A member of the bank of England’s monetary policy committee has gone ‘on record’ as stating that the BoE is not necessarily wedded to a policy of quantitative easing. Ben Broadbent is dismissive of the belief that the MPC has been biding time until it completes the current round of asset purchases before launching the next round of QE in February;
If we had wanted to vote for more QE, as measured by the stock, and that is how we tend to understand its effects, then I would have done that in October and, indeed, the committee could have done it again in November or December. In October I voted for £75 bn of QE because I thought £75 was right. It is clear that the [UK] economy is broadly flat and therefore growing less than its potential rate.
If someone had said we can do it in two weeks, or someone had said we can do it in six months, it wouldn’t have had any bearing on what I voted for. We are dealing in coarse, rather than fine-tuning, because it is probably, at the margin, harder to say what the impact of any policy change in the instrument [QE] is, because we are less familiar with the instrument.
The troika of EU, IMF and ECB officials return to Athens in order to discuss the terms of a second bailout, whilst talks between the Greek government and bondholders continue. The troika gave Ireland a favourable progress report yesterday, having stuck to its austerity package it will be in receipt it’s next bailout tranche.
Greece needs to finalise a deal with bondholders in order to secure its next tranche of bailout money before €14.5bn of bonds fall due in March, the two sides appeared to be inching closer to a deal last night. Perhaps the news that bondholders may not be insured in the event of a default is concentrating the mind..
A large chunk of the bond swap must be agreed by noon today and formalised before Monday’s meeting of eurozone finance ministers. Greek finance minister Evangelos Venizelos said after Thursday’s round of talks in Athens with Charles Dallara, head of the Institute of International Finance representing bondholders;
The atmosphere was good, progress was made and we will continue tomorrow afternoon. Now is the crucial moment in the final battle for the debt swap and the crucial moment in the final and definitive battle for the new bailout. Now, now! Now is the time to negotiate for the sake of the country.
The International Monetary Fund’s latest forecasts have been leaked ahead of official publication next week. The IMF has slashed its global growth forecast for this year, blaming the eurozone debt crisis. The eurozone as a whole will shrink by 0.5% this year, compared with the IMF’s last forecast of 1.1% growth in September.
It predicts that the world economy will grow by 3.3% versus the 4% predicted previously. Italy to shrink by 2.2% and Spain’s by 1.7%, austerity measures and weak bank lending will plunge the countries into a two years of recession.
The IMF states, (according to a leaked draft of its World Economic Outlook);
The global recovery is threatened by the growing tensions in the euro area. The most immediate political challenge is to re-establish confidence and put an end to the euro area crisis, supporting growth.
European equities dropped from a five month high whilst the euro weakened as talks between Greek officials and private creditors entered a third day. U.S. index futures have retreated and natural gas fell for a 10th day. The Stoxx Europe 600 Index lost 0.4 percent at 9:00 a.m. in London, Standard & Poor’s 500 Index futures slipped 0.3 percent. Natural gas fell 0.3 percent, the longest losing streak since August 2009. The euro depreciated 0.3 percent to $1.2930, while the Dollar Index added 0.3 percent to 80.29.
The euro was little changed at 99.87 yen, while the dollar climbed 0.2 percent to 88.24 yen. The Swedish krona weakened 0.6 percent to 6.7889 per dollar, snapping a four-day gain. The dollar advanced versus all but one of 16 major peers tracked by Bloomberg.
Natural gas fell as much as 1.7 percent to $2.283 per million British thermal units, the lowest price for a most- active contract since February 2002. Copper dropped 0.6 percent to $8,317 a metric ton and oil in New York declined 0.6 percent to $99.82 a barrel.
Market snapshot at 10:00 am GMT (UK time)
Asian/Pacific markets enjoyed a very positive session capping a very good weak and start to the year. The Nikkei closed up 1.47%, the Hang Seng closed up 0.84%, the CSI closed up 1.45%. The ASX 200 closed up 0.59%. European bourses indices have fallen back from their recent five month high, the STOXX 50 is down 0.45%, the FTSE is down 0.23%, the CAC is down 0.43% and the DAX is down 0.5%. ICE Brent crude is down $0.58 per barrel, Comex gold is down $6.70 per ounce. The SPX equity index future is down 0.31%.
Economic calendar data releases to be mindful of in the afternoon session
15:00 US – Existing Home Sales December
This reports sales of previously owned homes in the US. The headline figure is the total value of properties sold. Analysts surveyed by Bloomberg predict a month-on-month figure of +5.20%. The previous reading showed a month-on-month rise of +4.00%.