BoJ disappoints – so what’s new

Australian new home sales declined by -3.7% in September M/M, the 3rd consecutive monthly decline. The Australian economy is slowing and I would expect the slowdown to continue given, in particular, a weaker China;
The BoJ announced an expansion of its asset buying programme by Yen11tr to Yen91tr for the 2nd consecutive month. The announcement was accompanied by a joint statement by the BoJ and the government, emphasizing the political pressure on the Central Bank. The parties stated that they “share the recognition that the critical challenge for Japan’s economy is to overcome deflation as early as possible and to return to a sustainable growth path with price stability”. The BoJ also set up an unlimited facility to boost lending by banks, which they estimate might amount to Yen15tr. Core CPI is expected to increase by just +0.8% (lower than the 1.0% previously) in the fiscal year ending March 2015 and revised down forecasts for the years to 2015. The market expected more, given the lower inflation forecast. The Yen strengthened. However, this is just the start and I continue to believe that the Yen will decline in coming months – will look to increase short in coming weeks. The Nikkei closed down nearly -1.0% today, reflecting the disappointment;
The BoJ reduced its estimate for GDP (for the fiscal year ending March 2013) to +1.5%, from +2.2% in July – still seems too optimistic;
Japanese September industrial production declined for the 3rd consecutive month, by -4.1% M/M (-8.1% Y/Y), much worse than the -1.6% M/M in August and the forecast of a decline of -3.1%.
Household spending declined by -0.9%, as opposed to a rise of +0.9% forecast;
The Indian Central Bank, the RBI, held rates at 8.0%, whilst emphasizing the inflation risk in India – +7.81% in September, well above the RBI’s “target” of 5.0% and is expected to rise to above 8.0% in the next month or so. The news will be a disappointment to the government, who had hoped that their recent announcements to reduce the budget deficit would enable the RBI to cut rates. The RBI reduced its GDP forecast for the fiscal year ending March 2013 to +5.8%, from +6.5% previously and inflation to +7.5%, from +7.0% previously. In order to inject more liquidity into the system, the RBI cut its cash reserve ratio by 25bps to 4.25%
Spanish preliminary 3rd Q GDP came in at -0.3% Q/Q, or -1.6% Y/Y, better than the -0.4% expected.
October CPI came in at +3.5%, up from +3.4% in August, though lower than the +3.6% expected. Inflation is expected to decline in coming months;
Spain has set up a bad bank, the Sareb, which will have a maximum size of E90bn, with an initial transfer of E45bn of assets. The bank will buy assets from banks at a discount, ranging from 45.6% on property loans to an average of 63.1% on foreclosed properties. The Spanish authorities want private sector participation, though the discounts seem insufficient to attract investors. However, the authorities will arm twist local financial institutions to become shareholders;
German unemployment rose by +20k, higher than the increase of +10k forecast. The unemployment rate was unchanged at 6.9%. With the economy likely to contract this Q, together with weaker exports, production, EZ economy and consumer sentiment, unemployment should rise in coming months;
EZ October consumer confidence came in at -25.7, marginally lower than the -25.6 expected and -25.6 in September.
The EZ sentiment index declined to 84.5, the lowest in 38 months. France was the worst performer, followed closely by Germany. An upturn was seen in Italy, Spain and Holland.
The EZ October business climate index declined to -1.62, a 37 month low and down from -1.34 in September;
The UK October CBI retail sales balance was up strongly, to +30, from just +6 in September and well above forecasts of +7. The sales expectations balance was also higher at +27, from +15 previously. The number is yet further evidence that the UK is performing (much?) better than official data. There will be increasing speculation that the BoE will keep its QE programme on hold in November, which should be sterling positive;
The odds of President Obama winning have declined marginally to just over 62%;
Asian markets closed mixed, though European markets are much firmer. US markets remain closed due to Sandy.The Euro is back above US$1.29, currently US$1.2950 – interesting given the weaker German unemployment data, worse EZ confidence numbers and declining Spanish GDP, though an Italian E7bn bond auction went better than expected. Gold is trading at US$1714, with oil at US$109.38. Low volume day again.
The Spanish PM does not appear to want to call for a bail out and discussions on Greece continue and continue, and…. The Eurogroup is to discuss Greece tomorrow – yet more hot air.
Basically, the same old, same old.
Kiron Sarkar
30th October 2012

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