The Global Weekly – 12/20/13

Posted December 20, 2013 by rvillareal

Confident BOJ

Both the U.S. Fed and the Bank of Japan upgraded their economic assessments last week.  For the Fed the conclusion was straightforward, with a few small wording changes describing improvements sufficient to push the perceived balance of risks from being tilted to the downside towards near-balance.  That shift finally justified the “tapering” which much of the FOMC group had been itching to make.[private]

The Bank of Japan, meanwhile, is not anywhere near to tapering, with uncertainty about achievement of its inflation target still huge, and third-quarter GDP results a bit troubling.  Its communications are as much about promoting confidence that will keep the economy, and inflation, on track as they are about making the case for policy adjustment.

The English version of the BOJ’s statement differed from the November text in some striking respects.  One was the appearance of a new sentence proclaiming that “Improvement in business sentiment has continued and become widespread.”  More important were two alterations to the “outlook” section, one a new assertion that the economy will stay on a “moderate recovery” trend, even as it is lifted, then dropped, by a pulling-forward of purchases to beat the April 1 consumption tax, and the other a somewhat cryptic change in the inflation text shifting the outlook for the year-on-year CPI increase from “likely to rise gradually” to “likely to rise for the time being.”

• U.S.: Key indicators of the next two weeks focus on the consumer, manufacturing, and the housing market—all sectors where solid further progress is important to a strengthening GDP trend.
• Eurozone:  Perhaps the most important set of data in the coming two weeks will be the November Money Supply and Credit data released by the ECB on Jan 3, especially after the October update provided some additional hint that lending weakness has eased, albeit still mainly in regard to mortgages.
• UK: Markets are still digesting the policy implication of the further and more sizeable drop in the jobless rate.  Regardless, the combination of rising hours and employment means that Labor Productivity may have weakened afresh, something that Q3 data (due next Tuesday) may corroborate.
• Japan:  The main round of November economic indicators arrives on Friday, including CPI results, the labor force survey, industrial production, retail sales, and housing starts.
• Emerging Markets/Regions:  In China, the only item worth mentioning is industrial profits for November, which should maintain the low double-digits pace of previous months..  In India, the 8-industry index arrives.  A rebound is likely from the (calendar-distorted) October figure.  In Korea, discount and department store sales are due. There is no indication of a better performance, but the series are increasingly at odds with broader indicators suggesting stronger consumer spending.  In Mexico, mid-month inflation (which captures most of the CPI’s monthly price movements), is likely to show annual inflation below the 4% central bank ceiling.

gmw_1220[/private]