$BA: The World Is Developing An Inflation Problem

“Critics of sustained easy monetary policy in the United States often cite the potential for a surge in inflation down the road.

The real problem right now though, according to BofA Merrill Lynch economist Ethan Harris, is actually the opposite – disinflation (positive, but falling inflation rates).

“For central banks,” many of which have a 2 percent inflation target, says Harris, “this increases the pressure to maintain super-easy monetary policy.”

Most of the central banks across the developed world still aren’t generating enough inflation to hit their targets, even though many have pinned interest rates at or close to zero. The United States, Canada, the euro area, Sweden, Switzerland, Japan, and Norway all find themselves facing this issue (the U.K. and Australia are notable exceptions).

This struggle, says Harris, is behind the “shift to QE — a less predictable and more controversial policy tool.”

(In 2013, a flurry of speeches by Federal Reserve governors expressed concern over the continued trajectory of quantitative easing and what it means for financial stability.)

So, what’s behind the disinflation?

According to Harris, there are three major fundamental drivers of falling inflation rate….”

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“(Reuters) – Modeled on the hawkish, inflation-fighting Bundesbank, the European Central Bank is used to focusing on containing price rises rather than worrying about them increasing too slowly – or even falling.

But now ECB policymakers are keenly aware that inflation in their 17-country euro zone risks slipping further below their target of just under 2 percent, even if they insist deflation is not a threat.

The concern – which will add to pressure for the bank to cut interest rates or take other “easing” actions – has been highlighted by a slide in Greek inflation to below zero.

So far Greece, which entered deflationary territory in March for the first time in 45 years, is an isolated case. But price pressures are weak elsewhere in the euro zone periphery once tax rises are discounted.

In Portugal, annual inflation is running at 0.5 percent, although Nordea analyst Holger Sandte calculates consumer price inflation measured at constant tax rates is just 0.3 percent there. It is at 0.7 percent in neighboring Spain, he says.

“Given the recession, rising unemployment and tight fiscal policy in these countries, it would be no surprise at all to see rates below zero at least for a few months this year,” said Sandte, one of a batch of analysts to put out research notes in recent days on the risk of a drift towards deflation.

Even in France, inflation slowed to 1.1 percent in March….”

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“Gold plunged into bear market territory Friday, as a fierce selling wave swept across commodities markets and shorts raised their stakes.

Gold tumbled four percent and fell below $1,500 per troy ounce for the first time since July, 2011. It officially entered bear market territory Friday, down more than 20 percent from its August, 2011 high of $1,891.90.

Silver futures lost nearly five percent to $26.30, and it is now 45 percent below its April, 2011 to high. Oil fell more than 2 percent, with West Texas Intermediate breaking through a support level at around $92 per barrel…”

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“The U.S. Treasury Department said it will press Japan to refrain from competitive devaluation while stopping short of accusing it of manipulating the yen in a report on exchange rates.

The Treasury will pressure Japan to adhere to international commitments “to remain oriented towards meeting respective domestic objectives using domestic instruments and to refrain from competitive devaluation and targeting its exchange rate for competitive purposes,” the department said in its semi-annual currency report to Congress released in Washingtonyesterday. The report also declined to name China a currency manipulator.

“This is a shot across the BOJ’s bow,” Kit Juckes, a global strategist at Societe Generale SA inLondon, said in an e-mail. “Everyone still supports Japan’s fight against deflation, but the U.S. would much rather the yen did not weaken significantly further.”

The Bank of Japan (8301) surprised markets on April 4 by doubling monthly bond purchases to almost match the Federal Reserve’s monetary easing, and by setting a two-year horizon for achieving its goal of 2 percent inflation. BOJ Governor Haruhiko Kuroda said yesterday there’s no time limit to the stimulus.

The Bank of Japan and Japanese Finance Ministry didn’t answer phone calls today byBloomberg News.

The yen has depreciated against all 16 of its most-traded peers since April 4, declining 2.2 percent to the U.S. dollar, 3.5 percent to Europe’s 17-nation common currency and 2.8 percent to Australia’s dollar.

‘Too Rapid’…”

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[youtube://http://www.youtube.com/watch?v=6ihPOTDxMfE 450 300]

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It has often been said that media paints a picture for us to view. If you do not seek out alternative media and news outlets then you will be left with a truly different picture compared to reality.

The next time you argue with a friend, colleague, family member, etc you must ask yourself if you truly know and have all the facts. Have you done your research or are you arguing someones opinion and or indoctrination.

More importantly, you should consider if you have been divided and conquered via information distortion.

Cheers on your weekend!

Click here for documentary

 

[youtube://http://www.youtube.com/watch?v=UmNV8_VBGX0 450 300]

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[youtube://http://www.youtube.com/watch?v=jYuTaxJC2Qs 450 300]

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[youtube://http://www.youtube.com/watch?v=KJGbFeg62as 450 300]

 

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[youtube://http://www.youtube.com/watch?v=vVGd9R3O-sU 450 300]

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“Bearish forecasts for the U.S. economy are giving way to more upbeat views of the nation’s ability to weather federal spending cuts and tax increases.

At Morgan Stanley in New York, Chief U.S. Economist Vincent Reinhart now sees a 3 percent pace of growth in the first quarter, up from 0.8 percent in December. JPMorgan Chase & Co.’s Bruce Kasman raised his forecast to 3.3 percent from 1 percent.

“What happened at the beginning of the year was a genuine surprise in terms of how well the economy held up,” Kasman, the firm’s New York-based chief economist, said in an April 5 conference call.

Gross domestic product probably climbed at a 3 percent annualized rate from January through March, according to the median forecast in a Bloomberg survey of 69 economists from April 5 to April 9. That’s up from the 2 percent gain projected last month and 1.6 percent in December.

