Sterling has been blasted lower after BoE governor Carney cast doubt on a previously pretty-much-expected UK May rate hike. The EU's rejection of Britain's latest Brexit-Irish border plan only served to deepen the rot.
Article / 21 November 2012 at 4:12 GMT

3 Numbers To Watch: BoE Minutes, US Claims & Consumer Sentiment

editor/analyst /
United States

Today's Bank of England minutes may drop clues about what comes next for monetary policy. In the US, all eyes will be watching jobless claims data for signs of whether last week's surge in new claims was due to weather or the start of new troubles. Meantime, US consumer sentiment is expected to hold its recent gains.

Bank of England Monetary Policy Committee Minutes (09:30 GMT) Do the monetary mavens at BoE feel caught between the proverbial rock and the hard place these days? On the one hand there's the recent news that Britain emerged from recession in the third quarter. Surely that was a factor in the monetary policy committee's (MPC) decision earlier this month to forgo an extension of its quantitative easing (QE) program, which is designed to juice the economy. But Britain's central bank cut its economic forecast for 2013 last week.

Further clouding the outlook is a revival of pricing pressures, if only slightly. Consumer inflation in the UK advanced 2.7% for the year through October, up from September's 2.2% rate and the fastest pace since the spring. Today's minutes release may provide context for deciding how Britain's central bank interprets the latest mix of moderately higher inflation and reduced growth expectations. BoE governor Mervyn King isn't shy about recognizing the conflicting signals for monetary policy. "We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while," he said at the November 14 inflation report press conference.          

Does all of this leave open the door for reviving QE? Or is BoE inclined to err on the side of caution with stimulus given the latest inflation pop? Today's release of MPC minutes may provide the answer.

US Initial Jobless Claims (13:30 GMT) The stakes are higher than usual for today's weekly update on new filings for unemployment benefits. Last week's huge spike in new claims to 439,000 was arguably due to the temporary distortions from Hurricane Sandy. This morning's release will put that theory to the test. Hanging in the balance is an optimistic view of last week's reversal of fortunes.

Economists are expecting a decline in today's update, but the forecast is only a down payment on repairing the statistical damage. The consensus outlook sees only a mild retreat, with claims dropping to 415,000. Better, but still a high number that will face headwinds for persuading the crowd that weather is the only gremlin in the labor market's machine.


An upside surprise, however, is unlikely—good thing, too, as that would be disastrous for sentiment in the wake of last week's large increase. Still, it's not obvious that a moderate decline will satisfy the crowd at this point, given the anxiety linked to the fiscal cliff. The potential for a higher-than-normal round of market volatility, in short, is substantial in the wake of today's update.

US Thomson Reuters/University of Michigan's Survey of Consumers (14:55 GMT) Revisions tend to be minimal for the consumer sentiment component of this survey, and that's a good thing at the moment. Consumer sentiment jumped to a five-year high in October, and the preliminary estimate for November extends the rise a bit more. True, the consensus estimate sees a slight retreat for the final print on November, but there's broad agreement that today's revision won't change much in terms of the bullish rebound of late.

It's not really a surprise to see consumer sentiment rising these days. Consumer attitudes tend to track the annual pace of spending. But sentiment has been trailing over the last few years. With real personal consumption expenditures increasing by roughly 2% a year through 2012, the revival in consumer sentiment is catching up with spending patterns.


Further increases in sentiment readings depend on whether spending's pace can rise in the months ahead. In turn, higher spending depends on stronger job growth. October's payrolls were relatively upbeat, with private sector jobs rising the most in eight months. If the healing in the labor market continues, consumers will feel better about their finances and the economic outlook.

For now, however, merely holding on to the recent gains will be a minor milestone for the sentiment index. The odds look good for a favorable outcome, according to the consensus forecast: a mild retreat to 84.0 from November's preliminary estimate of 84.9.

Shannaboy Shannaboy
Thank you for the comprehensive overview James!
James Picerno James Picerno
Today's update shows that new claims dropped to 410,000, or roughly in line with expectations. The bad news is that the previous week's claims data, seasonally adjusted, was revised up to 451,000. The new question is deciding how long a a return to "normal" will take? For the moment, at least, the hurricane blowback seems to be fading, but slowly. That's going to keep the debate open for interpreting the recent surge in jobless claims. Was it really storm related, or is it a sign of something darker for the labor market?


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