United States

The week was dominated by the equity markets and the policy responses of the world’s central bankers. The ECB declined to join the Fed and its governors and president went out of their way to squash speculation that they would soon shift policy to accommodation. The US economy was largely undocumented for five days, with no important statistics released. Only weekly jobless claims, which at 301,000, were well below levels associated with an actual or pending recession, seemed to belie the economic catastrophe predicted by the stock market. But as the equity panic subsided, the economic logic that had boosted the dollar revived somewhat. If the US is further along the curve to recession, but also to recovery having started first and responded first—with Fed rate cuts, then the dollar should in the long run benefit. Such was the logic behind the market reluctance to push the euro higher despite the week’s unusual events. The six month prospect for the dollar has not changed very much regardless of the fireworks.


The ECB and has made it quite clear that it will not be reducing rates in response to current market or economic conditions. It would likely take a drop in GDP growth to below 1% annually to shake the governors from their anti-inflation stance. But it is also evident, despite rhetoric to the contrary, that the bank will not be raising rates. If the US slowdown materializes and then travels to Europe, the ECB governors will look like unimaginative ideologues. If the US does not does not slow or its effects do not cross the Atlantic then they will be steadfast protectors of the public good. But either way they have taken their stance.


Only in Japan might a 0.8% monthly rise in CPI be a cause for quiet relief. This underscores the difference between Japan and the rest of the industrialized world. Japan has flirted with price deflation, a phenomenon not seen in the west since the depression, for much of the last 15 years. Plagued by an aging and falling population, the government’s attempt to re-inflate the economy and boost domestic spending have been only marginally successful.

Economic Releases January 21 - January 25

United States

Thursday: weekly unemployment claims fell 1,000 in the January 19th week to 301,000 the lowest total since September 22nd of last year. Median prediction had been for a rise of 20,000 to 321,000. Initial claims often drop in January following layoffs at the end of the Christmas season in late December. But 400,000 or more, is usually associated with the beginning of a recession. Existing Home Sales slipped 2.2% in December to 4.89 million a bit below the median prediction of 4.95 million. In the first nine months of 2007 existing home sales, homes that are normally occupied by their owners, fell an average of 3.76% per month. During October, November and December the pace of decline slowed to an average of 0.97% per month. The median home price in December was $208,400, six percent lower than December 2006.


Wednesday: industrial new orders were almost twice as active in November as predicted gaining 2.7% on a +1.4% forecast. October’s figure was unrevised at +2.5%. The flash (1st issue) composite Purchasing Managers Index (PMI) for January registered the lowest since June 2005 at 52.7, December had been 53.3. Services PMI fell to 52.0 from 53.1, a 53 month low; manufacturing PMI was unchanged at 52.6.


Thursday: the IFO Index of businesses posted a surprising rise in January with the headline ‘business sentiment’ moving up to 103.4 on expectations of 102.2 and a December reading of 103.0. ‘Business expectations’ gained also to 99.00 on predictions for a fall to 97.3 from December’s 98.2. Only the ‘current assessment’ component was lower in December at 107.9, as opposed to December’s 108.1, though it was ahead of the 107.1 prediction. On the whole the condition of firms in German industry and trade continues to be robust, said IFO president Hans-Werner Sinn in a prepared statement.

Friday: GfK consumer confidence was stable in February at 4.5, the same as in January and 0.1 higher than December.

United Kingdom

Monday: Rightmove House Prices complied by the British real estate web site sank 0.8% in January, leaving them 3.4% higher on the elapsed year.

Wednesday: preliminary fourth quarter GDP rose 0.6%, 2.9% year to year. This was 0.1% less than the growth in the third quarter, stronger than the 0.5% expected but below the most recent BOE estimate of 3.2%.


Friday: national core CPI in December rose 0.8% year to year in December, led by gasoline and heating oil prices. A gain of 0.6% had been predicted. In November the index rose 0.4%. Central Tokyo CPI, often take a proxy for the national tendency, moved 0.4% higher in January after a 0.3% rise in December. In all of 2007 this index rose 0.1%, the same as in 2006.


Q4 core inflation rose to a 16 year high at 3.6%, well over the Reserve Bank target band of 2-3%, and keeping anticipation rife that the Reserve Bank of Australia will hike rates in February despite the 20% fall in the All Ordinaries Stock Index.