The Bank of Japan has held off expanding its massive monetary stimulus programme, preferring to keep its powder dry in the hope that the economy can overcome the drag from China’s slowdown without extra support.
But the central bank is likely to remain under pressure to expand its asset-buying or quantitative easing programme as slumping energy costs, weak exports and a fragile recovery in household spending kept inflation well short of its 2% target. Consumer prices fell 0.1% in the year to September, a second monthly decline, while household spending slid 1.3% from a year earlier, official figures released on Friday said.
The BOJ maintained its pledge to increase base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen ($662bn) through aggressive asset purchases.
There was a host of Euro Area data releases between 0700 and 1000 GMT on Friday morning, the most closely watched of which was the Euro Area Consumer Price Index released at 1000 GMT. While the broad basket index came out in line with expectations at 0.0%, the core CPI figure came out moderately stronger than expected at 1.0% (expectations were 0.9%). In spite of the slight uplift in data, there was no real movement in the Euro as a result.
Around lunchtime, the market saw US Personal Income, Core Personal Consumption, Personal Spending and the Michigan Consumer Sentiment Index all slightly weaker than expected. The US Dollar lost some ground as a result. On the business front, the Chicago Purchasing Managers’ Index came out stronger than expected, but could do little to stem US Dollar weakness as the US trading session opened.
Although there was no data released for the UK on Friday, Sterling rose to six-week high against a trade-weighted basket of currencies on Friday, bolstered by expectations that British interest rates may rise faster than previously anticipated. The sterling index was at 92.8, its highest since Sept. 21, and on track for its best monthly performance since June this year.
That view grew after the Federal Reserve earlier last week signalled it may raise rates in December. Investors have brought forward expectations of a first rate increase by the Bank of England to the third quarter of 2016, after pricing in a chance of a move in the fourth quarter at the start of the week.
The BoE is expected to become the second major central bank after the Fed to raise rates since the financial crisis. By contrast, the European Central Bank said last week it was prepared to loosen policy further in the euro zone, Britain's biggest trading partner.
Attention will now be on the BoE's Quarterly Inflation Report, which will be released on "Super Thursday" along with a rate decision and the minutes from the latest monetary policy committee (MPC) meeting. The BoE has said it does not need to wait for the Fed before it raises rates. But many investors remain skeptical over whether they would move first.
0900 – EUR : Markit Manufacturing PMI (Oct) expected to remain at 52
0930 – GPB : Markit Manufacturing PMI (Oct) expected to contract to 51.3 from 51.5
1500 – USD : ISM Prices Paid (Oct) expected to improve to 39.5 from 38.0
1500 – USD :ISM Manufacturing PMI (Oct) expected to decline to 50.0 from 50.2
1500 – USD :Construction Spending (MoM) (Sep) expected to decline to 0.5% from 0.7%
Daily Market Report - 02/11/2015