The Global Markets Weekly – 2/22/13

Posted February 25, 2013 by rvillareal

Internal Disagreement

The week brought two instances of unusually visible, and globally significant, disagreement within national economic-policy institutions.  One was at the U.S. Fed, with FOMC Minutes revealing unexpectedly broad doubts among participants as to the prudence of continued heavy asset purchases.  The other was in Japan’s government, with Prime Minister Abe making reference to the potential for the BOJ to buy foreign-currency bonds, while Finance Minister Aso ruled it out.[private]

At the Fed, there is little chance that policy will change without some new cause, since the decision-making Committee of voters—in contrast to the full group of meeting “participants”—is solidly in the hands of “doves” favoring current policy, including Chairman Bernanke.  But, “hawks,” who have concerns about the policy, have shown themselves influential enough to have their arguments laid out in detail, to have the Fed staff formally directed to study the issue, and, starting with a report in March, perhaps to have a regular review process.

In Japan, FM Aso, who has been a voice of relative caution about extreme policies, seems to have won the debate, at least for now, with PM Abe noting, late in the week, that his earlier comment had been hypothetical.  Any quick shift to BOJ foreign-currency bond buying would be read as a poke in the eye of the G20, which had essentially sanctioned even extreme domestically oriented policy steps, while ruling out “competitive devaluation” and “(targeting) our exchange rates for competitive purposes.”  Longer run, however, all possibilities remain on the table, and DE sees such purchases as likely.

• U.S.: The most eagerly anticipated events of the week are surely Chairman Bernanke’s “Humphrey Hawkins” testimonies (Tue and Wed).  On the data front, the February ISM Survey (Fri) stands out.
• Eurozone: A comprehensive set of survey data arrives (Wed) in the February EU Commission Business and Consumer Survey figures.  These may be more upbeat than the recent flash PMI numbers.   Italian election results (Mon) have the ability to disappoint markets.
• UK: Clear focus on the testimony of four MPC members to a parliamentary committee (Tue) as markets assess the extent to which the BoE is willing to tolerate sustained high and above target inflation. The coming week may also see positive activity signals that corroborate the economic firming that DE envisages is occurring.
• Japan: The week brings the major run of January indicators, allowing the first relatively comprehensive check on developing first-quarter growth.  .
• Emerging Markets/Regions:  In China, both the official Federation of Logistics and the private HSBC PMI are due.  In India Q4 real GDP is on the calendar. DE expects growth in the neighborhood of 5% (5.3% Y/Y), confirming preliminary evidence that point to a bottoming.  In Brazil, Q4 real GDP also appears. DE expects a rebound to the neighborhood of 2.4% Y/Y, from 1% Y/Y in the third quarter.

gmw_022213[/private]