Inflation, factory data favor continued Fed easing

Ford Motor production workers assemble batteries for Ford electric and hybrid vehicles at the Ford Rawsonville Assembly Plant in Ypsilanti Twsp, Michigan November 7, 2012.

Credit: Reuters/Rebecca Cook

By Lucia Mutikani

WASHINGTON | Tue Apr 16, 2013 11:02am EDT

WASHINGTON (Reuters) – Consumer prices fell in March for the first time in four months while factory output slipped, strengthening the argument for the Federal Reserve to maintain its monetary stimulus to speed up economic growth.

Other data on Tuesday suggested the housing market recovery was losing momentum, even though housing starts jumped in March to their highest level since 2008.

“For the Fed, it’s business as usual and there is not likely to be an acceleration in growth momentum that would cause them to shift their policy stance anytime soon,” said Millan Mulraine, senior economist at TD Securities in New York.

The Labor Department said its Consumer Price Index slipped 0.2 percent as gasoline prices tumbled, unwinding some of the 0.7 percent increase in February. Economists had expected a flat reading last month.

In the 12-months through March, consumer prices rose 1.5 percent, the smallest increase since July. Prices had increased 2.0 percent in February.

Stripping out volatile energy and food, consumer prices rose only 0.1 percent after advancing 0.2 percent in February. That took the increase over the 12 months to March to 1.9 percent. The so-called core CPI had increased 2.0 percent in February.

A separate report from the Fed showed output at the nation’s factories slipped 0.1 percent after advancing 0.9 percent in February. The decline was nearly broad based, with output dropping for primary metals and electronics.

Automobile assembly, however, increased. A jump in utilities because of unusually cold weather helped to lift industrial production 0.4 percent last month, adding to February’s 1.1 percent increase.

Stocks on Wall Street were trading higher after falling sharply on Monday. U.S. Treasury debt prices fell, while the dollar fell broadly.

Data have suggested economic growth accelerated in the first quarter after a near stall in the final three months of 2012.

But in a replay of the prior two years, the economy appears to have hit a speed bump at the end of the January-March quarter, with data ranging from employment to retail sales and manufacturing weakening significantly in March.

Much of the weakness is blamed on tighter fiscal policy in the form of smaller paychecks and deep government spending cuts.

MUTED INFLATION

The signs of muted inflation pressures and slowing economic growth could bolster the case for the Fed to remain on its very easy monetary policy path, despite divisions among policymakers over continued asset purchases.

Minutes of the Fed’s March 19-20 meeting published last week showed the U.S. central bank was moving closer to ending its monthly $ 85 billion purchases of mortgage and Treasury bonds meant to keep rates low and spur faster job growth.

A third report from the Commerce Department showed housing starts rose 7.0 percent last month to a 1.04 million-unit annual rate, the highest since 2008.

However, the rise in starts was driven by the volatile multi-family sector, while groundbreaking for single-family units fell. In addition, overall permits for future construction tumbled 3.9 percent — reversing February’s gain.

That suggested a slowdown in housing activity, coming on the heels of a report on Monday that showed a third straight month of decline in homebuilders’ confidence in April.

“The decline in single starts and permits is consistent with recent hints the housing recovery has lost some momentum,” said David Sloan, senior economist at 4Cast Ltd in New York.

Home construction is being fueled largely by a demand for rental apartments. Homebuilding added to gross domestic product last year for the first time since 2005, and the trend is expected to continue this year.

Inflation was held down last month by a 4.4 percent drop in gasoline prices after they spiked 9.1 percent the prior month. Food prices were flat after edging up 0.1 percent. There is still no sign of a pass-through from last summer’s drought.

There was little inflation on the housing front, with owners’ equivalent rent — which accounts for about a third of the core CPI — rising only 0.1 percent after gaining 0.2 percent in February.

Apparel prices recorded their largest drop since April 2001, while the cost of new motor vehicles rose 0.1 percent after falling 0.3 percent the prior month. Prices for used cars and trucks rose 1.2 percent, the largest increase since April.

(Additional reporting Jason Lange in Washington and Richard Leong in New York; Editing by Andrea Ricci)

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Reuters: Business News

Inflation, factory data favor continued Fed easing

Competitive Easing Madness; Japan to Double Monetary Base; Draghi Signals More Easing; Yen Plunges

Escape Velocity

Central bankers have gone totally mad. The stunning news of toady is a new pledge by Japan to double its monetary base in two years as the Bank of Japan Unveils Aggressive Easing.

