Stagflation is back, at least in the UK. One week after reporting Dec y/o/y CPI of 3.7%, the UK economy unexpectedly contracted in Q4 by .5% q/o/q vs an expected gain of +.5%. The pound is down sharply in response and the data highlights the dilemma the BoE is now facing as they have their benchmark rate at .5%. While the US economy is showing much better resilience, the FOMC today and tomorrow still shouldn’t ignore growing inflation pressures as their current policy is like driving 200 mph on now icy roads. Also, they must get us out of this monetary policy fantasyland of zero interest rates and massive money printing sooner rather than later and let our economy walk on its own two feet without them. The US economy is getting better but how much is real and how much is monetary induced illusion? Please Fed, let us find out.
The Shanghai index by a hair closed at its lowest level since late Sept on a move higher in short term interest rates and continued talk of the introduction of property taxes in Shanghai. Copper is falling to a 5 week low. India raised rates by 25bps as expected to 6.5% but also raised their March inflation forecast to 7% from 5.5%, thus implying more rate hikes are to come. Europe’s EFSF sale of 5b euro’s of AAA paper to finance the bailout of Ireland was wildly successful as the bid to cover was 8.6. Germany’s consumer confidence GFK figure rose to the best level since Oct ’07.