3 Numbers To Watch: BoE & ECB announcements, US jobless claims
• Scant hope that the ECB will take action either
• US initial jobless claims seen inching down to 330,000
Bank of England Monetary Policy Announcement (11:00 GMT): It’s all about housing today, and what—if anything—the central bank plans to do or say about it. Some have already picked up the habit of calling the UK real estate boom a bubble, and offered equal stark policy prescriptions. The Bank of England (BoE) “may yet need to go nuclear to burst the housing bubble,” The Guardian recommended. The OECD also warned that the residential real estate market in Britain is becoming a bit frothy.
The British housing market is racing ahead, but the BoE will hardly change rates today. Photo: allinvisuality
Perhaps, but no one sees a change in interest rates today. The BoE’s
policy rate of 0.5 percent is widely expected to stand after today’s policy
news. Prudent or not, keeping rates low contrast with the
strong price increases in housing. According to the Nationwide House Price
Index, UK prices jumped 10.9 percent on the year through April—the most in
nearly seven years and the first double-digit increase since 2010.
The fact that economic momentum generally remains positive for the UK
suggests to some analysts that the time is ripe to begin the job of reducing
the liquidity stimulus. But the advice will fall on deaf ears today. The BoE is
comfortable with letting its stimulus policy continue as is for at least three
reasons. One, inflation is now below the central bank’s two-percent target.
Two, the recovery has only recently been posting convincing signs of growth.
Three, BoE Governor Mark Carney has recently gone on record (again) stating
that it’s still too early to start hiking rates. “We are one year into a
recovery, but it is an uneven recovery,” he said last month. “Our job is to
help turn this into a strong, sustainable and balanced expansion.” For the
moment, that still means erring on the side of letting the economy run a bit
hotter for longer.
European Central Bank Policy
Announcement (11:45 GMT): Like the
BoE, the ECB is widely expected to let its current policy rate stand. Europe's
central bank is also receiving lots of unsolicited advice to act.
But that’s where the paths divide. Whereas there’s a growing chorus of policy
wonks recommending that the BoE begin raising rates, the opposite prescription
is directed at the ECB. Deflation is still a risk, which prompts The Economist
to write: “Please ease” this week.
It’s not going to happen, at least not today, according to the consensus
forecast. The 0.25 percent policy rate will be with us a while longer. But the
OECD thinks it’s time to do more. “Disinflationary pressures are now strongest
in the euro area,” the think-tank observed in its new economic outlook. Headline
inflation is “well below the ECB objective of a rate close to two percent and the annual
rate of core inflation declined by around ¾ percentage point over the year to
March, to just 0.7 per cent, before rising back to an estimated one percent in April.”
Although the ECB isn’t likely to be persuaded to roll out an aggressive
new stimulus programme, the recent economic news has been modestly encouraging
to the point that it offers the bank some leeway to argue that it can continue
to wait and hope. Inflation’s a bit higher (although still unusually low) and
growth’s a bit stronger, and so June is now the best guess as the start of any
change in monetary policy. But much depends on how the numbers look between now
and then, including the trend in the euro, which continues to strengthen.
In other words, waiting and watching has a price these days. A stronger euro is
increasingly squeezing the Eurozone economy by making exports less competitive.
Indeed, ECB President Mario Draghi has recently said that a stronger currency
at some point would probably trigger asset purchases. “The main problem for the
ECB is if they don’t do anything,” a UBS currency strategist told Bloomberg
yesterday. “Then I would think we’d break the highs of the year, which will
mean more pressure for them later on. If we do go above USD 1.40 it would create a
lot of headlines that they could do without.”
US Initial Jobless Claims
(12:30 GMT): Last week’s
disappointing report on new filings for unemployment benefits threw cold water
on the recovery party. Although the unexpected surge in claims to 344,000 for
the week through April 26 looks like an anomaly, we’ll have a better sense of
how to think about this leading indicator after reading today’s release.
The latest pop in claims would be worrisome if it reflected the general
trend in economic news. It doesn’t. Most of the recent data updates for
March look encouraging for anticipating a faster rate of growth in the spring. Until last week, that was also the implied forecast in
jobless claims, which dropped to a seven-year low in early April. Is the data
now telling us something else? Unlikely, at least for now. Claims are
quite volatile in the short run and so we’ll need to see several more
discouraging reports to argue that this data set is now projecting a darker
future. But the risk of another round of bad news looks minimal for the data du jour, according to
the wisdom of the crowd. Claims are expected to post a modest retreat to
330,000 in today’s release, down from 344,000 in the previous week.
That’s enough to drum up a fresh round of support for thinking that the labour market is still growing. Then again, this would be an unusually awkward moment for another upside surprise. Claims are currently at the highest level since February, and so a fair amount the recent improvement in the macro outlook is hanging in the balance with today’s update.
— Edited by Clare MacCarthy