Consumers overcame a 2 percentage-point increase in the payroll tax and higher gasoline prices to spend at the fastest pace in two years, the survey shows. The pickup, combined with sustained gains in housing and business investment, will help propel the expansion through the worst of the automatic government cuts that are projected to take effect this quarter.

“We are surprised that there wasn’t a bigger and more immediate hit to spending” by consumers, said Reinhart. “There is an underlying momentum in spending, which means that sequestration and the tax increase will only lead to a momentary pause.” …”

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“Retail sales in the U.S. unexpectedly fell in March by the most in nine months as employment slowed, showing households ended the first quarter on softer footing.

The 0.4 percent decrease, the biggest since June, followed a 1 percent gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for an unchanged reading in March. Department stores and electronics dealers were among the weakest showings.

The figures may prompt economists, who are projecting consumer spending climbed in the first quarter at the fastest pace in two years, to reduce growth estimates. A pickup in hiring and bigger increases in wages will be needed to ensure any slowdown proves temporary as federal budget cuts restrain the world’s largest economy.

“Consumers are still on somewhat shaky ground,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “We need more evidence that the spurt of activity seen early in the year is sustainable.”

Wholesale prices fell more than forecast in March as the cost of energy slumped by the most in three years, data from the Labor Department also showed today. The 0.6 percent drop in theproducer price index was the biggest since May and followed a 0.7 percent gain in the prior month….”

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SOURCE
NYSE

NASDAQ

AMEX

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ABT, AMZN, APO, CAT, HD, MA, KORS, MSFT, OXY, SNDK, TTM, V, ZUMZ,

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In Play ,

On the Wires 

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“The latest rail data from the AAR showed another weak year over year reading at just 0.2%.  This brings the 12 week moving average down to 5.25% from a recent high of 6.75% and is likely to slow substantially from here.  Looking at the recent data and current trend it would not be surprising to see ~3% readings in this data by the time May rolls around.

For now, the data is still consistent with a growing economy, but it will be interesting to see how this data pans out as the summer rolls around.  We’ve now had 4 consecutive weeks of negative average readings so hopefully this is not a developing trend.

The AAR has more details: …”

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Retail – ex auto -0.4%

CPI core is 1.7%

Futures react negatively nearly doubly downside off the data….

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“The International Monetary Fund lowered its forecast for U.S. growth as automatic budget cuts take hold, according to a draft of the Washington-based lender’s World Economic Outlook.

U.S. gross domestic product will expand 1.7 percent this year compared with a previously forecast 2 percent advance, according to the draft report obtained by Bloomberg News. The draft, which was presented to the IMF board last week, may be subject to revisions before its scheduled April 16 release.

The U.S.’s fiscal tightening that took effect last month will restrain consumption temporarily, the report said. The global economy will expand 3.4 percent this year, compared with 3.5 percent forecast in January, according to projections in the report….”

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“A new U.S. military intelligence assessment says for the first time that North Korea may have developed a nuclear device small enough to mount on a ballistic missile, but said such a weapon’s “reliability would be low.”

In an assessment by the Defense Intelligence Agency, a branch of the Pentagon, analysts appeared to upgrade U.S. estimates of North Korea’s nuclear-weapons abilities, according to a portion of the report disclosed by a lawmaker at a House hearing on Thursday.

There was disagreement in Washington over the extent of North Korea’s capabilities, with Obama administration officials and the Pentagon press office saying there isn’t evidence that the country could use such a weapon.

Tensions are running high in Washington over how best to address the North Korean threat without triggering precipitous reactions from U.S. allies in North Asia. The White House has made an effort to rein in tensions and more tightly control the message, but as the varying interpretations of Pyongyang’s abilities show, that can be difficult on politically charged issues.

The Defense Intelligence Agency, or DIA, rated its confidence in its finding as “moderate.” Experts said that, if proven accurate, the assessment would mark a dangerous advance in the North Korean program.

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“In further evidence of growing exuberance over prospects for Japanese stocks, U.S. investment bank Goldman Sachs late Thursday upgraded its 12-month target for both Japanese benchmarks – the Nikkei and Topix – on expectations of bumper earnings growth.

It increased its target for Nikkei to 16,000 from 15,000 and for the Topix to 1,350 from 1,250 earlier, which marks a near 20 percent upside from current levels.

“Last week’s announcement by [Bank of Japan] Governor Haruhiko Kuroda was the most credible attack on deflation that Japan has seen in a very long time, there’s prospect for Japan to exit this liquidity trap and get its domestic economy back on its feet,” Kathy Mitsui, chief Japan strategist at Goldman Sachs told CNBC on Friday.

For the Topix, Mitsui forecasts earnings per share growth of 54 percent in the fiscal year ending March 31, 2014 and 23 percent in following year, driven by expectations of stronger gross domestic product (GDP) growth in the world’s third largest economy and continued weakness in the yen. The bank expects the yen to weaken to 105 against the U.S. dollar by the end of the year, and to 110 in 2014.

Gains in the Topix – which has risen almost 60 percent since mid-November when Prime Minister Shinzo Abe unveiled in his bold election campaign to boost the economy with expansionary fiscal and monetary policies – have largely be driven by foreign investor inflows. Japan’s equity markets have seen $60 billion in foreign inflows over this period, which has also pushed the Nikkei up over 55 percent.

And, while this will continue to be a major force for the country’s stocks, Mitsui said, there is also potential for domestic retail investors to increase their participation in the market.

(Read More: Uniqlo Shrugs Off Row, Picks China for Biggest Store)

“Retail investors are gradually beginning to sniff around looking at higher yielding names. There is going to be a time when some domestic money, particularly retail and mutual fund money begins to trickle in again,” she said.

Betting on Consumption…”

 

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