RBA minutes suggest a pause in the hiking cycle at the December meeting
MAJOR HEADLINES – PREVIOUS SESSION
- CA Sep. Manufacturing Sales out at +1.4% m/m vs. +1.7% expected and revised -1.8% prior
- US Oct. Advance Retail Sales out at +1.4% vs. +0.9% expected and revised -2.3% prior
- US Oct. Retail Sales ex-Autos out at +0.2% vs. +0.4% expected and revised +0.4% prior
- US Nov. Empire Manufacturing out at 23.51 vs. 33.0 expected and 34.57 prior
- US Sep. Business Inventories out at -0.4% vs. -0.7% expected and revised -1.6% prior
- JP Q3 Housing Loans out at 0.8% vs. 0.4% prior
- JP Sep. Tertiary Industry Index out at -0.5% vs. +0.2% expected and +0.3% prior
- SI Oct. Non-oil Domestic Exports out at -6.1% y/y vs. +0.2% expected and revised -7.3% prior
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- ECB’s Mersch & Quaden to speak (0800)
- Swiss Retail Sales (0815)
- UK CPI (0930)
- UK Retail Price Index (0930)
- UK BOE’s Bailey to speak (0930)
- EU Euro-zone Trade Balance (1000)
- US Fed’s Yellen to speak (1030)
- US PPI (1330)
- US Net Long-term TIC flows (1400)
- US Industrial Production (1415)
- US Capacity Utilization (1415)
- EU ECB’s Stark to speak (1430)
- US Fed’s Lacker to speak (1515)
- EU ECB’s Trichet to speak (1700)
Fed Chairman Bernanke’s speech on the US economic outlook upset the apple cart of a broader risk rally yesterday as his speech contained specific references to the dollar for the first time since 2008. He commented that the Fed was “attentive to changes in the value of the dollar” and added that Fed policy will be formulated to guard against risks to the dual mandate of price stability and maximum employment. The market reaction was a nervous kneejerk higher for the dollar though this was short-lived after he reiterated that rates would be kept low for an extended period.
Yesterday’s data was nothing to shout about, although the headline retail sales numbers suggested retailers may face a better outlook heading into the Christmas period. However, the headlines masked a disappointing report with a hefty negative revision to the previous month’s data and the ex-autos number falling below forecasts. The Empire state manufacturing Index also failed to match expectations (but nevertheless came in at its highest level in 2 years).
With President Obama half way through his historic visit to China one might expect a flood of headlines on discussions, comments and rhetoric. However, it appears all the talking was done at the weekend with both China and Japan warning that US policies were fueling another potential asset crisis in Emerging Asia. Today’s meeting with China Pres. Hu did not produce any market-moving headlines. This morning’s headlines were dominated by news of the financial Memorandum of Understanding and Economic Cooperative Framework Arrangement between Taiwan and China which is an initial door-opening for Taiwan banks to tap into China’s massive market and for banks from both sides to cross-invest.
In stark contrast to Japan and China’s concerns about exceptionally low US rates fueling speculative asset bubbles, the Fed’s Kohn views current asset prices in US markets as not out of line with economic and business prospects. He said one purpose of ultra-low rates was to induce investors to shift into riskier and long-term assets and hence lower the cost and increase the availability of capital to households and businesses. He viewed monetary policy as a blunt instrument in addressing asset bubbles and was of the opinion that when bubbles become extreme then they will be easily spotted, though warned that sometimes we may see more than are actually there.
The release of the minutes of the RBA meeting for November had nothing new for the markets to digest but looked to confirm that a December pause in the hiking cycle may be on the cards as it mentioned that the pace of future hikes remained an open question. The minutes highlighted the improvement in both global and local economic conditions but acknowledged that there were balanced risks to the outlook for the economy. It also noted that the rise in the AUD might constrain output and dampen inflationary pressures. The AUD had an initial kneejerk jump, but only 10-15 points, before marginally lower yields capped the rally. The chances of a 25bp rate hike at the December meeting fell to just below 50/50 but markets are still pricing in 150bp worth of hikes in one year’s time.
The prospect of a second extra budget in Japan is looking more likely, according to comments from Deputy PM Kan. He noted that cabinet members were concerned about heading into a deflationary situation with the Q3 growth numbers yesterday masking a slide in prices of goods and services that would threaten the corporate profit rebound and hence derail the economic rebound. There was no mention of the size of the spending plan but extensions to subsidies on energy efficient cars and electronics (the measures which largely contributed to Q3’s growth) were being considered. Earlier FinMin Fujii had warned that an increase in bond sales in the next fiscal year would be a “big problem” and reaffirmed his aim to keep new issuances below a total ¥44 tln.
Asia was again hesitant to take risk appetite to new highs and, without any particular new event to drive, most equity markets slid into the red and the dollar staged a mild rebound. However, this is still viewed as a temporary phenomenon and it looks likely that Europe will resume the dollar bear trend. On the data front, we see UK CPI and retail prices and Euro-zone trade balance in Europe while the US session features US PPI, TIC flows, industrial production and capacity utilization.
No comments:
Post a Comment