The Bank of Japan will aim to double the monetary base over two years through the aggressive purchase of long-term bonds, in a dramatic shift aimed at ridding Japan of the deflation that has dogged the country for almost two decades.

Haruhiko Kuroda on Thursday announced his arrival as central bank governor with a “new phase of monetary easing”, a move that comes after Prime Minister Shinzo Abe told the bank to target a 2 per cent rate of inflation.

“We can’t escape deflation with the incremental approach that’s been taken until now,” Mr Kuroda said after the announcement. “We need to use every means available.”

“I am confident that all the policies we need to achieve 2 per cent inflation in around two years are now in place,” he said.

Yen Plunges

As one might expect on such a surprise announcement, the Yen had a spectacular plunge.

Draghi Signals More Easing

Bloomberg reports German Yields Fall to 8-Month Low as Draghi Signals More Easing

German government bonds rose, pushing 10-year yields to the lowest since August, after European Central Bank President Mario Draghi signaled further stimulus is possible should economic conditions deteriorate.

French and Austrian 10-year yields fell to records as Draghi said monetary policy will “remain accommodative for as long as needed” to boost growth. Spanish and Italian bonds pared gains as the ECB president said the central bank won’t immediately implement measures to ease funding strains for smaller companies.

Fed Uncertainty Principle

This is all in accordance with the Fed Uncertainty Principle corollary three.

Corollary Number Three:

Don’t expect the Fed [central banks in general] to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Japan is eventually going to achieve “escape velocity” on deflation, and I assure you Japanese citizens will not like the results when it happens.

When the Japanese bond market finally reacts to this inane policy, there is going to be a global currency crisis.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Competitive Easing Madness; Japan to Double Monetary Base; Draghi Signals More Easing; Yen Plunges

Bullard says low inflation gives Fed room to keep easing

President and CEO of the Federal Reserve Bank of St. Louis James Bullard poses during an interview at the Federal Reserve Bank of St. Louis June 8, 2011.

Credit: Reuters/Peter Newcomb

Reuters: Economic News

Bullard says low inflation gives Fed room to keep easing

German Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians; Italy Proposes Easing Stability Pact; Is Italy the Next Cyprus?

Once trust is lost it is very slow to recover. For now, much of Europe is acting as if it believes Cyprus is a “one time” thing? But isn’t that what we heard about Greece? Who is next? Italy?

In an article on Handelsblatt the chief economist of Commerzbank says: Italy should bring a unique wealth tax.

It is a myth to talk of crisis-strapped states. Even the German Institute for Economic Research (DIW) and the chief economist of Commerzbank, Joerg Kraemer says the numbers suggest a different view.

Kramer relies on surveys of the European Central Bank. Net financial assets of the Italians are 173 percent of gross domestic product (GDP). This is significantly more than the net financial assets of the Germans, which corresponds to 124 percent of GDP, said Kramer for Handelsblatt Online.

“So it would make sense, in Italy for a one-time property tax levy,” suggested the Bank economist. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.”

Reader Bernd suggests Kraemer means a net tax on all assets not just financial ones, but either way the idea is preposterous. Banks always want bailouts to fall on the backs of private citizens not on banks.

Italy’s Companies Face Slow ‘Death’ as Credit Crunch Deepens

While pondering the above confiscation threat, Ambrose Evans-Pritchard the Telegraph reports Italy’s Companies Face Slow ‘Death’ as Credit Crunch Deepens.

Confindustria, the business federation, said 29 percent of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.

In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.

Franco Bernabè, the head of Telecom Italia, echoed the warnings, lamenting that firms are literally “dying from lack of liquidity”. He called on the Bank of Italy to take bolder action to head off disaster. “The Italian economy is being suffocated. The country must intervene rapidly to reinject funds into the economy”, he said.

Late payments have become a chronic problem across the board in Italy, with 47,000 official complaints last year. The research group CGIA di Mestre said half of small companies cannot pay their staff on time.

Loans To Businesses and Households Plunge

Backing up what Ambrose Evans-Pritchard said with hard data, the Italian site Il Sole 24 Ore reports New Fall in Bank Lending to Households and Businesses.

