The Bank of England has upgraded its economic growth forecast and said that inflation should fall faster than had previously been predicted.

In his last inflation report as the Bank’s governor, Sir Mervyn King said inflation should drop to its target of 2% within two years.

In February, the Bank forecast that inflation would only fall to 2.3% in the same period.

Inflation has been above the 2% target since December 2009.

“Today’s projections are for growth to be a little stronger and inflation a little weaker than we expected three months ago, ” Sir Mervyn said. >> Read More

Today we get some excellent, high-quality economic data that will give us a nice look at the state of the US economy.

 • At 8:30 AM, the NY Fed Empire Manufacturing Survey for May will be released. The consensus is for a reading of 3.75, up from 3.05 in April (above zero is expansion).

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for April. The consensus is for a 0.2% decrease in Industrial Production in March, and for Capacity Utilization to decrease to 78.3%.

• At 10:00 AM, The May NAHB homebuilder survey. The consensus is for a reading of 43, up from 42 in April. This index has decreased recently with some builders complaining about higher costs nd lack of buildable land. Any number below 50 still indicates that more builders view sales conditions as poor than good.

The homebuilder survey at 10:00 AM will be particularly interesting. It’s a good gauge of the housing market (which is generally seen as being in a nice upswing lately), and yet this number has been stalling out lately.

The US told Japan it would be watching for any sign of currency manipulation.

• Said Japan had “growth issues”
• And attempts to stimulate its economy needed to stay within the bounds of agreement to avoid competitive devaluations

“I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that,” Lew told the CNBC business news channel.

Doesn’t seem to be of much of significance. Sounds to me like Lew was commenting for the benefit of his domestic audience. Japan is well aware of the scrutiny it is under. U.S. sends Japan currency warning as G7 meets

Interestingly, though, Lew did seem to specify which eye he would be using

The Cabinet Office released corrections Tuesday for nominal gross domestic product and other figures for the three months to December due to miscalculations of nominal trade data.

The office said the economy in nominal terms, prior to adjustment for inflation, contracted 0.1 percent in the final quarter of 2012 compared with the July-September period, correcting the previously announced figure of a 0.3 percent contraction.

The annualized contraction of GDP, the total value of goods and services produced domestically, was also corrected from a nominal 1.3 percent to 0.5 percent, the office said.

The office started checking the data after being informed by an economist of the possibility of a mistake.

Exports, first announced as having declined 0.3 percent from the previous quarter, were actually down 1.7 percent, while imports were up 0.5 percent rather than 3.0 percent.

The GDP deflator, a wider gauge of inflation than the consumer price index, was also found to have fallen 0.2 percent, not 0.4 percent, the office said.

And there it is folks. The age of austerity is over.

 In an interview given on Sunday, French Finance Minister Pierre Moscovici said: “Austerity is over, but we remain serious,” according to Reuters.

The “we remain serious” part seems to refer to the country’s dedication to hit deficit targets. But those targets have been loosened, Moscovici obviously believes that Europe has reached an end of budget cutting for the sake of budget cutting.

There’s been an incredible collapse in the last month of the pro-austerity movement.

The UK has been rebuked by IMF officials. Reinhart and Rogoff have imploded publicly. Niall Ferguson stuck his foot in his mouth equating Keynes’s economic philosophy with his sexual orientation. Bill Gross has blasted the UK. The new Italian Prime Minister has said austerity is over.

The whole facade of trying to stimulate the economy (or even reduce debts) by cutting spending is collapsing.

There is no reason to consider issuing a sovereign bond in global markets to fund India’s bulging current account deficit (CAD), Chief Economic Advisor Raghuram Rajan said today.”Certainly not foreign exchange denominated bond but even

a rupee bond. Given that our focus is on easing access to Indian sovereign rupee markets and increasing liquidity here and raising depth here, it seems that’s the safer way to finance than to go outside and issue a bond,” he said speaking at a seminar at the annual meeting of ADB here.

“I am not saying these things will never change…at this point, there is no reason to look at it (sovereign bond issue),” Rajan said. CAD represents the difference between inflows and outflows of foreign currency. CAD had touched a record high of 6.7 per cent in the December quarter of last fiscal year. The CAD in 2012-13fiscal is likely to be around 5 per cent of the GDP. >> Read More

While the ECB’s refinancing rate cut of 25 bps was very much expected, and just took place pushing the main refi rate to a record low 0.50% (because more liquidity is just what Europe’s collapsing economy needs), what was unanticipated was that the Marginal Lending Facility (which last time we checked was used by pretty much nobody) was also cut, from 1.5% to 1.0%. The deposit rate, at 0.00%, was obviously left unchanged.

