Recap 2015-01-21


We got 3 dovish surprises today. First, the BoE minutes were dovish, with the 2 hawks no longer wanting to hike. Then the ECB QE program details were leaked. The details were sparse, but the worst fears no longer appear likely to be realized. Then, the BoC cut. By conventional wisdom, that should’ve driven a USD rally and a fall in global yields. Instead, the EUR rallied, EUR yields were higher, and USD yields were higher.

I said 2 weeks ago that recent trends in yields and the dollar could reverse following an announcement of the ECB decision and stabilization in oil. IMO, unless the price action reverses substantially, I will stick to that call.

Interesting: h/t @darioperkins


  • BoC cut rates to 0.75% vs 1.0% prev. Bullets from the statement:
  • The Bank’s base-case projection assumes oil prices around US$60 per barrel.
  • Business investment in the energy-producing sector will decline. Canada’s weaker terms of trade will have an adverse impact on incomes and wealth, reducing domestic demand growth.
  • the Bank is projecting real GDP growth will slow to about 1 1/2 per cent and the output gap to widen in the first half of 2015
  • The Bank expects Canada’s economy to gradually strengthen in the second half of this year, with real GDP growth averaging 2.1 per cent in 2015 and 2.4 per cent in 2016. The economy is expected to return to full capacity around the end of 2016, a little later than was expected in October.
  • BoE Minutes was surprisingly dovish, with all 9 voters voting for no change, vs 7-2 expected and previously. Falling YoY inflation seems to have been the driver.
  • UK Employment was strong. Jobless Claims fell more than expected, and the ILO Unemployment rate declined to 5.8% vs 5.9% exp and 6.0% prev
  • US Housing Starts rose to 4.4% in Dec vs 1.2% exp. However, Building Permits declined -1.9% vs +0.8% exp
  • NZ CPI declined to 0.8% YoY vs 0.9% exp and 1.0% prev
  • The BoJ cut the FY15 inflation forecast to +1% from +1.7% with expectations of a reduction to +1.1%-1.2%. The 2016 inflation projection was actually increased to +2.2% from +2.1%, resulting in a reaction of slight disappointment from the market. The yen strengthened and bonds sold off on the inflation projection. The monetary base projection for an 80 trillion increase was unchanged. They extended two loan programs aimed at encouraging banks to lend more for another year and expanded one of them by 3 trillion.
  • Obama’s State of the Union was anticlimactic as the White House had preannounced the speech’s major contents over the preceding days. The main focus was on strengthening the middle class which Obama plans to do via a variety of new tax and education initiatives (to be paid for by higher capital gains taxes and elimination of the “trust fund loophole”). The President expressed confidence in his anti-ISIS strategy and called on Congress to give him fresh authorization to combat extremists in the Middle East.


  • Wed: NZ PMI
  • Thu: US Jobless Claims, ECB, EU Consumer Confidence, DOE Oil Inventories, Japan PMI, China HSBC PMI
  • Fri: EU Mfg & Services PMI, Carney Speaks, Chicago Fed National Activity Indicator, Canada CPI, Retail Sales, US Markit Mfg PMI, Existing Home Sales
  • Mon: BoJ Minutes, German IFO, DallasFed, Australia NAB Business Confidence,
  • Tue: UK 4Q GDP, US DGO, Case Shiller HPI, New Home Sales, Consumer Confidence, Australia CPI
  • Wed: