Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
Bank of Korea has done its bit to stoke the currency wars…
Although they insist that it’s not. From BAML’s Jaewoo Lee:
In the press interview, the Governor cited a few main changes since April which led the BoK to cut in May rather than in April: the supplementary budget was finalized; many central banks, including the ECB, turned to easing mode; and the easing can help further with improving sentiments. The Governor, on the other hand, stated that today’s decision was not a response to the yen weakness, contrary to the often-voiced speculation.
(Charts via Capital Economics.)
The trend is consistent with what appears to be a spring slowdown in global growth. It’s probably worth noting that the wild fluctuations in the headline rate have had only a muted impact on core inflation in the past decade. Just something to keep in mind when you start hearing calls for policy action at the first hint of commodity price gyrations. Read more
Barclays economists write that the gap between core CPI and core PCE in the United States has widened to its largest in about a decade. They have an interesting note explaining some of the reasons why, though not all of them are clear and right now this is mainly an academic issue:
Some stagnant stats out of Eurostat on Tuesday….
Euro area unemployment rate at 12.1%
EU27 at 10.9%
Here’s the damage, broken down… Read more
Thursday’s 5-year US Treasury TIPS auction was something of a noteworthy one, according to Kit Juckes at Societe Generale. Click to enlarge…
The IMF’s latest World Economic Outlook has made some very interesting observations about the changing nature and growing stability of inflation.
Most notable is the following chart:
Don’t go to Australia (but do click to enlarge the charts):
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
Cheery chap, Tim Morgan, chief economist at money broker Tullett Prebon. Here’s a few charts to warm us all up on a cold February day…
Dario Perkins at Lombard Street Research has a great little note out on Tuesday arguing why it’s absolutely wrong to assume the current bond sell-off is in any shape or form a repeat of 1994.
As he notes (our emphasis): Read more
Welcome to FT Alphaville’s extraordinarily infrequent podcast… (click through for the podcast link).
The following chart, we propose, has the potential to inspire a whole new way of looking at the gold and Treasury market:
So Glenn Stevens likes the nags after all.
Well, sort of.
For the first time since he took the helm of the RBA in 2006, the governor did not tinker with interest rates on Melbourne Cup day (a public holiday across parts of the country). Read more
From the ECB’s September update on monetary developments in the euro-area released on Thursday:
That’s euroland M3 – the broad money supply measure — coming in below expectations and dropping again to 2.7. Really brings to mind Draghi’s warning to the Bundestag that “In our assessment, the greater risk to price stability is currently falling prices in some euro area countries”, doesn’t it? Read more
Mervyn King gave a “personal assessment” of the inflation targeting regime over the past twenty years on Tuesday night. And seemed to suggest that it may be best to allow UK inflation to over-shoot the 2 per cent target given the current economic environment in order to minimise volatility. Read more
Capital Economics put out a cracker of a note on UK output this week. It’s taken us a while to get through it but we wanted to do it justice. Here’s the key extract:
‘Supply pessimists’ point to high inflation and growing employment as evidence of a small output gap. But inflation was pushed up by temporary factors and has eased recently, while domestically generated inflation has remained low.
We introduced our Rubiks QE analogy on Tuesday. This post is a continuation, in which we apply the analogy to the crisis so far.
Before we go on we should point out that the Rubik’s is a simplification, as are the concepts of “tomorrow money” and “today money”. There are and will always be areas that call for further explanation, but which we haven’t covered in this post. If they’ve been left out, it’s mostly due to post-length constraints. It’s not because we are wilfully ignoring them. Read more
Last week FT Alphaville drew attention to the fact that HSBC had joined the cohorts of the “don’t call QE money-printing” brigade. We thought this was great progress for the mainstream analyst community.
Moreover, we thought their explanation was really good. Read more
This is reassuring (or not – we can’t decide). The Global fixed income strategy team at HSBC *believe* they’ve come up with a non-consensus view on the effects of QEternity:
Our non-consensus view is that QE3 will drive US Treasury yields to new lows Read more
“Mad. Mad. Mad. Bernanke’s gone totally MAD, I tell you!”
“What’s he thinking with QEternity? It’s so inflationary. AGHH!” Read more
“The Fed will destroy the world”
As top lines go it’s pretty decent… and when you follow up with a pic of a strategist in a bath you leave us no choice but to post (we tried to resist, we really did): Read more
For all the talk of heightened inflation expectations on the back of QE3, Morgan Stanley analysts remain unconvinced.
The truth, according to them, is that central bank action is having less than its desired effect. In fact, inflation expectations have remained well behaved if not subdued. Read more
The Office for National Statistics is out to get the Retail Price Index… or at least the part of responsible for the ‘formula effect gap’. But before we get to the sexy stuff — involving gilts and clauses and all — a quick statistical primer is called for.
The RPI began life as a compensation index, developed as an aid to protect ordinary British workers from price increases associated with WWI. It didn’t become the main domestic measure of inflation until much later. Read more
US 10-year Tips breakeven rates are surging, and talk of a revival in inflation expectations is, understandably, doing the rounds.
But we’re not entirely convinced that it is that simple. Read more
Earlier this week Paul Krugman went out of his way to point out that if China stopped buying US bonds, it wouldn’t be the end of the world.
We wanted to come back to some of his points, because well, we think they are pretty good. Read more
A couple of charts from Barclays economists showing the relative contribution of food to headline and core CPI:
Oh yay, Chinese consumer price inflation for July came in at a nicely subdued looking 1.8 per cent. And industrial production growth continued to slow. Q2 wasn’t the bottom after all. More easing ahoy! Right?
Not so fast… Read more