated significantly to 6.0% from 4.9%, giving monetary officials further reason to be stingy about lending economic support.

South Korean producer prices fell 0.4% on month in May and by 2.6% from a year earlier.  Japanese machine tool orders in May were unrevised, showing an on-year decline of 7.4%.  Hong Kong’s 3.4% jobless rate in May was 0.1 percentage point less than expected and less than the April level.

Japanese industrial production growth in April got revised down sharply to 0.9% from 1.7% reported initially.  The 12-month rate of decline was revised from a drop of 2.3% to one of 3.4%.  April’s output level, nonetheless, exceeded the average 1Q level by 1.3%.  Industrial shipments also were revised lower, and the revised inventory ratio now shows a monthly plunge of 5.1%. 

While investors await tomorrow’s FOMC statement and press conference by Chairman Bernanke, U.S. data releases today feature consumer prices, housing starts, building permits, and weekly chain store sales.  The G8 summit in Northern Ireland concludes today.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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