Janet Yellen’s Day

October 9, 2013

Press reports emerged overnight that President Obama will announce today his nomination of Fed Vice-Chairperson Yellen to succeed Chairman Bernanke, whose term expires at the end of January 2014.  Yellen has extensive training as an economist and experience in the Federal Reserve System.  While she has an image in market circles for being dovish because of her support for quantitative easing lately, a review of her long cares casts her in a more eclectic and situational light.

Speeches yesterday by Plosser and Pianalto of the Fed underscored the diversity of opinions on the FOMC.  Both of them were predisposed to start tapering last month.

Obama’s announcement will be made at 19:00 GMT (15:00 EDT), one hour after minutes of the mid-September FOMC meeting that did not taper are released.

Meanwhile, no change has been reported in the polarized U.S. debt talks.  Opinion polls show overwhelming and increasing disapproval of the Republican stance.

Minutes from the early-September Bank of Japan Board meeting contained no surprises.  Members anticipate continuing moderate recovery, gradually increasing inflation, and support from the existing monetary policy stance for those trends.  Deputy Governor Nakaso gave an address overnight that was consistent with the minutes but that also indicated flexibility to unveil even more monetary stimulus should the economic outlook darken.

New IMF growth forecasts have been published.  The forecast for global GDP expansion this year was revised to 2.9% from 3.2% because of a 0.5 percentage point downward revision in growth among emerging and developing economies.  The IMF sees GDP in 2014 rising 3.6%, down from a forecast made in July of 3.8%.

The dollar advanced overnight by 0.8% against sterling, 0.7% versus the Swiss franc, 0.4% relative to the euro and yen and 0.1% vis-a-vis the loonie.  The yuan is unchanged, and the Australian and New Zealand dollars have gained 0.4% and 0.3% against the U.S. currency.

Share prices recovered 1.3% in India, 1.0% in Japan, 0.6% in Indonesia, 0.5% in China, 0.4% in South Korea, and 0.3% in Singapore, but equity losses were recorded in Hong Kong and New Zealand of 0.6%.  Stocks also fell 0.4% in Taiwan.  In Europe, the British Ftse is unchanged in reaction to weak industrial production data, but stocks have climbed by 1.1% in Madrid, 1.0% in Milan, 0.5% in Paris and 0.2% in Frankfurt.

The ten-year British gilt yield dropped three basis points, while the 10-year Japanese JGB and German bund yields firmed a basis point.

British industrial production sank 1.1% in August, defying expectations of a moderate increase.  Factory output declined 1.2%, and industrial production was 1.5% lower than in August 2012.  Production in July had edged up just 0.1%.

The price of gold settled back 1.1% to $1309.70 per ounce.  If the U.S. were to default later this month, one would think gold would likely shoot way higher.  WTI oil is 0.1% firmer at $103.56 per barrel.

Britain’s trade deficit in goods as well as services was similar in August (GBP 3.32 billion) to July’s level (GBP 3.44 billion).  A services surplus of GBP 6.3 billion in the latest reported month was more than offset by a GBP 9.63 billion deficit in the merchandise trade deficit.  The British Retail Consortium reported a 0.2% on-year decline in shop prices during September.  That was the tiniest drop since June.

German industrial production jumped 1.4% in August, more than reversing a 1.1% drop in July and eking out a 0.3% 12-month rate of increase.  Dutch industrial production was 2.3% lower than in August 2012. 

Czech CPI inflation edged down to 1.0% in September from 1.3% in August.  Denmark recorded a DKK 15.39 billion current account surplus in August, somewhat over 25% wider than in July. Portugal’s trade deficit of EUR 2.4 billion in August was 7.6% wider than in July.  Greek consumer prices fell by 1.1% in the year to September. 

Consumer confidence in Australia sank 2.1% in October, their first decline since May.  House prices in New Zealand were 8.4% higher last month than in September 2012.

Japanese machine tool orders fell unexpectedly from a year earlier in September.  The overall drop of 6.3% was spearheaded by a 23.4% plunge in export demand.

India’s trade deficit of $6.76 billion in September was 38% narrower than in August and at a 30-month low. 

Government-reported U.S. economic data continue to get delayed.  Wholesale inventories had been scheduled for release today.  Mortgage applications rose 1.3% last week, and the 30-year fixed mortgage rate of 4.42% was 7 basis points lower than the week before. 

Brazil’s monetary policy committee, Copom, is expected to boost its Selic rate today probably by a half percentage point. ECB President Draghi speaks tonight.

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

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