Recap 1-23-13


BoC’s dovish stance today was a bit of a surprise, sending USDCAD higher. I think the BoC is basically trying to match the Fed’s policy of tolerating slightly higher inflation for a while, in order the keep the exchange rate in check. Carney said today that the BoC now anticipates growth of 1.9% in 2012, 2.0% in 2013, and 2.7% in 2014. In October, these figures were 2.2%, 2.3% and 2.4%, respectively. In other words, growth was downgraded by 0.3% a year through 2013, and up by 0.3% in 2014 – fairly small adjustments. Yet in October, the BoC anticipated that the output gap would be closed by the end of 2013, whereas now, it expects that to happen in the second half of 2014, more than 2 quarters later. The other possibility is that Carney is buying some time for his successor to get some credibility before hiking. Carney has spent a good amount of time discussing guidance, which requires that market participants are comfortable with policy statements. By pushing the forecast hike date toward the future, Carney’s successor will have some extra time to build credibility.


  • House of Representatives passed a bill to suspend the debt limit until May 19th and also to require both houses of Congress to pass FY14 budgets by April 15th with the threat of withheld paychecks. Both Reid and Obama have indicated that they will sign the bill.
  • BoC was much more dovish than expected:
  1. In Canada, the slowdown in the second half of 2012 was more pronounced than the Bank had anticipated, owing to weaker business investment and exports.
  2. The Bank now expects the economy to reach full capacity in the second half of 2014, later than anticipated in the October MPR.
  3. The more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated.

Australia CPI rose to 2.2% YoY vs 2.4% exp and 2.0% prev

UK Jobless Claims dropped to -12.1k in Dec vs 0.5k exp and -3k prev.

UK PM Cameron pledged that if he is still PM after the May 2015 election, he will seek to renegotiate certain aspects of the UK’s relationship with the EU, and hold an in/out referendum in the first half of parliament by the end of 2017.

Upcoming Data:

  • Thu: EU PMI, US Jobless Claims, Markit PMI, BoJ Minutes
  • Fri: ECB LTRO Announcement, German IFO, CanadaCPI, US New Home Sales,
  • Mon: US DGO, Pending Home Sales, South Korea Business Survey
  • Tue: US Home Price Index, Consumer Confidence,
  • Wed: EU Consumer Confidence, US ADP Employment, FOMC
  • Thu: ECB LTRO payment begins