Recap 2014-12-17




  • FOMC was somewhat dovish. The ‘considerable time’ language was kept, though ‘patience’ language was added. It also added that it “continues to monitor inflation developments closely.”
  • Yellen:
  1. the committee is mindful of the recent declines in market-based measures of inflation compensation. At this point the committee views these movements as likely to prove transitory, and survey-based measures of longer term inflation expectations have remained stable. That said, developments in this area obviously bear close watching.
  2. the committee considers it unlikely to begin the normalization process for at least the next couple of meetings.
  3. longer dated expectations, well, I would say that we refer to this in the statement as inflation compensation rather than inflation expectations… The gap between the nominal yields on 10-year treasuries, for example, and tips have declined, that’s inflation compensation and five year, five year forwards as you’ve said have also declined, that could reflect a change in inflation expectations, but it could also reflect changes in assessment of inflation risks, the risk premium that’s necessary to compensate for inflation that might especially have fallen if the probability is attached to very high inflation have come down, and it can also reflect liquidity effects in markets and, for example, it’s sometimes the case that when there is a flight to safety, that that flight tends to be concentrated in nominal treasuries and could also serve to compress that spread. So I think the jury is out about exactly how to interpret that downward move in inflation compensation, and we indicated that we are monitoring inflation developments carefully.


  1. Median Funds rate for end 2015 declined to 1.125% vs 1.375% prev
  2. Median Funds rate for end 2016 declined to 2.5% vs 2.875% prev
  3. Median Funds rate for end 2017 declined to 3.625% vs 3.75% prev
  4. 2015 UER declined to 5.25% vs 5.5% prev
  5. 2016 Core PCE roughly stable at 1.85%

UK Unemployment was stable at 6.0% vs 5.9% exp. Average Weekly Earnings rose to 1.4% vs 1.2% exp and 1.0% prev

US CPI declined to 1.3% vs 1.4% exp and 1.7% prev. The Core measure ticked down to 1.7% vs 1.8% prev

U.S. officials believe Moscow could be on the verge of insolvency, and the plunge in crude oil prices over the past month, they said, could push Moscow into a balance-of-payments crisis. “Their system seems to be freezing up”. US officials are convinced that Putin may not be getting sound economic advice. WSJ

If the oil price were to stay close to $60 a barrel, then Euro area HICP inflation would be -0.2%oya in the first quarter of next year. JPM

Coeure: "Large consensus" for further action. In an interview with French newspaper L’Opinion, ECB Executive Board Member Benoit Coeure reported that a "large consensus" existed on the Governing Council for further easing and that additional measures were being discussed. Appearing to hint at a broader set of possible actions, Mr. Coeure described the market and journalistic "fascination" with QE as "a bit naïve".

The Samaras government prob. won’t garner enough support in the first round of voting (which occurs today) but the odds of success in the next two are higher than they were last week. Informal estimates suggest that the government might be able to garner between 160 and 165 votes Wednesday (it will need 180 by 12/29). WSJ

Greece – political instability will only have limited financial effects according to Reuters given that ~90% of all Greek debt is now held by official creditors. Meanwhile, no one is talking about another round of restructuring. "I don’t believe for one minute that Greece could provoke another ‘mega crisis’," one EU official involved in economic policy-making during the debt crisis said. "Whatever happens there is now primarily a concern for euro zone treasuries, not for private investors." Reuters

China’s holdings of U.S. Treasuries fell to a 20-month low in October, as yuan appreciation indicated less of an impetus to buy the government securities. China held $1.25 trillion in U.S. debt as of October, a $13.6 billion drop from September.


  • Wed: NZ GDP
  • Thu: German IFO, US Jobless Claims, Markit Services PMI, Philly Fed, NZ Business Confidence, UK GfK Consumer Confidence
  • Fri: German GfK Consumer Confidence, Canada CPI, Retail Sales
  • Mon: US Existing Home Sales, EU Consumer Confidence, NZ Trade Balance
  • Tue: CanadaGDP, US Durable Goods Orders, New Home Sales, Core PCE
  • Wed: US Jobless Claims,