Friday February 15, 2013 - 16:21:00 GMT
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ECONOMIC DATA ANALYSIS - MINUTES MAINTAIN MONETARY POLICY FOCUS
ECONOMIC DATA ANALYSIS FRIDAY 15 FEBRUARY 2013
MINUTES MAINTAIN MONETARY POLICY FOCUS
• Fed and BoJ minutes less contentious in context of recent ‘currency wars’ debate
• MPC minutes to document reaction to the prolonged inflation overshoot projection
• Euro area surveys important guide for outlook, after disappointing Q4 GDP
Monetary policy or currency manipulation? ... The run up to the G20 meeting has illustrated how delicately poised the global outlook is. Support has been voiced for measures to boost global aggregate demand (and hence supportive monetary policy). But concerns raised if that translates into outright ‘beggar-thy-neighbour’ currency management. The coming week will focus on the monetary policy aspects of this debate in Japan, the US and UK.
BoJ to focus less on yen ... Japan, the main focus of the latest phase of ‘currency wars’, sees BOJ minutes published in the coming week. Yet these predate the latest meeting, which saw no further policy easing and a less downbeat economic outlook, given the yen’s decline and the upcoming fiscal stimulus. Commentary on the yen is likely to have softened given the continuing sell-off in the trade-weighted value of the currency since last summer, but market reaction is likely to be muted given the historic nature of the comments.
Fed ’s domestic considerations include asset prices? ... By comparison, while the Federal Reserve has undertaken significant further monetary easing over the past few weeks, its focus has been unswervingly on the domestic economy and has not mentioned the exchange rate. The latest FOMC minutes are unlikely to see a significant change in view. The Federal Reserve's stance on monetary policy has been effectively communicated and its open-ended asset purchases remain underway. We will be interested to see if any other FOMC member is leaning towards George’s dissent, although we think this unlikely. Yet we will watch for any debate on the appropriate monetary response to accelerating asset prices.
MPC discussion on more persistent inflation ...February's MPC minutes will be interesting after this week's Inflation Report. The higher inflation projections, specifically nudging back the point when inflation is forecast to return to target, has seen a marked reaction, not least in gilt markets, where gilts underperformed German Bunds by 6bps on Wednesday. The minutes will document how uniform the Committee’s reaction was to this. Specifically we will watch for debate about the associated risks to inflation expectations. The explicit acknowledgement of what arguably has been its policy all along is a shift for the MPC that may have wider ramifications. For now though we look for the Committee’s policy prescription to be uniform, expecting David Miles to drop his call for further modest easing.
Labour market still firm? ... The UK also posts labour market statistics and public finances. The latter look set to post a modest improvement (£1bn) on the previous year, but would still suggest that the OBR's December forecast for 2012-13 is too optimistic. Labour market figures will probably continue to point to firmer employment growth than activity would suggest. But we forecast this difference to narrow, which we think will form the start of a gentle unwinding of sluggish productivity growth across 2013.
Euro area growth to concern markets? ... The euro area sees an important week after the disappointing 0.6% decline in Q4 GDP. Most of February’s business confidence indices are due in the coming week, including 'flash' PMIs and key German IfO and ZEW surveys. All have improved in recent months. The former suggests that the monetary easing following the ECB's OMT announcement may be easing the contraction in peripheral economies. The latter may also reflect a more upbeat global economy. Outside Germany, February's releases may retrace. We forecast euro area Q1 GDP closer to flat, but still falling, and our outlook for 2013 is for stagnation (-0.3%). Soft surveys this week may test markets’ more recent euro optimism and raise expectations of a rate cutfrom the ECB.
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