Wednesday, April 10, 2013
The earlier-than-expected release of the minutes of the Fed's
March meeting add a bit of surprise to today's trading session.
But the FOMC deliberations were likely overtaken by subsequent
economic developments. Last week's underwhelming economic data
has likely strengthened the hands of Fed doves, making minutes
mid-year timeline for the QE program moot.
The Fed aside, there is not much on the economic docket. We
have overnight news of a positive-looking bigger-than-expected
trade deficit number out of China. But that country's first
quarter trade data is typically not that reliable, given the
seasonality distortions created by the Lunar New Year. All in
all, we will likely have a quiet trading session today.
China's March trade data overnight showed a surprise deficit
of $884 million vs. consensus expectations of $14.7 billion
surplus. The March deficit follows the $15.25 billion surplus in
Rising imports that caused the March deficit could prove a
major boost for China's trading partners going forward and would
be a strong signal of the domestic demand strength. But we will
need more trade data to confirm that trend given how the
country's import numbers get distorted in the first few months of
the year by the Lunar New Year. That said, total imports for the
first three months of 2013 are nicely up from same period last
year, indicating that outlook for China is steadily
Minutes of the Fed's March meeting came out early this time
and they seem to indicate greater support for changing the $85
billion a month bond purchase program beyond mid-year. The
greater support for this plan is an interpretation of the 'all
but a few' FOMC members that minutes indicate want to keep the
current QE program through mid-year.
This is new and indicative that the 'hawks' were gaining more
support on the FOMC for their stance. But that was in March, when
all economic data was pointing to strong momentum in the economy.
Last week's data, particularly the disappointing non-farm payroll
report from last Friday, is pointing towards another episode of
'Spring Swoon.' It is hardly a given that the 'all but a few' on
the FOMC who were willing to give the QE program only till June
will stick with that stance knowing that the economy was losing
The 'hawks' on the FOMC believe that the QE program does more
harm than good. It will be interesting to know whether they
continue with that stance even after they see that the economy's
footing was a lot more weaker than earlier data indicated. We can
be confident, however, where FOMC 'doves' stand on that question.
And it is reasonable to assume that the Bernanke and Dudley duo
carry a lot more weight on the FOMC than the others.
Director of Research
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