100 dollars of 1913 would only be worth around 3.87 dollars today.
Archives of “December 2019” month
rssUS pension funds increasingly allocate more capital to the shares.
ECB preview: All eyes will be on Christine Lagarde
UBS takes a look at the ECB decision
For starters, UBS has a great title for its report on the December 12 ECB decision: ‘The changing of Lagarde’.
After all, it will be the first meeting for the new central bank leader. While any hope for a change in policy is virtually nil, the chance of a communications mixup is always high with a new leader.
“At her first meeting as ECB president, we think Christine Lagarde’s priority will be to begin uniting a divided Governing Council, rather than announcing any immediate policy action,” the report says.
The main question will be on the fiscal side and what she might try to do to prod for more help from leaders. Draghi has badgered governments for years to spend more and Lagarde doesn’t have any special tools available in that regard but she may try for fresh ways to get headlines and attention.
Otherwise, UBS says to expect little in the way of change. Indeed they see the central bank on hold until the end of 2021 ‘at least’:
“The central case for December is very much ‘on hold’, particularly given that we expect the ECB to make only modest tweaks to its forecasts,” they write.
One thing to watch out for is a review of the mandate as the ECB tries to uncover new tools to combat low inflation. The Fed is working through this now and hinting at a switch to average inflation targeting, something that would call for overshoots to balance out undershoots. That would mean rates stay lower for longer.
The main event will be the Q&A and the possibility of some kind of slip up. One front for that will be on the lower bound for policy. She will likely indicate that there is still room to cut but the pitfall would be sending some kind of signal (or accidental slip) that the space is going to be used.
As for forecasts, they see 2020 growth lowered to 1.1% from 1.2% and 2021 to 1.3% from 1.4%. On core inflation they see a small chance of a trim to 1.0% from 1.1% but believe it will be left unchanged with headline inflation ticking to 1.3% from 1.2%.
Full text of the statement from RBA Governor Lowe
Comments from Lowe
Statement by Philip Lowe, Governor: Monetary Policy Decision, Dec 3, 2019:
At its meeting today, the Board decided to leave the cash rate unchanged at 0.75 per cent.
The outlook for the global economy remains reasonable. While the risks are still tilted to the
downside, some of these risks have lessened recently. The US-China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty. At the same time, in most advanced economies unemployment rates are low and wages growth has picked up, although inflation remains low. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system.
downside, some of these risks have lessened recently. The US-China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty. At the same time, in most advanced economies unemployment rates are low and wages growth has picked up, although inflation remains low. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system.
Interest rates are very low around the world and a number of central banks have eased monetary policy over recent months in response to the downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back. Financial market sentiment has continued to improve and long-term government bond yields are around record lows in many countries, including Australia. Borrowing rates for both businesses and households are at historically low levels. The Australian dollar is at the lower end of its range over recent times.
After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point. The cen ral scenario is for growth to pick up gradually to around 3 per cent in 2021. The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth. The main domestic uncertainty continues to be the outlook for consumption, with the
sustained period of only modest increases in household disposable income continuing to weigh on consumer spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle (more…)
sustained period of only modest increases in household disposable income continuing to weigh on consumer spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle (more…)
RBA holds key rate at 0.75%, as expected
RBA holds cash target rate unchanged
- The market had priced in an 8% chance of a cut today
- The next meeting is Feb 4
Highlights of Lowe’s statement:
- Outlook for global economy is reasonable but risks tilted to the downside
- Rates to remain low for extended period
- Sees inflation close to 2% in 2020 and 2021
- Prepared to ease monetary policy further if needed
- Rate cuts supporting employment and income growth
- Pick up in wages would be welcome development
- Weak household income growth is weighing on spending
- Risks to global economy have lessened recently
- Given long lags in monetary policy, decided to hold steady
- Repeats that Australian economy appears to have reached a gentle turning point
The initial reaction in the Australian dollar has been higher with AUD/USD up to 0.6832 from 0.6820.
The final paragraph of the statement is telling:
Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market. The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
Versus this in the Nov statement:
The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range. Given global developments and the evidence of the spare capacity in the Australian economy, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.
The comment about the lag in policy is a hint that they’re done cutting.
Abe confirms Japan is in the final stages of preparing economic stimulus package
Looks like the details are coming Thursday
Early takes from economists don’t offer too much optimism about any near-term boost to 2020 GDP. $230B clearly doesn’t buy what it used to.
Eurozone November final manufacturing PMI 46.9 vs 46.6 prelim
Latest data released by Markit – 2 December 2019
The preliminary report can be found here. A more positive revision here as preempted by the French and German readings earlier but overall factory conditions are still more subdued despite the bit-part recovery.
It just reaffirms that the manufacturing sector is contracting at a slower pace but challenges still remain as we look towards next year.
OPEC+ said to be discussing deepening current oil output cuts at least until June
Reuters reports, citing two unnamed sources on the matter
Says that OPEC+ is discussing to deepen the current set of output cuts by at least 0.4 mil bpd until June next year as Saudi Arabia is keen to surprise the market to the upside before the Saudi Aramco IPO.
China’s PMI data to jolt markets into action for December?
Via Bloomberg, shake the PMI’s wake the dragon?
Chinese stocks have been subdued lately. In part this has been fatigue as the Us-China trade negotiations oscillate every few days. It’s on, it might be off, it’s on, etc etc. Until Friday last week the Shanghai Composite only moved around 1% up or down for three week.
The Yuan has also seen a fall in volatility as volumes fell last month and has now hit the lowest level since mid-October on Thursday last week.
Chinese PMI’s to re-energise markets
According to Bloomberg’s Market Live blog the manufacturing PMI’s had been expected to signal contraction this month and services PMI were expected to show a small pick up for October. Note that the Caixin manufacturing data out is the private surveys of smaller to medium Chinese businesses. The recent run of services PMI data for the Caixin data out on Wednesday has shown a steady decline since May this year. So, a beat there and we will have a full dose of good news from the latest Chinese PMI data.
The Caixin manufacturing data has shown a pick up in the last couple of months. October saw a beat of 51.7 vs 51.0 expected with both output and new orders expanding at steeper rates. The official manufacturing PMI release showed an expansion for the first time in 8 months at 51.8 vs 51.5. The services data showed a beat too at 54.5 vs 53.1 showing the highest reading since March. Any surprises to the downside with the PMI’s would have raised alarm bells. This surprise to the upside will alleviate nerves. The immediate response has been a buoyant Asian equity market. The Nikkei is up +1.01%. the Hang Seng +0.42% and the Shanghai Comp. +0.13%. This is a positive risk development, but may make China slightly more robust in US-China trade negotiations with the US in a similar way that stronger US data hardened President Trump’s hand.China suspends review of US vessel requests to visit HK
China takes action in response to the HK bill passed by the US
The Chinese foreign ministry is said to have suspended the review of the request of American maritime vessels as well as the review of American military aircraft visiting Hong Kong, according to Reuters.
Adding that Beijing has also sanctions US NGO human rights watch for supporting the “extremist, violent activities” in Hong Kong.
The headlines here are barely audible by markets at the moment as the more positive risk mood continues to reverberate into the European morning. That said, in terms of retaliatory action by China, this so far can be categorised on the mild side of things.