From the ECB:

 

At today’s meeting, which was held in Bratislava, the Governing Council of the ECB took the following monetary policy decisions:

1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.50%, starting from the operation to be settled on 8 May 2013.
2. The interest rate on the marginal lending facility will be decreased by 50 basis points to 1.00%, with effect from 8 May 2013.
3. The interest rate on the deposit facility will remain unchanged at 0.00%.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

Now the question is whether Draghi will engage in non-standard measures to facilitate lending for SMEs. For this, tune in to the press conference in 45 minutes.

Goldman Sachs saw no major surprises in the May FOMC statement, which, as we noted in the redline, was very little changed from the March statement. The most notable change, however, introduced additional flexibility around purchases, noting that “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” The slightly more aggressive nod towards fiscal policy “restraining” growth as opposed to “becoming restrictive” is perhaps yet another plea for some help from Washington – for,  “the ability of a central bank, exclusively, without the rest of Washington doing any bit of the task, to turn an economy from a modest recovery to a robust one is an experiment that is untested – and will not prove to be successful.”

Via Goldman Sachs,

MAIN POINTS:

1. The May FOMC statement was very little changed from the March statement. Most notably, the statement included one wholly new sentence: “The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” We see this as introducing flexibility for the Committee, consistent with past statements from the Chairman and other Fed officials, rather than necessarily suggesting a near-term policy bias in one direction or the other. However, it may be notable that this sentence specifically refers to the pace of purchases, rather than the expected period of time over which purchases will continue, or the expected holding period of purchases.

2. There were also modest changes to the economic summary paragraph. According to the May statement, labor market conditions have shown signs of improvement only “on balance,” probably a reference to the weaker March payrolls report since the last meeting. Fiscal policy “is restraining growth” rather than “has become somewhat more restrictive,” a more direct characterization of the drag. There was no change to the inflation language, despite inflation readings softening over the intermeeting period. However, the new sentence about varying the pace of purchases implicitly recognizes the risk of inflation falling too low, raising the possibility that purchases could be increased if the current trend continues.

The India Meteorological Department (IMD) has forecast a normal monsoon for 2013 which if materializes will mean that country will not have a widespread drought for the third consecutive year. The four-month southwest monsoon season that starts from June provide almost 70-90% of the total precipitation that India receives in a year. IMD Director General, L S Rathore tells Sanjeeb Mukherjee that all indications available so far suggest that rains in 2013 would be much better than rains in 2012. Edited Excerpts

Overall, how to judge this year’s monsoon, though you have said these are early forecasts?

I feel that overall rains in 2013 would be better than 2012. In 2012 we had predicted rains to be around 96% of LPA, while the actual showers were around 93% of LPA. But, this year we have predicted that quantitatively rains are expected to be around 98% of LPA, but with much higher confidence both in quantitative and probabilistic terms. Definitely rains in 2013 would be better than 2012. Moreover, convergence of large number of models indicates a normal monsoon this year, both national and international.

There has been some talk that rains in southern most part of the country will be not so good this year. Does your prediction say something like this?

No, as far I’m concerned there is no cause of worry for entire peninsular India and as of now the indications are that rains would be normal in southern parts as well. >> Read More

With their economy appearing to slow dramatically, if the PMI and Ifo data is anything to go by, and a nation increasingly disavowed with the European project, it seems the ‘people’ are not amused. As MNI reports, a poll by Forchungsgruppe shows Merkel’s CDU/CSU support fading. Critically, with only 40% backing Merkel, and the ‘Merkel bloc’ down to only 44%, the opposition and more anti-Europe SPD party gained a point and shifted their ‘bloc’ vote to 48%. Given that the mainstream parties have excluded a coalition with the Left party, such results would allow only coalitions of Merkel’s CDU/CSU with the SPD or the Greens. This raises the question of whether Merkel becomes more hard-nosed in her treatment of European bailouts, cow-towing to her populist needs (especially as Euro membership remains the most popular ‘concern’ for Germans); or eases the pressure in the hope of a short-term juice of markets believing in joint-debt dreams into the election. We suspect the former, especially given the clear signals from the people as the ‘Alternative for Germany’ party gathers more headlines - if not representative votes.

and Euro membership remains the most pressing concern for Germans >> Read More