Bank of Japan January meeting minutes
- Most members agreed price momentum not firm yet
- Some members noted speculation that BOJ might raise rates in response to rising treasury yields
- These members said BOJ should focus solely on 2 pct price target
- Members shared view that yield curve is formed in smooth manner under YCC
- One member said shape of yield curve should be a little steeper … this member said BOJ should accommodate a rise in yields due to improvements in Japan’s economy
- Most members said companies will likely raise prices as consumer spending increases moderately
- Members shared view that risks to economy, prices are to the downside
- One member said downward pressure on yields should increase, so BOJ should reduce JGB, T-bill purchases
main points summarised via Reuters
“Most members agreed price momentum not firm yet” … sounds like another way of saying not even close to the inflation target … the BOJ seems to have an endless well of creativity when it comes to describing missing their target. Arrgghhh …. but maybe I just got outta bed on the wrong side today.
“Most members said companies will likely raise prices as consumer spending increases moderately”
at least sounds like they have some hope for seeing inflation move in the direction they want.
Following Wednesday’s blowout ADP report, which printed some 40K jobs higher than the highest estimate, the only possibility for tomorrow’s nonfarm payroll report, the last major economic data point before the Fed’s March 15th rate hike announcement, is to disappoint, especially in terms of wages (which in light of the recent downward revision of Q1 GDP by the Atlanta Fed to 1.2% is not out of the question). That possibility, however, is slim to none if one looks at Wall Street’s forecasts, where virtually every sellside analyst boosted their NFP estimate in the hours after the ADP number. Still, with the market pricing in a 100% chance of a rate hike, only a very disappointing – think less than 100K – report will derail the Fed from hiking for the second time in three meetings.
Here are some of the more notable forecasts for tomorrow’s number::
- Westpac 170K
- Bank of America 185K
- BNP 185K
- Barclays 200K
- Deutsche Bank 200K
- Goldman Sachs 215K
- Nomura 235K
- Morgan Stanley 250K
Putting it all together, here is what Wall Street expects from the February payrolls report due out at 8:30am ET tomorrow morning:
- Change in Nonfarm Payrolls: Exp. 193K (Prey. 227K, Dec. 157K)
- Unemployment Rate Exp. 4.70% (Prey. 4.80%, Dec. 4.70%)
- Average Hourly Earnings M/M Exp. 0.30% (Prey. 0.10%, Dec. 0.20%)
China’s top economic official trimmed its growth target and warned Sunday of dangers from global pressure for trade controls, as Beijing tries to build a consumer-driven economy and reduce reliance on exports and investment.
In a speech to the national legislature, Premier Li Keqiang Li promised more steps to cut surplus steel production that is straining trade relations with Washington and Europe. He pledged equal treatment for foreign companies, apparently responding to complaints Beijing is trying to squeeze them out of technology and other promising markets.
Li’s report set the growth target for the world’s second-largest economy at “around 6.5 percent or higher, if possible.” That’s down from 6.7 percent expansion last year but, if achieved, would be among the strongest globally, reflecting confidence that efforts to create new industries are gaining traction.
Li called for attention to the risks of China’s surging debt levels, which economists see as a rising threat to growth. He announced no major initiatives, but that was widely expected as the ruling Communist Party tries to avoid shocks ahead of a congress late this year at which President Xi Jinping is due to be given a second five-year term as leader. Analysts expect Chinese leaders to use the legislative meeting to emphasize reducing financial risks and keeping growth stable.
At a time of demands in the United States and Europe for trade controls, Li warned China faces “more complicated and graver situations” at home and abroad.
Following Yellen’s speech which did not throw any curve balls to this week’s sharply revised, hawkish narrative by her FOMC peers, a March rate hike – according to Goldman – appears to be in the books. In a note moments ago by Goldman’s Jan Hatzius, the investment bank said that the bottom line is that “Fed Chair Yellen said today that a rate increase at the March FOMC meeting “would likely be appropriate”, as long as incoming data continue to confirm officials’ outlook. We see this as a strong signal for action at the upcoming meeting, and have raised our subjective odds of a hike to 95%.”
Goldman’s key points:
1. In remarks this afternoon, Fed Chair Yellen indicated a readiness to raise the funds rate at the FOMC’s March 14-15 meeting in fairly explicit language. She said that as long as “employment and inflation are continuing to evolve in line with” officials’ expectations, “a further adjustment of the federal funds rate would likely be appropriate”. As a result, we now see a hike at the March meeting as close to a done deal, and have raised our subjective probability to 95%.
2. The remainder of Chair Yellen’s speech focused on the Fed’s post-crisis monetary policy strategy in general, and did not discuss incoming data in much detail. However, given constructive comments about current economic conditions from many Fed officials this week—including from Vice Chair Fischer at today’s US Monetary Policy Forum—we think committee members will see recent news as consistent with their outlook, and therefore supportive of further tightening. At this stage, the February employment report—to be released next Friday—may have more bearing on the committee’s guidance about action after the March meeting than on its decision whether to hike this month.
