Awaiting News from the Bank of Japan and FOMC

September 20, 2016

Monetary policymakers in Japan and the United States are holding two-day meetings on Tuesday and Wednesday. The BOJ decision will hit the wires around 04:00 GMT tomorrow. The FOMC statement is scheduled for 18:00 GMT on Wednesday. Neither meeting’s outcome is obvious. The BOJ is conducting an atypical full assessment of its policy stance, considering both the overall mission and both the upside and the downside of employing negative interest rates and massive quantitative stimulus. One possibility is that fresh actions will be taken to steepen the yield curve, a reverse twist if you will, while keeping policy highly stimulative. Regarding the Fed, it seems that markets are not adequately discounting the possibility of a second fed funds rate hike at this time. Odds are put at just one in five despite progress since the last meeting toward a tightening labor market and higher inflation. Post-meeting press conferences are planned by both BOJ Governor Kuroda and Fed Chair Yellen.

Not much else is happening from a news perspective.

It took less than two days for the New York City bombing suspect, Ahmad Khan Rahami to be caught in New Jersey.

Minutes from the Reserve Bank of Australia’s Board meeting earlier this month, which kept a 1.5% Official Cash Rate, suggest no imminent change in that level. Investment remains sluggish. Inflation is subdued, and strains in the housing market have diminished. A separate data release today showed home price inflation slowing to 4.1% on year in the second quarter of 2016 from 6.8% in 1Q16 and 9.8% in the second quarter of 2015. Australia’s index of coincident economic indicators edged up just 0.1% in July according to the Conference Board after holding flat in June.

German producer prices edged 0.1% lower in August, but the 12-month decline of 1.6% was down from an on-year drop of 2.0% in July and merely half as much as a 3.1% slide during the year to April 2016. In August, energy fell 0.4% on month, but all other producer prices collectively held steady.

The dollar is mixed. Compared to Monday closing levels, it is unchanged against the euro, yuan and yen, up 0.5% relative to sterling and 0.2% vis-a-vis the loonie but down 0.7% against the kiwi, 0.2% versus the Swiss franc and 0.1% against the Australian dollar.

In the Pacific Rim, share prices dropped 0.4% in India and Indonesia, 0.2% in Japan, and 0.1% in China but up 0.6% in New Zealand, 0.5% in South Korea and 0.2% in Australia. European equities are 0.6% higher in Germany, Switzerland and the U.K. but down 0.6% in Italy and 0.1% in Spain.

West Texas Intermediate crude oil had risen on Monday but is trading 0.7% lower at $43.01 per barrel so far today. Comex gold is flat at $1,317.78 per ounce.

Ten-year German bund and Japanese JGB yields have moved two basis points lower, and the 10-year British gilt yield is down three basis points.

South Africa’s index of leading economic indicators in July reversed a 1.1% advance posted the month before.

New economic forecasts for Switzerland published by its government project real GDP growing 1.5% in 2016 followed by 1.8% in 2017. CPI inflation is projected at negative 0.4% this year and positive 0.3% in 2017.

Dutch consumer sentiment jumped six points to a 10-month high of +10 in September. Consumer spending growth from a year earlier accelerated to 2.2% in July.

Statistics on U.S. housing starts and building permits will be released later today.

Once markets have a chance to react to the BOJ and FOMC decisions, attention will presumably switch to next Monday’s first U.S. presidential debate. The scared mood of the rest of the world watching the U.S. election is summarized in an FT Op-Ed column yesterday by Edward Luce, who concludes, “The U.S. could be about to elect a proudly ignorant xenophobe. …Mrs Clinton has allowed Mr Trump to turn this election into a nail-biter. …momentum is shifting toward him. Everything now hinges on Mrs Clinton’s past ability to find her best fighting self when her back is against the wall.”

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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