Loans to businesses and non-financial families continue to face strong decrease. In February, according to the estimates in the monthly report of ABI were down 2.84% trend (-2.79% in January).

In 2012 there has been a strong leap in non-payments, up 8.8% compared to 2011. Compared to 2007, the last year before the crisis, the increase is 45 percent.

Total gross non-performing loans amounted to 6.4% in January 2013, up from 5.4% a year earlier (+17.5% YoY). With regard to small businesses, NPLs has more than doubled since 2008, rising from 3% to 7.4%. NPLs in family businesses rose from 7% to almost 12 percent. Gross NPLs totaled 126.1 billion in January.

In the construction sector companies the number of non-payments rose by 10,700 up 80% since 2007.

Italy Proposes Easing Stability Pact

In the “Germany is Not Going to Like This” category, Il Sole 24 Ore reports Italy Proposes Easing Stability Pact while lowering growth estimates and increasing deficits.

The government intends “loosen the constraints of the stability pact to allow the use of further resources.”

Italy finance minister Vittorio Grilli says the proposal is to “increase our potential debt of 20 billion per year in 2013 and 2014, to create the cash on hand to pay for” expenses.

In this context, the government cuts economic growth forecasts: GDP in 2013 will drop by 1.3% from a previous estimate of -0.2%. GDP is expected to drop by 1.7% in 2014.

The 2013 deficit was revised up to 2.9% from 1.8%. The minister stressed that the increase of debt of 40 billion, to pay the debts of the government, is the “ceiling.”

Reflections on “The Ceiling”

Note the euphemism “create cash on hand to pay for expenses” by going another 40 billion in debt. Also note the increase in debt of 40 billion euros is “the ceiling”.

Care to bet? If so, care to bet that GDP estimates will not be lowered again?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

German Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians; Italy Proposes Easing Stability Pact; Is Italy the Next Cyprus?

Quantitative easing is here to stay: Analyst

The Federal Reserve will wrap up a two-day meeting in Washington today. Analysts and investors are looking for more clues about how the central bank plans to proceed when it comes its monetary policy.

Juli Niemann, analyst with Smith, Moore & Company, joins Marketplace Morning Report host Jeremy Hobson to explain why the Federal Reserve is likely to continue with quantitative easing.

Latest Stories on Marketplace.org

Quantitative easing is here to stay: Analyst

JGBs mostly rise on expectations of BOJ easing measures

Wed Mar 13, 2013 3:35am EDT

* Superlong sector rises even ahead of 20-yr sale on Thurs

* 5-yr, 10-yr spread matches narrowest since Dec 2008

TOKYO, March 13 (Reuters) – Japanese government bond prices were mostly higher on Wednesday, bolstered by continued expectations of more Bank of Japan asset buying.

The 20-year sector continued to rise, even ahead of an auction of 20-year bonds. It will be the last such sale of the Japanese fiscal year that closes at the end of this month, and some investors are buying ahead of their book closings.

“People who need to buy JGBs ahead of the new fiscal year don’t have much time, said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Some who needed to secure the 20-year, and I think the 30-year as well, decided to buy today and not wait for tomorrow’s auction,” she said.

The 10-year yield fell half a basis point to 0.630 percent, moving back towards a near-decade low of 0.585 percent hit last week.

Ten-year JGB futures inched down 0.03 point to 145.11, moving away from a record high of 145.50 hit on Friday.

The Ministry of Finance will offer 1.2 trillion yen of 20-year bonds on Thursday.

While the yields are likely to continue to decline along the entire curve for a few weeks, driven by expectations of the BOJ’s JGB purchases, strategists at RBS Securities Japan advised clients in a note to buy asset swaps instead of 20-year cash bonds.

“We expect fewer investors to engage in aggressive position set-up around auction timing amid current unstable market movements and hence do not foresee much post-auction performance,” they said.

The 20-year yield slipped 2 basis points to 1.580 percent, moving back towards a nearly 10-year low of 1.450 percent hit last Tuesday.

The 30-year bond yield slipped 2.5 basis points to 1.725 percent, moving back toward a 2-1/2 year low of 1.625 percent hit on March 5.

The five-year yield edged up half a basis point to 0.125 percent, creeping away from a record low of 0.095 percent on March 4. Some investors were said to be locking profits in that zone after its recent push into record territory.

Market participants also cited waning expectations that the BOJ will scrap the interest paid on excess reserves parked at the central bank anytime soon. Speculation that such a move was imminent contributed to the 5-year yields’ fall to record lows.

