Recap 11-05-13


GS: The most senior Fed staff economists for monetary policy analysis and domestic macroeconomics, William English and David Wilcox, have published separate studies that imply a strong case for a reduction in the 6.5% unemployment threshold for the first funds rate hike. We have proposed such a move for some time, but have been unsure whether it would in fact happen. And while the uncertainty around near-term Fed policy remains very considerable, our baseline view is now that the FOMC will reduce its 6.5% threshold to 6% at the March 2014 FOMC meeting, alongside the first tapering of QE. A move as early as the December 2013 meeting is possible, and if so, this might also increase the probability of an earlier tapering of QE.

Separately, this is a good read:


  • RBA kept policy unchanged as expected:
  1. Further ahead, private demand outside the mining sector is expected to increase at a faster pace, though considerable uncertainty surrounds this outlook. There has been an improvement in indicators of household and business sentiment recently, but it is still too soon to judge how persistent this will be.
  2. Recent data on prices show inflation consistent with the medium-term target. The Bank’s assessment is that this is likely to remain the case over the next one to two years.
  3. The easing in monetary policy that has already occurred since late 2011 has supported interest-sensitive spending and asset values. The full effects of these decisions are still coming through, and will be for a while yet. The pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households. There is also continuing evidence of a shift in savers’ behaviour in response to declining returns on low-risk assets. Housing and equity markets have strengthened further, trends which should in time be supportive of investment.
  4. The Australian dollar, while below its level earlier in the year, is still uncomfortably high. A lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy.

ISM Non-Mfg rose to 55.4 vs 54 exp and 54.4 prev

China Services PMI rose to 52.6 vs 52.4 prev

UK PMI Services jumped to 62.5 vs 60 exp, and 60.3 prev and the highest print since the series started in 2006.

Upcoming Data:

  • Wed: EU Service PMI, CanadaBuilding Permits, AU Employment
  • Thu: BoE, ECB, US Jobless Claims, Dudley Speaks
  • Fri: China Trade Balance, Canada Housing Starts, Employment, US Employment, UMichigan Confidence, Bernanke Speaks