This week brings Prime Minister Abe’s fiscal plan, the Reserve Bank of Australia’s rate decision, the Bank of England’s monetary results and U.S. nonfarm payrolls on Friday. So let’s put some perspective to tonight’s main events. The RBA will announce its overnight interest rate and consensus is calling for a 25 basis point CUT to 1.5%. Analysts believe that the weakness in the natural resource sector is aiding the reduction in capital expenditure. Also, Aussie inflation is at the bottom of the RBA‘s target range, which provides rationale for the RBA. I am not so sure of a CUT for this is coming at the end of Governor Stevens’s term at the RBA. Dr. Phillip Lowe will take over September 16 so this is the penultimate meeting for Mr. Stevens.
Posts Tagged ‘Nikkei’
It seems that the FOMC meets in Noah’s Ark (Genesis Chapter 8;Verse 8-12): “Then he sent out the DOVE from him to see whether the waters had subsided from the face of the ground. But the DOVE could not find a resting place for the sole of its foot and it returned to him to the ARK, for water was upon the surface of all the earth …. He waited again another seven days, and again sent out the DOVE from the ARK. The DOVE came back to him in the evening and behold! an olive leaf it had plucked with its bill! And Noah knew that the waters had subsided from upon the earth” (Artscroll Translation).
Jim Bullard? Now There Is An Unsavory Chap
Today was not like the other days for the break in the equity markets came early. As all the global markets were in sell mode St. Louis Fed President James Bullard hit the airwaves with thoughts about being wrong in his inflation projections. It appears that the selloff in crude oil is providing the Fed hawk with concerns that the SUMMARY of ECONOMIC PROJECTIONS may be softer than the December FOMC meeting revealed. Bullard sounded as if he would not be in favor of the Fed raising rates because of the inflation rate turning away from the spurious 2 percent mandate. The unsavoriness of Bullard’s comment is not that he fears a downturn in inflation, and maybe lower growth, but that Bullard seemed to find his DOVISH posture as the U.S. markets were heading toward the August lows. Bullard in unsavory because he called out CNBC’s Jim Cramer for “cheerleading for low rates twenty-four hours a day.”
One of my favorite songs by Simon and Garfunkel is “A Simple Desultory Philippic” in which the duo takes the time to mock and criticize the world of culture and politics that surround them. Desultory means lacking a style or plan, while Philippic connotes a word for a tirade or rant. Will my readers entertain my desire to craft my own simple desultory philippic?
First, as the clouds of sadness begin to lift I want to thank all of those who took time to send a note to the blog and to me in emails for the condolences on the passing of my mentor and friend. In a tribute to one of the great traders, the markets provided volatility reminiscent of a 21 gun salute, or maybe just 21% vol levels and a VIX to go with it.
This is a tribute to N.B. and his continued effort to search for perspective (and his love of Joni Mitchell):I’ve looked at life from both sides nowFrom up and down and still somehowIt’s life’s illusions I recallI really don’t know life at all
First, on the geopolitical front the enforcement of sanctions on Russia is being met with disdain by some large European corporations. French energy giant Total is in talks with the largest privately held Russian energy company Lukoil to develop gas and oil fields using the latest drilling techniques. On Wednesday, Siemens CEO Joe Kaeser met directly with Russian President Putin and assured him that Siemens will not let temporal political problems upset the solid business relationship that the German conglomerate has developed with Russian technology and medical groups. The use of sanctions is problematic in a world defined by business interests. The German small and medium enterprises have vast business relations with Russia and it is estimated that 500,000 jobs are related to the export side of the equation. Russia sends energy and Germany responds with advanced, highly engineered products.
Tonight’s agenda brings an announcement from Australia as the RBA meets to decide its forward monetary policy. Interest rates are currently at 2.5% on the overnight cash rate (OCR). Consensus is for no change and I would agree with that for the Aussie dollar has been stable and the 2/10 yield curve is a healthy 135 basis points positive slope. Confusion reigns around the world as politics is causing uncertainty in much of the developed world’s economies. Expect the RBA Governor to note risks to global growth and that the Aussie bank will remain vigilant. Also, with a new government elected in early September the bank will want to see what types of fiscal policy will be enacted before embarking on a change in current monetary policy.
Japanese Prime Minister ABE may need to taper, but this would be a fiscal tapering as he may want to take a Greenspanian approach to raising the sales tax and drip feed the increase into the economy. It MAY behoove the Japanese government to make the SALES TAX increase data dependent (sound familiar) and increase it 1% with every incremental improvement in the GDP. The NIKKEI index is struggling as it comes to terms with the projected increase due to take hold next year. Investors are nervous about the negative impact from the tax increase as they remember the last time that the Japanese authorities increased taxes to bring down the DEBT/GDP RATIO. The economy went into a deflationary downturn, even as the sovereign debt level was decreased for a short period of time. But ultimately as growth slowed tax revenue decreased and a negative feedback loop developed.