The afternoon session in New York and London on Monday was both light on volatility and high impact news events. Canada’s annualised housing starts at approx. 195,000 units came in as analysts expected, thereafter a deputy governor of the Canadian central bank issued a decree that the banks aim was to keep inflation at circa two percent and their fiscal and monetary policy will be adjusted to reach those targets. There appeared to be a complicit suggestion that the bank will not corrupt its money supply by way of easing.
The USA federal bank of San Francisco published a fascinating publication on Monday regarding the ZIRP policy the bank has pursued for some years. In this publication they went to some length to explain the policy, but reached no definitive conclusion.
[quote]U.S. Treasury yields and other interest rates increased in the months leading up to the Federal Reserve’s December 2013 decision to cut back its large-scale bond purchases. This increase in rates probably at least partly reflected changes in what bond investors expected regarding future monetary policy. Recent research on this episode tentatively suggests that investors moved earlier the date when they believed the Fed would exit its zero interest rate policy, even though Fed policymakers made few changes in their projections of appropriate monetary policy.[/quote]
The New York fed released data concerning consumers’ expectations on, for example, wages and what thoughts consumers have over finding a new job should they suddenly find themselves unemployed. Consumers expect wages to increase by 2.4% and expect to be out of the jobs market for 3 months should they find themselves suddenly unemployed. These expectations are somewhat out of step with the current reality of the length of time USA citizens find themselves out of the jobs market and the sales increases they’re receiving.
When Will the Fed End Its Zero Rate Policy?
The severe shock of the 2007–08 financial crisis prompted the Federal Reserve to quickly lower its target for its primary policy rate, the overnight federal funds rate, near to zero, where it has remained since. Despite this highly stimulatory stance of conventional monetary policy, the economic recovery has been sluggish and inflation has been low. For that reason, the Federal Open Market Committee (FOMC), the Fed’s policy body, has provided additional monetary stimulus by using unconventional measures to push down longer-term interest rates.
New York Fed Survey Shows Consumers Expect Rise in Wages, Lower Inflation
The Federal Reserve Bank of New York today released results from its monthly Survey of Consumer Expectations (SCE) which contains insight into Americans’ views on inflation, prices, the labour market and household finance. January results show that consumer expectations for inflation fell slightly. Earnings growth expectations over the next 12 months rose from 1.8 percent to 2.4 percent, with income and spending growth expectations increasing slightly as well. Additionally, the mean probability of finding a job in three months, if one were to lose their current job today, increased to levels seen last summer.
Murray: Bank of Canada: Promoting Canada’s Economic and Financial Well-Being
The Bank of Canada’s mandate is to contribute to the economic and financial well-being of Canadians We do this by: aiming to keep inflation low, stable, and predictable promoting a stable and efficient financial system supplying secure, quality bank notes providing banking services to the federal government and key financial system players In each of these four core areas, we follow the same consistent approach: a clear objective accountability and transparency a longer-term perspective Our objective: To foster confidence in the value of money by keeping inflation at or near the 2 per cent.
January 2014 Housing Starts in Canada
Housing starts in Canada were trending at 191,456 units in January compared to 194,518 in December, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. “The trend in housing starts decreased slightly in January, while the inventory of newly completed and unabsorbed units saw a modest downward trend in the last half of 2013.
Market overview at 10:30 PM UK time
The DJIA closed up 0.05%, the SPX up 0.16% and the NASDAQ up 0.54%. Euro STOXX closed down 0.20%, CAC up 0.21%, DAX down 0.13% and the UK FTSE up 0.30%. The DJIA equity index future is currently (at the time of writing 10:30 PM UK time February 10th) flat, SPX future is up 0.07%, NASDAQ future up 0.55%. Euro STOXX future is down 0.23%, DAX down 0.13%, CAC up 0.19%, UK FTSE up 0.29%.
NYMEX WTI finished the day up 0.12% at $100 a barrel, nat gas on NYMEX down 3.52% at $4.71 per therm. Gold on COMEX closed the day at $1274.70 up 0.70%, COMEX silver closed up by 0.60% on the day at $20.06 per ounce.
Forex focus
The yen was little changed at 102.26 per dollar after sliding to 102.64, the weakest level since Jan. 31st. Japan’s currency was little changed at 139.54 per euro after dropping 1.6 percent during the previous two days. The euro added 0.1 percent to $1.3646. The yen has appreciated 4.1 percent this year, after sliding 17 percent in 2013, according to Bloomberg Correlation-Weighted Indexes that tracks the 10 developed-nation currencies. The euro has dropped 0.1 percent since Dec. 31st, while the dollar has gained by 0.7 percent. The Aussie has weakened 0.1 percent to 89.49 U.S. cents after appreciating to 89.99 cents on Feb. 7th, the strongest level since Jan. 14th.
The pound was little changed at $1.6423 late London time after rising 0.6 percent in the previous two days. It climbed to $1.6428 earlier, the strongest since Feb. 3rd. The U.K. currency was at 83.09 pence per euro. The pound reached the strongest in a week against the dollar before an industry report tomorrow that economists said will show retail sales increased in January, adding to evidence the recovery is gaining momentum.
Bonds briefing
The benchmark UK 10-year gilt yield rose one basis point, or 0.01 percentage point, to 2.72 percent after dropping to 2.64 percent on Feb. 5th, the lowest since Nov. 5th. The price of the 2.25 percent bond due in September 2023 dropped 0.06, or 60 pence per 1,000-pound face amount, to 96.065. Gilts have returned 2.2 percent this year through to Feb. 7th according to Bloomberg’s World Bond Indexes. Treasuries have gained 1.7 percent and German securities rose 2 percent.
The U.S. 10-year yield declined two basis points, or 0.02 percentage point, to 2.67 percent at 5 p.m. in New York. It traded between 2.66 percent and 2.69 percent, the narrowest since Jan. 7th. The yield touched a three-month (USGG3M) low of 2.57 percent on Feb. 3rd after reaching 3.05 percent on Jan. 2nd the highest level since July 2011. The price of the 2.75 percent note due in November 2023 gained 1/8, or $1.25 per $1,000 face amount, to 100 22/32. Treasury 10-year note yields traded in the narrowest range in a month amid speculation whether Federal Reserve Chairman Janet Yellen will acknowledge that the recovery in the U.S. labour market is slowing.
Fundamental policy decisions and high impact news events for February 11th
Tuesday Japan has a bank holiday all day therefore yen and Nikkei index trades and performance will be affected. The UK’s BRC will publish its retail sales monitor figure, expected in at 0.4%, similar to the previous month.
Australia’s business confidence is published, expected in at 6, similar to the previous month’s data. House price inflation for Australia is expected to come in at 3.1%+, with home loans, month on month, up 0.9%. China’s trade balance is predicted to come in tentatively at 24.2 billion for the month. With new Chinese loans up by a similar amount to the previous month of 483 billion.
Attention shifts to North America as the USA NFIB number is published, expected in at 93.6. The FOMC member Plosser will speak, then the new chair-person Janet Yellen will accept her nomination by way of her first testimony. Jolts job openings in the USA should come in at circa 4 million, with wholesale inventories at 0.5%. Finally, for North America, Canada’s annual budget release will be published.
Australia’s Westpac consumer sentiment will be published, expected in at an improvement versus the previous -1.7% last month. Japan’s core machinery data is published, expected in at -3.7% down, whilst tertiary industrial activity is expected in at -0.2% down.