The spread between the 5-year and 10-year yields narrowed to 0.510 percentage point, matching its level on March 4 on a last-traded basis, which was its narrowest since late December 2008.

On Tuesday, Japan’s main opposition party decided to back the government’s BOJ governor nominee, making it certain Haruhiko Kuroda will take the helm later this month. Kuroda is expected to pursue aggressive monetary easing to meet the bank’s 2 percent inflation target.

“It’s hard to sell bonds with the BOJ expected to ease further and while investors’ risk appetite is waning,” said a fixed-income fund manager at a Japanese asset management firm.

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Reuters: Bonds News

JGBs mostly rise on expectations of BOJ easing measures

JGBs mostly higher on expectations of BOJ easing measures

Tue Mar 12, 2013 3:36am EDT

* Superlongs gain on hopes BOJ will buy more long bonds

* BOJ confirmation hearings, minutes raise easing hopes

TOKYO, March 12 (Reuters) – Japanese government bond prices were mostly higher on Tuesday, with the superlong sector outperforming on rising expectations that aggressive easing steps by the Bank of Japan would include purchases in that zone.

The Nikkei newspaper reported that BOJ Governor-nominee Haruhiko Kuroda might launch new monetary easing steps as soon as he takes office next week, even before the bank’s regular policy board meeting in early April.

“We can’t say that this will happen based just only on a report, but there are clearly market expectations of more easing,” said Barclays Securities Japan strategist Noriatsu Tanji.

Longer-dated maturities also benefited from buying by pension funds and life insurers before the March 31 close of Japan’s fiscal year.

Confirmation hearings for the two BOJ deputy governor nominees continued in the upper house of parliament on Tuesday. Hiroshi Nakaso, one of the nominees, said current economic conditions in Japan allow for the central bank to continue loosening policy further.

The other nominee, Kikuo Iwata, said that purchasing long-term government bonds would help the BOJ reach its 2 percent inflation target in two years.

Minutes released on Tuesday from the latest BOJ meeting last month showed that some board members had considered buying JGBs with longer remaining maturities as an option.

The 10-year yield fell 2 basis points to 0.635 percent, moving back towards a near-decade low of 0.585 percent hit last week.

Ten-year JGB futures rose 0.17 point to 145.14, ending just a few ticks shy of their session high and inching closer to a record high of 145.50 hit on Friday.

Expectations of aggressive BOJ stimulus also helped the dollar rise to a 3-1/2 year high of 96.71 yen.

The 20-year yield slipped 3 basis points to 1.600 percent, moving back towards a nearly 10-year low of 1.450 percent hit last Tuesday, even as a sale of 1.2 trillion yen of 20-year bonds loomed on Thursday.

The 30-year bond yield dropped 3.5 basis points to 1.745 percent, reapproaching a 2-1/2 year low of 1.625 percent hit on Tuesday.

The five-year yield was half a basis point higher at 0.115 percent, consistent with its morning level as the Ministry of Finance offered 2.7 trillion yen of notes with that maturity.

The coupon on the latest offering was 0.1 percent, matching the record-low coupon of last month’s offering. The sale had a lowest price of 99.89 and bids of 3.12 times the amount offered. That was down from the previous sale’s bid-to-cover ratio of 3.81 times, and the lowest since June.

The tail between the average and lowest accepted prices was 0.01, matching that at last month’s offering.

“Five-year auctions are uneventful these days because demand is steady, as there’s no risk of holding them, but rewards are also small, with the yield already scraping recent lows,” said a fixed-income fund manager at a Japanese asset management firm.

The five-year yield skidded to a record low of 0.095 percent on March 4.

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Reuters: Bonds News

JGBs mostly higher on expectations of BOJ easing measures

Late Friday Humor: Quantitative Easing Simplified

With recent (post-Minutes) chatter of a gradually-tightening Fed since curtailed by a plethora of Federal Reserve market savants jawboning us back to creditopia – “the liquidity must flow”; we thought a gentle reminder of what Quantitative Easing really is was worthwhile. Whether goldbug, bond-vigilante, or permabull-stock-muppet; two-and-a-half minutes of reality (or comedy) depending on your perspective.

 

 

(h/t Rick B)

Zero Hedge

Late Friday Humor: Quantitative Easing Simplified