Recap 9-17-13


The FOMC tomorrow has already gotten a ton of press, so I just want to put things in perspective. At this juncture, the Fed is reacting to its perception of economic conditions and asset prices. To the extent that they both continue improving, the tightening process will continue. Tomorrow’s meeting is a step in that process, so the actual size of the taper is really not *that* important in the grand scheme of things.

One thing that IS interesting today is that net portfolio flows into the US turned positive again in July for the first time since January.

Finally, the market consensus seems to be for another RBA cut this year. Commentary on the RBA’s very neutral statement appeared to make many broker desks to conclude that the RBA was simply waiting for another weak data print before cutting again. That may be true, but it’s worth nothing that the level of Australian rates now look rich vs model outputs. The consensus view for rates globally has shifted bearish, but Australia has not yet seen that shift. This certainly doesn’t preclude another RBA cut down the road, but positioning, valuation, and momentum appear to favor a bearish view on AU rates products for now. The new highs in AUDUSD is also supportive.


  • RBA Minutes
  1. The decision to reduce the cash rate at the August meeting, where the Board had judged that the outlook for inflation provided the scope to ease monetary policy further, brought the total reduction in the cash rate since late 2011 to 225 basis points. Lending rates had declined to historically low levels as a result, which, together with the lower – though still high – exchange rate, were continuing to provide a substantial degree of policy stimulus to the economy. This was most evident in the housing market, with the lags in the effect of policy meaning that earlier actions were still likely to take some time to have their full effect on demand more generally. These conditions would, over time, help the economy negotiate the prospective downshift in resources investment via a switch to other sources of demand. Some further decline in the exchange rate would be helpful in achieving such an outcome.
  2. Given the substantial degree of policy stimulus in place, the Board judged that it was appropriate to retain the current setting of interest rates. Members agreed that the Bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them. The Board would continue to examine the data over the months ahead to assess whether monetary policy was appropriately configured.

UK CPI declined to 2.7% vs 2.8% prev. The Core measure was stable at 2.0% vs 2.1% exp.

German Zew jumped to 49.6 vs 45 exp and 42 prev. This is the highest print since August 2010.

US Core CPI rose to 1.8% vs 1.7% prev

US NAHB Survey declined to 58 as exp vs 59 prev

TIC flows rose 31.1bn in July vs -15bn exp and -67bn prev. This was the first positive print since January.

EU Countries increased their Debt to GDP forecasts for 2013. France up by 1%, Italy up by 3% to 132.2%. Spain said its budget deficit stood at 5.3% of GDP through July, which puts it at risk of missing its target.

EU Car registrations hit the lowest level since 1990.

Foreign direct investment into China increased 0.6% y/y in August, well below 12.5% expected.

China power demand in Aug 2013 increased by 13.7% Y/Y (compared with +8.8% in July) to 510bn Kwh, further improving from Jul / Jun levels (+8.8% / +6.3% Y/Y).

Upcoming Data:

  • Wed: BoE Minutes, Housing Starts, FOMC, Japan Trade Balance
  • Thu: UK Retail Sales, Initial Jobless Claims, Philly Fed, Existing Home Sales
  • Fri: RBI, Canada CPI
  • Mon: China Markit Flash Mfg PMI, EU PMI, Chicago Fed National Activity Index, Market US Preliminary PMI
  • Tue: German IFO, Canada Retail Sales, US Home Price Index, US Consumer Confidence