A hectic seven days for global markets just got even busier.
Via Reuters:
Bank of Japan Governor Masaaki Shirakawa said on Thursday the timing of the Federal Reserve’s policy meeting was not behind the BOJ’s decision to bring forward its own meeting to Nov. 4-5 from later in the month.
Shirakawa also told a news conference that expanding the bank’s 5 trillion yen ($61 billion) asset-buying plan was a strong policy option if there were big changes in its economic and price outlook.
Needless to say the market isn’t buying the Shirakawa denial. But whatever the reason for bringing the meeting forward, the fact is that it puts BoJ in position to counter any move by the Federal Reserve, says Greg Gibbs of RBS.
Japan moved its next policy meeting forward to the days after the FOMC. Governor Shirakawa claims this is just to bring forward discussion on how it may implement its plan to purchase REIT and ETFs. However, many wonder if it wants to be in a position to counter the Fed’s move in a possible tit for tat QE.
Given how cautiously the BoJ has proceeded down its QE path, this would be an aggressive step by its standards. Perhaps the BoJ is getting more desperate to match the Fed’s QE to halt the JPY’s advance. On the other hand, this just may be just another opportunity for the BoJ to disappoint expectations.
Along with the BoJ meeting next week also brings the US mid-term elections, the FOMC QE2 decision as well as policy meetings at the Bank of England and the ECB.
But before all that, the US Commerce Department will reveal this afternoon just how fast the US economy grew in third quarter.
The consensus forecast, according to Bloomberg, is for 2 per cent growth.
The U.S. economy probably grew at a faster pace in the third quarter as consumer spending climbed, a sign the expansion is developing staying power, economists said before a report today.
Gross domestic product rose at a 2 percent annual pace, up from a 1.7 percent rate in the prior three months, according to the median estimate of 83 economists surveyed by Bloomberg News.
The rate of growth is short of what’s needed to cut a jobless rate stuck near 10 percent, a concern that may lead Federal Reserve policy makers next week to pump more money into the world’s largest economy
Of course most strategists think it will prompt the Fed to print more money. For example Deutsche Bank’s Jim Reid:
(emphasis ours)
Today brings us to the start of a hectic and blockbuster 7 days for markets. We start the ‘mega-week’ with Q3 US GDP. Our strategists have highlighted that this recovery is notably weak in nominal terms relative to virtually all post-WWII equivalents. They think that nominal GDP is far more important in this cycle than real GDP and the Fed is seemingly starting to agree. With overall US economy debt/GDP at absurdly high levels, the economy is shock prone for as long as such a system is run. A low level of nominal GDP growth only erodes the burden very slowly leaving us exposed even if real GDP is running at broadly normal post recovery levels.
Until the debt/GDP returns back to more sustainable/normal levels, the pressure will be on the authorities to effective print money to ease the potentially destabilising deleveraging process. They therefore hold the view that QE will be with us for many years.
As for the mid term elections, RBS reckons the result will place the burden of providing further support for the US economy squarely on the shoulders of Fed chairman Ben Bernanke.
Our baseline assumption is that the Republicans gain control of the House of Representatives but that the Democrats retain control of the Senate by a narrow margin. We think the near-term economic impact of this change will be surprisingly limited in part because the legislative process has already been in near gridlock since the Democrats lost their 60-vote majority in the Senate.
Continued gridlock places the burden of providing further support to the economy mainly on monetary policy. Unless the economy accelerates more rapidly, ZIRP could persist for a long time and the case for extended QE2 is strengthened. Gridlock means that it will be more difficult to take extraordinary measures to recapitalize the financial system, should they be needed. This fattens the downside tail of the economy’s distribution of outcomes.
And the elections won’t make any impact on the federal deficit.
The election outcome will not do much to change our forecasts for the budget, either on the spending or tax side of the ledger. We expect no major new fiscal stimulus and the Bush tax cuts to be made permanent. The 2011 deficit will be on the order of USD 1.25 trillion. Even if the Republicans gain both houses of Congress, they will not be able to take a meat axe to the federal government, UK-style.
How depressing.
Related link:
Blast off – UK GDP rocket – FT Alphaville