BoJ says inflationary target oil price dependent; BoE notes labour-cost pressure starting to build in UK; Greek tragedy being fueled by inflammatory headlines

By Raiko Shareef

NZ Dollar

One day older, but some might say none the wiser as across markets we have just minimal changes overnight in most asset classes. Central banks are some focus for most this week and the BOJ and BOE have now been and gone while minutes from the late January meeting of the Federal Reserve are due later this morning (8:00am NZT).

The BOJ came and went yesterday, their policy decision contained few surprises, maintaining an overall economic assessment of a "moderate recovery trend" but also raising its assessment of output and exports as had been speculated earlier in the local press. The BOJ said that their 2% CPI target is likely to be met in 2015/16 if oil prices recover, a familiar sentiment in central bank musings at this time. They also removed references to dissipating effects of decline in demand related to last April's consumption tax hike.

Overnight the BOE released the minutes from their February meeting where no change to policy settings was a 9-0 vote around the table. Commentary noted that inflation may accelerate in 2016 once the impact of oil prices fades while also making mention of data that shows labour-cost pressure is starting to build. On the day improving unemployment data was released, underpinning the GBP which outperformed its peers through the night.

Bubbling away as always, the Greek tragedy with inflammatory headlines from various political figures getting attention. The mainstream press reports the Greeks are looking to revive a putative deal floated by Moscovici of the EC on Monday that would extend the current bailout for four months from the end of February. The conditions attached to such an offering are the sticking point, with neither party at the table looking like they will cede ground from their respective starting points. The WSJ reports that EZ finance ministers have “tentatively scheduled a meeting on Friday to discuss a request from Greece to extend its bailout, but they will only meet if the request eases their concerns about policies of the new left-wing government”.

In the US there’s a day of disappointing data releases. January PPI prices were softer than expected, with all components undershooting expectations. Core PPI contracted and the alternative core measure that includes trade fell by 0.3%, the first negative monthly reading in the brief 17-month history of the series. January housing starts, industrial production and building permits narrowly missed expectations.

After the FOMC the local day features ANZ job ads (for January) though we expect greater focus will be on the subsequent Q4 PPI data at 10:45am where we watch for output prices further impacted by lower dairy export prices (for -1.7% y/y) while input prices should begin to feel the downdraft from falling oil prices (with -3.0% y/y). Such intensifying deflation in these indices might just get some airtime in the markets and media.

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