A novel dilemma for the European Central Bank to contend with: above target inflation.
Prices in the single currency area have climbed by 2 per cent on the year for the first time in over four years, posing a fresh headache for the ECB’s dovish policymakers who will mark their two-year quantitative easing anniversary next week.
At the ECB’s latest meeting next Thursday, president Mario Draghi will face the task of convincing his more hawkish colleagues that the current leap in annual prices – from 1.8 per cent in January – is unlikely to be sustained having been driven by volatile energy costs. The central bank, which has been battling with more than three years of low prices, targets inflation of just under 2 per cent.
Here’s what analysts are making of Mr Draghi’s dilemma.
Despite the recent upsurge in inflation driven by higher oil prices Pete Vanden Houte at ING thinks inflation will begin to stabilise over the coming months. If anything, he says the ECB will opt to let inflation run above target to compensate for years of weak prices:
There is little doubt that the ECB will continue to be criticized for its loose monetary policy, especially in the core countries. But the bank will no doubt recall that the inflation target has to be reached over the medium term and for the whole of the Eurozone. If anything the ECB is more likely to err on the side of inflation, to compensate for the fact that consumer price increases have significantly undershot the ECB’s target for now 4 years in a row.
We therefore don’t see any change in monetary policy this year. However, in the third quarter, the ECB might announce its exit strategy, which in our view will probably entail a new extension of the QE program until mid-2018, but with some tapering included.
The odds of a March rate increase jumped to 70 per cent on Tuesday after the influential head of the New York Federal Reserve said the case for policy tightening had become “a lot more compelling”.
Bill Dudley said in a interview with CNN International, the television network, that data released over the past couple of months have shown that the US economy is on a solid trajectory, and the central bank is more confident now that it will continue to brighten.
“It seems to me that most of the data we’ve seen over the last couple months is very much consistent with the economy continuing to grow at an above-trend pace, job gains remain pretty sturdy, inflation has actually drifted up a little bit as energy prices have increased,” he said, according to a transcript posted by CNN.
Mr Dudley, who votes on the Fed’s policy-setting board, added that he reckons fiscal policy will “probably move in a more stimulative direction” — an allusion to the tax reductions and infrastructure spending push promised by US President Donald Trump.
The world’s largest sovereign wealth fund overcame sluggish markets at the start of last year to deliver a return of 6.9 per cent in 2016.
Norway’s $905bn oil fund was boosted by strong stock markets in the second half of the year with equity investments returning 8.7 per cent. Fixed income returned 4.3 per cent in 2016.
Yngve Slyngstad, chief executive of Norges Bank Investment Management, the manager of the fund, said:
“The return in 2016 was characterised by falling international interest rates in the first half of the year and strong equity markets in the second half. The year began with a downturn in the markets, and uncertainty regarding developments in China.”
The fund had 62.5 per cent of assets invested in equities at the end of the year but is expected this spring to be given permission to increase that to 70 per cent. Fixed income assets accounted for 34.3 per cent and real estate 3.2 per cent.
Asia will need $26 trillion of infrastructure investment in the 15 years from 2016 to 2030, said a report published on Tuesday by the Asian Development Bank.
According to the report, titled Meeting Asia’s Infrastructure Needs, the region needs electricity supply chains to deliver power to the 400 million people who still live without electricity.
Infrastructure investment in Asia currently meets only about half the demand. Aid from development agencies, such as the ADB, remains a mere 2.5% of total investment. The report calls on regional economies to provide financing through fiscal measures and to make use of private-sector money.
The report covered 45 countries and territories including China and India. To sustain the current level of economic growth, Asia needs $26 trillion over the 15-year period.
In the previous report, released in 2009, the ADB estimated that Asia would need $8 trillion of infrastructure investment between 2010 and 2020.
Norway’s government has proposed making the biggest changes to the world’s largest sovereign wealth fund in decades, increasing its risk by investing about $90bn more in stock markets and cutting the amount of oil money it can use in the budget.
The $900bn oil fund should be able to invest 70 per cent of its assets in equities, up from the current 60 per cent, as the centre-right government backed proposals by both the fund itself and an expert group.
The shift, which needs parliamentary approval, would be significant for global markets as the oil fund on average already owns 1.3 per cent of every listed company. The increase in equities would come at the expense of bonds, as the oil fund, which has an investment horizon of a century or more, tries to increase its returns.
At the same time, the Norwegian government is aiming to reduce the amount of money from the fund Oslo is allowed to use in budgets. Under the so-called spending rule introduced in 2001, the government is allowed to take up to 4 per cent of the fund each year – which is meant to be equivalent to the real return from investments. This would be reduced to a maximum of 3 per cent in the future under the new proposal, as the outlook for returns has fallen.