Prepare For Ludicrous Speed!
“Euro zone consumer prices fell by less than expected in February while unemployment eased in January for the third month in a row.” Unemployment “fell for the third month in a row to 11.2 percent in January from 11.3 percent in December.” Consumer prices “fell 0.3 percent year-on-year in February after a 0.6 percent annual drop in the previous month. Economists polled by Reuters had expected a 0.4 percent price decline.” As in the United States, headline and core inflation are diverging: “Without the volatile energy and unprocessed food components…prices grew 0.6 percent year-on-year, the same as in January.” “The further drop in unemployment should be supportive to euro zone consumers and they are benefitting from the boost to their purchasing power coming from deflation.” Meanwhile, across the pond: “with gasoline prices already rising again, consumers may be suspicious that the price declines won’t last (alt). ‘If people perceive something as transitory, they are less likely to spend the money’…inflation and growth could be weaker than expected and the Fed could delay raising rates. If oil prices resume their declines, it could push overall prices down more, creating new worries…’It will be hard for the Fed to start tightening when the headline inflation number is negative.’” However, despite the uncertainty around inflation and oil prices, “the Fed’s confidence in the US economy is driving them to policy normalization. The labor market improvements are key — as long as unemployment is falling, confidence in the inflation outlook is rising.” Also, “the Fed is sending a clear message that the subsequent path of rates is also very uncertain, and they don’t think that uncertainty is being taken seriously by market participants.” Meanwhile, academics at the Booth School of Business say that the uncertainty around the ‘natural’ rate “argues for more ‘inertial’ monetary policy than implied by standard version of the Taylor rule,” resulting in “a later but steeper normalization path for the funds rate compared with the median ‘dot’ in the FOMC’s Summary of Economic Projections.”
Let’s Be Clear: China Is Not Racing To The Bottom
“The People’s Bank of China, the central bank, cut the benchmark one-year lending rate (alt) by 25 basis points to 5.35 per cent and the one-year benchmark deposit rate by the same amount to 2.5 per cent on Saturday night…many Chinese analysts and policy makers have been calling for further monetary easing as growth continues to slide and deflation looms…Last week, central bankers from the eurozone and Japan voiced optimism that their policies of quantitative easing and currency depreciation would be successful in staving off outright deflation.” This is where comparing monetary policies of China and Europe/Japan gets really interesting. Bill Gross and others argue that there’s a “contest going on in global financial markets where the ‘home country’ seeks to outdo the competition in a race to the interest rate bottom…an undeclared currency war is what the world is experiencing.” While this certainly seems to be the case for Europe and Japan, the Chinese are more like currency pacifists: “Given the large foreign debt exposure by Chinese firms and limited development of onshore foreign exchange market, the PBoC may not tolerate a sharp RMB depreciation (more than 5 percent). Such a large depreciation could lead to huge foreign exchange losses of Chinese firms, potentially destabilizing the fragile banking system. In addition, a relatively strong currency will also help China rebalance its economy to a services-led economy.”
AAPL: To Wear, Or Not To Wear
“So Apple now wants to pull off something that no company has ever managed before: it wants to reverse a cultural trend that it had created itself. It wants us to start wearing a watch again.”