Bank of England Grabs Some Attention while Investors Await FOMC Decision

September 18, 2013

At 18:00 GMT, the FOMC will release new projections and reveal its decision on tapering asset purchases.  Chairman Bernanke’s press conference begins at 18:30 GMT (14:15 EDT).  Analysts have scaled back forecasts of the QE reduction to $10 billion per month, but market whisper numbers of a cut of just $5 billion have lately circulated.

The Bank of England’s policymakers are now less inclined to augment monetary stimulus according to the September 3-4 MPC meeting minutes.  9-0 unanimous votes were cast both on retaining a 0.5% Bank Rate and a GBP 375 billion asset purchase program ceiling.  None of the committee members felt a hike in quantitative easing would be appropriate, and an upside risk, not identified a month earlier, was attached to the baseline growth forecast. 

  • Sterling in response to the minutes climbed as high as $1.5982, strongest since mid-January.  The pound is now 0.4% higher versus the dollar.
  • The 10-year British gilt yield leaped seven basis points to 3.01%.
  • The British Ftse is trading 0.2% higher, less than current gains in other European bourses (Paris 0.5%, Madrid 0.7%, Frankfurt 0.5%, and Milan 0.6%).

The dollar has dipped 0.2% against the yen, is unchanged versus the euro, Aussie dollar and yuan, and shows marginal gains of 0.1% against the loonie and kiwi as well as 0.1% versus the Swiss franc.

In Pacific Rim stock markets, more closed with a loss than a gain.  While Japan’s Nikkei rose 1.4% (strengthened by indications that the Abe cabinet is more predisposed to cutting corporate taxes), equities dropped 1.2% in Indonesia, 0.4% in South Korea, 0.5% in Taiwan and 0.3% in Hong Kong and Australia.  Stocks firmed 0.8% in India, 0.4% in Singapore and 0.2% in China and 0.1% in New Zealand. 

The 10-year Japanese JGB yield edged a basis point higher, while its German counterpart remains unchanged.

The price of WTI crude oil rose 0.7% to $106.19 per barrel.  Gold fell by 0.6% to $1301.90 per ounce.

New Zealand recorded a larger-than-expected NZD 2.157 billion seasonally adjusted current account deficit in the second quarter of 2013, up from NZD 2.157 billion in 1Q but less than the NZD 2.618 billion shortfall a year earlier.  Drought conditions depressed dairy exports.  The deficit over the year between 2Q12 and 2Q13 was NZD 9.099 billion, equal to 4.3% of GDP.  That down from the NZD 9.512 billion gap between 1Q12 and 1Q13 but larger than the deficit of NZD 8.916 billion in the year to 2Q12.

China’s housing market appears to be reviving.  Property prices rose in August by 0.8% on month and 8.3% on year, a 3-year high.  They were higher in August than July in 66 of 70 surveyed cities.

Two gauges of Australia’s index of leading economic indicators were reported.  The Westpac LEI advanced 0.6% in July after no change in June.  The Conference Board reported a 0.3% increase of its Australian LEI index in July after a 1.1% drop in June.  The index of coincident indicators declined 0.2% in July after having also declined 1.1%  in June.

Malaysian CPI inflation dipped from 2.0% in the year to July to 1.9% last month.  South African CPI inflation edged up a tenth percentage point to 6.4% in August.

In the euro area, construction output rose 0.3% in July and was 1.2% greater than the 2Q average but 1.2% lower than in July 2012.

The July French index of leading economic indicators advanced 0.3% in July according to the Conference Board, which also estimated a 0.1% downtick in the index of coincident economic indicators in July.

Greece posted a EUR 2.727 billion current account surplus in July, much wider than in the prior month or in July 2012.  A deficit of EUR 156 million was recorded over the first seven months of 2013 compared to a gap of EUR 6.4 billion a year earlier.

The ZEW expectations index for Switzerland, a gauge of investor sentiment there, improved to a reading of 16.3 in September from 7.2 in August.  Portuguese producer prices were unchanged last month and 0.1% lower than in August 2012.

The U.S. mortgage bankers association reports an 11.2% rebound in mortgage applications for the week of September 13 versus a 13.5% slump to a 5-year low in the previous week.  The 30-year fixed mortgage rate slipped from a 2013 peak of 4.80% to 4.75% in the latest week.  U.S. housing starts and building permits plus weekly data on oil inventories will be released later today, but the main event is the FOMC decision and Bernanke’s press conference.

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

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