Recap 5-21-13


Via FTAlphaville:


  • Dudley:
  1. most importantly, managing expectations is critical in the execution of monetary policy at the zero bound.
  2. Comparing actual growth to the growth projections by FOMC participants in the Summary of Economic Projections shows that we were consistently too optimistic about growth over the 2009-2012 period. As a result, with the benefit of hindsight, we did not provide enough stimulus.
  3. we might adjust the pace of purchases up or down as the labor market and inflation outlook changes in a material way. For me, the base case forecast is not the sole consideration—how confident we are about that outcome is also important.
  4. Because the outlook is uncertain, I cannot be sure which way—up or down—the next change will be. But at some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook. At that time, in my view, it will be appropriate to reduce the pace at which we are adding accommodation through asset purchases. Over the coming months, how well the economy fights its way through the significant fiscal drag currently in force will be an important aspect of this judgment.
  5. There is a risk is that market participants could overreact to any move in the process of normalization. Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month. Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation.

RBA Minutes:

  1. Domestically, the data on economic activity since the previous meeting had not materially changed the earlier staff forecasts.
  2. however, conditions in the business sector, as assessed in surveys, generally had remained below average, possibly in part because the exchange rate had remained high despite lower export prices and interest rates.
  3. Taking all the factors into consideration, the Board decided that some of the scope to ease policy should be used at this meeting.

GS Raised 2013 S&P 500 target to 1,750 from 1,625. (+5% from yesterday’s close) 2014 target of 1,900, (8.6% YoY) 2015 of 2,100. (10.5% YoY)

UK PPI and CPI came in lower, -0.2% vs -0.1% and +2.4% vs +2.6% exp respectively.

Upcoming Data:

  • Tue: UK PPI, CPI, Dudley Speaks, Japan Merchandise Trade Balance, Australia Westpac Consumer Confidence
  • Wed: BoJ, BoE Minutes, Canada Retail Sales, Bernanke, US Existing Home Sales, China HSBC Flash Mfg PMI
  • Thu: EU PMI, UK Retail Sales, GDP, US Jobless Claims, Preliminary Markit Mfg PMI