Recap 2-18-14


Is there still some juice in periphery debt? Here are a few interesting charts from a Blackrock presentation last week.

Periphery spread to EU Industrials @ ~50bps and falling

They also note the potential for a 1trn (!) rotation:


  • The Bank of Japan refrained from further policy easing in the wake of a soft Q4 GDP data, keeping its economic assessment unchanged for the 6th month and also reiterating its outlook on inflation and domestic economy. BOJ did boost its "Stimulating Bank Lending Facility" and the "Growth-Supporting Funding Facility" programs from ¥3.5T to ¥7.0T and also expanded the term of application to 4 years from 1-3 present. The lending facility was set to expire in March. Kuroda stated in the press conference that the expansion of the facility was aimed to intensify the transmission effects of the QQE by giving banks incentives to provide more loans to firms and individuals, implying that today’s decision was not additional easing.
  • RBA Minutes:
  1. Members commenced their discussion of the domestic economy by focusing on the higher-than-expected reading for consumer price inflation in the December quarter.
  2. The inflation forecasts had been revised higher, reflecting a combination of the lower exchange rate and the higher-than-expected December quarter CPI outcome, slightly offset by a softer outlook for wages growth. Underlying inflation was expected to be around 3 per cent over the year to mid 2014 and was then expected to decline towards 2.5 per cent.
  3. For the domestic economy, growth of activity looked to have been a bit below trend over the second half of 2013. Members recognized that conditions in the labour market tended to lag economic growth, and that the labour market had remained weak following the period of below-trend growth in activity.
  4. There had been further signs in recent months that policy was having its intended effects. The exchange rate had also depreciated further since the December meeting. If sustained, a lower exchange rate would be expansionary for economic activity and assist in achieving balanced growth of the economy.

UK CPI declined to 1.9% vs 2.0% exp and prev

German Zew dropped to 55.7 vs 1.5 exp and 61.7 prev

US Empire Mfg dropped to 4.5 vs 8.5 exp and 12.5 prev

NAHB dropped sharply to 46 vs 56 exp and prev. This was the biggest decline on record. According to the NAHB, this softness was driven in part by “unusually severe weather conditions across much of the nation.”

The PBOC drained $8bn in liquidity through reverse repos. JPM thinks the central bank will continue down the path of credit tapering for the foreseeable future.

Upcoming Data:

  • Wed: BoE Minutes, UK Employment, US Housing Starts, PPI, FOMC Minutes, China Flash Mfg PMI
  • Thu: EU PMI, US CPI, Jobless Claims, Markit PMI, Philly Fed, EU Consumer Confidence, BoJ January Minutes,
  • Fri: UK Retail Sales, CA Retail Sales, CPI, US Existing Home Sales
  • Mon: German IFO, EU CPI,
  • Tue: Italy Consumer Confidence, US Consumer Confidence, Case-Shiller House Prices