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The Marketplace - February 19th 2015
19/02/2015
Sterling was boosted across the board yesterday as minutes from the Bank of England’s latest monetary policy meeting showed that all members voted to keep the benchmark interest rate at a record-low 0.5 percent as expected. The UK economic calendar is quiet today and focus will be mainly on unemployment data from the US and headlines from Greece.
UK
Minutes from February’s meeting showed that the BoE expects UK inflation to accelerate quickly in 2016 once the impact of plunging oil prices fades as wage and unemployment data showed labour-cost pressure is starting to build. An improving labour market and the current outlook for inflation is leading to divergence amongst the MPC about when policy tightening should begin.
Yesterday’s busy economic calendar saw releases from the ONS which showed its latest Average Earnings Index data, which is a leading indication of consumer inflation, posted gains of 2.1 percent compared with forecast for an increase of just 1.7 percent. Unemployment data was also positive with the report showing a drop in unemployment its lowest rate in more than six years in the fourth quarter. The jobless rate based on International Labour Organization methods dropped to 5.7 percent from 5.8 percent in the period through November.
US
In the Minutes from the January FOMC meeting, the Federal Reserve addressed the financial situation, and noted that the increasing role of bond and loan mutual funds could pose a liquidity risk if everyone tries to get out of the market at the same time. On its outlook for raising rates, the Minutes indicate that a number of FOMC members saw the risks as weighted towards raising rates too early, with at least one FOMC member recommending more not less monetary policy accommodation.
The Fed is also unsure about how to communicate with the market regarding the first interest rate hike since 2006, with the Minutes indicating that, "A number of participants noted that while forward guidance had been a very useful tool under the extraordinary conditions of recent years, as the start of normalization approaches, there would be limits to the specificity that the Committee could provide about its timing."
EUR
Pressure mounted on Greece as the country continues to be at odds with other euro-area governments over the formula needed to extend the country’s 240 billion-euro rescue beyond its expiry at the end of February. The country risks being left without a financial backstop and on course to default on some of its liabilities as early as next month if it doesn’t reach a creditor accord.
Prime Minister Alexis Tsipras’s administration will submit a request to the euro area for a six-month loan extension on today, a day later than originally planned, according to a government official. According to officials, ECB policy makers on Wednesday set Emergency Liquidity Assistance (ELA) for Greek banks at 68.5 billion euros, up from 65 billion euros.
Documents outlining the government’s stance during two closed-door meetings of the currency bloc’s finance ministers over the past week showed Athens is still seeking to radically alter the terms of the bailout agreement.
Today’s Key Data
US Unemployment Claims: Initial claims for unemployment benefits edged up 25,000 to a seasonally adjusted 304,000 last week. However, the general trend still shows strength in the US labor market. Analysts expected a modest climb to 282,000 last week. The four-week moving average dropped 3,250 to 289,750. Economists expect jobless claims will remain subdued amid the massive job gain over the last three months. The number of jobless claims is expected to rise by 305,000.
US Philly Fed Manufacturing Index: Manufacturing activity in the Philadelphia-region slipped into lower gear in January, reaching 6.3 points, following 24.5 in December. This was the largest fall in 11 months. Analysts expected a much higher figure of 20.3. The majority of responders reported that lower energy prices were having overall net positive effects on manufacturing business and the six-month outlook continued to be positive. Manufacturing activity is expected to climb to 8.8 points.
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