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Main News Daily
Update
The Bank of
England MPC yesterday left interest rates on hold at 0.5% and halted its
asset purchases at £200bn. The outcome was in line with market expectations, but
we expect it may have be a close vote, something which the minutes in a
fortnight’s time will reveal. Indeed, the pound and market interest rates
rose after the announcement, suggesting that there was a degree of
uncertainty ahead of the decision. Importantly, the MPC has not ruled out
further quantitative easing, should economic conditions warrant it. The Bank
of England is likely to maintain its loose monetary stance this year, as
credit conditions are likely to remain restrictive, while the need to strengthen
public and private sector finances will weigh on spending. The UK Producer
Price Index is expected to add 3.7% in the year to January, marking the fifth
consecutive increase in the annual pace of wholesale inflation. Core producer
prices – a metric that filters out volatile items like oil and food
– is set to print unchanged from the previous month at 2.6%. The spread
between headline and core PPI readings has been widening since November,
hinting that the recent gains are likely linked to the boost from higher
energy prices that continue to work their way into the overall economy.
Indeed, companies seek to insulate themselves from market risk by locking in
energy prices for some time, meaning there is typically a delay between
movements in crude and their reflection in PPI.
The ECB press
conference did not really provide any new info on the ECB’s views on
growth and inflation, nor did we get any new information on the exit
strategy. Trichet emphasized that in the euro-area you have ex-ante help, and
conditionality is also ex-ante. He did not give any promise on ex-post help.
He did however emphasise that the euro area is not overburdened and he
brought attention to the euro area average budget deficit at 6 % of GDP,
which could be seen as a cryptic way of saying that in the end Greece
will not be left on its own. On Greece Trichet also noted that he is
confident that Greece
will do what is needed to reach the goals they have set themselves. He
emphasised that expenditure reform is important. Trichet could have given
more support to Greece
at this meeting, but it was pretty much as expected. Thus not much market
impact. Next month Governing Council meeting will disclose relevant
information regarding future ECB actions, as the Bank will present its new
inflation and growth projections for 2010 and 2011. Moreover in March the ECB
will take further decisions regarding the implementation of the gradual
phasing-out of non standard measures. German Industrial Production is set to
fall -3.7% in the year to December, marking the smallest decline in 14 months
as year-on-year comparisons continue to reflect the boost to overseas demand
for German manufactured goods from global fiscal stimulus efforts. Output is
expected to gain 0.6% from the previous month, a narrowly lower reading than
the 0.7% registered in November. A vote on a regional financing bill in Portugal
might prove to be a wildcard: the country’s finance minister has
already sounded off against the measure fearing that taking on additional
debt would further shake market confidence in southern Euro Zone
economies’ ability to trim their deficits. Rising credit risk played an
important part in sending the Euro lower yesterday and more of the same could
be ahead if Portugal’s
funding measure is passed.
The US
labour market will receive a temporary boost this spring when the US Census
Bureau hires more than 1 million temporary workers for its 2010 census
headcount. Every 10 years, US Census counts all residents in the United States
as required by the US Constitution. One key use of the collected information
is to determine the number of seats in the House of Representatives allocated
to each state. The results will be used in the 2012 presidential elections..
The National Census date, which is the deadline for sending in the
questionnaire, is the 1 April 2010 but the Census Bureau will start hiring
workers before that. With a total of around 1.2 million temporary employees
the Census could give a lift to the real economy. Danske assess how large
that boost really is. cDisposable income and hence consumption is minor.
Nevertheless, a continued underlying improvement in employment should keep
private consumption growth positive through 2010 Ahead today, the main focus
will be on the official US
employment report. The market median forecast is for a small monthly rise in
nonfarm payrolls of around 20k. However, the range of forecasts varies widely
from -100k to +100k, underlining forecast uncertainty. Anecdotal is mixed,
with the ISM surveys indicating a good jobs report and the initial jobless
claims data pointing to a less positive one. An econometric model (see chart)
based on jobless claims, ISM employment balances and the ADP employment
report suggests that officials payrolls could come in slightly negative. A
more positive report could see the jobless rate fall below 10%.
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Daily report was
brought to you by
Ashley Ingle
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20 Copperfields Centre, Spital Street, Dartford, Kent, DA1
2DE
Tel: +44 (0) 1322 22 11 21 Free Fax: 0800 048 8805 Int. Fax: +44 (0) 1322 22 11 30
ashley.ingle@excelcurrencies.com
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