The UK’s inflation figures were the surprise statistic of the day on Tuesday, and coming in below expectation caused a quick calculation (by many in the analyst community) that the BoE MPC would not be raising interest rates any time soon, causing an immediate sell off in Sterling.
Moreover the news was recognised as ‘good’ news in as much as consumers are supposedly paying less for the items they consume; until you dig a bit deeper in the ONS figures and quickly realise that the inflation calculation doesn’t include food, energy costs or housing costs…
So those basics by which we all need to live; shelter, food and warmth, don’t figure in the data. “Go figure” as our USA cousins might say. Oh and with inflation for consumers running at 2.7% but wage inflation rising at only 0.7% that gap isn’t closing any time soon as the UK quickly accelerates into a low paid, zero hours contract nirvana for exploitative global corporations.
The Conference Board Leading Economic Index for the U.K.
The Conference Board Leading Economic Index for the U.K. increased 1.5 percent in September, after increasing 1.2 percent in August and 0.7 percent in July. Six of the seven components made positive contributions to the index this month. The index now stands at 107.0 (2004=100). “The improvements in the Leading Economic Index for the U.K. point towards continued economic growth in the months ahead,” says Bert Colijn, economist with The Conference Board. “The strength of the increase was widespread with contributions from the order book volume and consumer confidence”.
World economy being sustained by extraordinary aid
An article appeared ‘on the wires’ from AP.org that is one of the few in the mainstream media to question the wisdom of the orchestrated monetary easing being conducted by many of the globe’s central banks and leading governments. From the USA to Europe, Japan and China, high finance is awash with cheap cash which has caused global equity prices to balloon at unprecedented record levels. How the CBs extricate themselves from this addiction is one of the most intriguing challenges modern day economies have faced.
Five years after a global financial crisis erupted, the world’s biggest economies still need to be propped up. They’re growing and hiring a little faster and creating more jobs, but only with extraordinary aid from central banks or government spending. And economists say major countries may need help for years more. From the United States to Europe to Japan, central banks are pumping cash into economies and keeping loan rates near record lows. Even fast-growing China has rebounded from an uncharacteristic slump with the help of government money that’s poured into projects and made loans easily available.
Kocherlakota: A Time of Testing
Fed member Kocherlakota gave a speech on Tuesday, it was more of the same from a Fed talking head desperate to conserve the USA status quo…
[quote]”Thank you for that generous introduction, and thank you for the opportunity to join you here today. I would also like to thank those of you who met with me earlier this morning for a discussion about business prospects and the choices that many of you are facing. As I often note, those types of discussions are important in helping to frame my understanding of the state of the economy. As you will hear in a moment, expectations are key to monetary policymaking, and understanding what informs the expectations of those who must make hiring and pricing decisions is very useful.”[/quote]
RBNZ focuses on maintaining sound financial system
New Zealand’s financial system remains sound, Reserve Bank Governor Graeme Wheeler said on Tuesday, when releasing the Bank’s November 2013 Financial Stability Report.
[quote]“Banks are well capitalised and have strengthened their funding base, while non-performing loans continue to decline. Nevertheless, there are risks to the financial system and the Reserve Bank has taken steps to address these. The main threat to the financial system is the risk associated with imbalances in the housing market”.[/quote]
Market overview
The DJIA index fell by 0.21%, SPX by 0.24% and the NASDAQ was flat. European indices sold off in the afternoon session having opened in positive territory; STOXX closed down 0.59%, CAC down 0.71%, DAX by 0.34% and UK FTSE by 0.02%.
Equity index futures
Looking towards the opening sessions on Wednesday the DJIA future is down 0.07%, SPX down 0.14% and the NASDAQ up 0.31%. European indices look weak; STOXX down 0.59%, DAX down 0.37%, CAC down 0.60% and UK FTSE down 0.14%.
Commodities
NYMEX WTI oil closed the day down 2.18% at $93.07 per barrel. NYMEX nat gas was up 2.01% on the day at $3.65 per therm. COMEX gold closed the day down 1.09% at $1267.20 per ounce with silver down 2.69% at $20.71 per ounce.
Forex focus
The dollar rose 0.5 percent to 99.64 yen late in New York after advancing to 99.80 yen, the strongest level since Sept. 13th. It last touched 100 yen on Sept. 11th. The U.S. currency fell 0.2 percent to $1.3436 per euro. The yen weakened 0.7 percent to 133.87 per euro. The dollar strengthened to a two-month high versus yen as signs the world’s largest economy is gathering momentum boosted the appeal of the U.S. currency.
New Zealand’s currency extended losses as the central bank said a fall in home-building approvals and a drop in attendance at open homes are evidence that the limits on low-deposit lending are starting to affect the housing market. The kiwi fell for a fourth day, dropping 0.4 percent to 82.21 U.S. cents after declining as much as 1 percent. It touched 81.69, the weakest level since Sept. 17th.
Australia’s dollar fell for a fourth day as a sentiment gauge among businesses dropped to 5 in October from 2 the prior month, National Australia Bank Ltd. said. A measure of business conditions was unchanged at minus 4. The Aussie dropped 0.6 percent to 93.02 U.S. cents after sliding to 92.69 cents, the lowest level since Sept. 16th.
Sterling dropped 0.5 percent to $1.5905 after falling to $1.5855, the lowest level since Sept. 13th. Sterling slid 0.8 percent to 84.48 pence per euro. The pound fell for a third day versus the dollar and euro as the National Statistics Office said annual consumer-price inflation slowed to 2.2 percent last month from 2.7 percent in September, less than the 2.5 percent rate predicted. The Bank of England publishes new economic forecasts in its quarterly Inflation Report today.
The U.S. Dollar Index, which monitors the greenback against 10 major counterparts, rose 0.1 percent to 1,022.05 after reaching 1,025.01, the highest since Sept. 13th. Benchmark 10-year yields climbed three basis points, or 0.03 percentage point, to 2.77 percent after reaching 2.79 percent. Similar maturity Japanese government bonds yielded 0.59 percent.
Fundamental policy decisions and high impact news events that could affect market sentiment on November 13th
European markets take centre stage on Wednesday, the UK’s claimant count data is published, with the rate of unemployment scheduled to fall to 7.6% of the workforce. Industrial production for Europe is scheduled to fall by 0.2%. Later the BoE governor Carney delivers the bank’s quarterly inflation report. Later on the German Bundesbank president Weidmann speaks and despite the German central bank not being in control of its money supply, or interest rate setting, the bank is still amongst the most respected banking institutions globally.
The USA federal budget balance is scheduled to deliver what many may consider a rogue outlier number, predictions suggest a figure of -$103 billion will be published when last months’ figure was a positive $73 billion.
Later on in the late evening trading session we receive New Zealand’s retail sales figures expected in at 0.9%. Thereafter Japan’s preliminary GDP figure is expected to print at 0.4%. The Fed chairman Ben Bernanke gives a speech, whilst China reveals its percentage rise in foreign firms’ investments and finally Japan delivers its revised industrial prod ruins figures expected in at 1.5% up month on month.
