Recap 4-18-12

Main Items:

· MPC minutes showed an 8-1 vote for the status quo. Posen switched his vote from more QE to no change.

1. the path for inflation in the short run was likely to be higher than indicated in the most recent Inflation Report central projections. The speed at which inflation would return towards target could not be judged with any precision and there were risks on both sides

2. For one member, the balance of risks continued to warrant an expansion of the asset purchase programme this month, although the decision was finely balanced

· Warren Buffett was diagnosed with Stage I prostate cancer, is undergoing treatment. Prognosis favorable


  • UK Claimant Count Rate declined to 4.9% in March vs 5.0% and prev

Upcoming Data:

  • Thurs: US Jobless Claims, Philly Fed, Existing Home Sales, EU Cons Conf
  • Fri: German IFO, PPI, Canada CPI
  • Mon: China HSBC Flash PMI, EU PMIs, Australia CPI,
  • Tues: Swiss Trade Balance, Canada Retail Sales, US Consumer Confidence, New Home Sales


Here is a possible scenario for the BoJ: Since 1) it doesn’t believe QE will work and 2) it is under political pressure to do more QE, it may drag its feet and pledge to do incrementally more QE over time. It may hope that after sufficient time has passed, the politicians will come around to the view that additional QE is not helpful. This strategy also limits BoJ’s balance sheet growth. If this scenario plays out, we’re likely to get additional QE increases at upcoming meetings, with a diminishing effect on asset prices.

Separately, now that the BoC has turned hawkish – it’s time to start monitoring the Canadian housing market.


4 thoughts on “Recap 4-18-12

  1. Canadian housing market is already starting to show signs of weakness in the west, Alberta is the start. I believe that Carney let the housing market run in hopes that the rest of the economy will accelerate, allowing him to put the brakes on at that point…I guess we’re there.
    With no more BoJ QE will they be able to keep rates down or yen down?

    1. Interesting – how much are housing prices there driven by commodities & Asian hot money?

      With respect to Japan, that’s a good question. I can see JGB yields staying low as the BoJ announces incrementally more QE and increasing the maturity of purchases. But the absolute beta of QE size on yields probably increases exponentially. Given how short some of the Japanese insurers’ liabilities are, I find it difficult to believe that they will buy a ton of foreign assets on an unhedged basis. I think Japanese real money is just going to accept that they’re going to get even less return on their money now. They’ve had 2 decades to get used to it.

  2. It’s hard to get hard evidence on the Asian inflows, the sell side and media play it up well, like this
    The oil rush in Alberta compounded the rush into real-estate the rest of the country had been seeing, as oil projects have started to settle out now so are RE prices . North Dakota may see something similar in the future..

Comments are closed.