Economic Update – UK Inflation Spikes, Weidmann speaks of ‘normalising’ ECB Monetary Policy, more…

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The term ‘normalisation’ is one that is gaining traction with central bankers. Jens Weidmann – President of the German Bundesbank and also Chairman of the Board at the Bank for International Settlements (BIS) – has spoken of his optimism for Emmanuel Macron’s victory in the French election and how this and false fundamental data in the EU are combining to create the conditions for ‘normalising’ the European Central Bank’s ‘ultra loose’ monetary policy.

BIS General Manager Jaime Caruana was one of the first to begin pushing the ‘normalisation’ narrative in an interview back in April. Since then it has grown and become part of central banker lexicon.


The Telegraph: Inflation jumps to near four year high of 2.7pc in April

  • jump in air fares over Easter, higher clothing prices and increases in road tax pushed inflation to a near four-year high last month, according to official figures.
  • Prices, as measured by the consumer prices index (CPI), rose by 2.7pc in the year to April, up from 2.3pc in March.
  • This was the third straight month that inflation has been above the Bank of England’s 2pc target.
  • Core inflation, which strips out volatile price movements in energy and food, climbed by 2.4pc in the year to April, higher than expected.

Market Watch: Eurozone trade surplus hits record as exports rise

  • The eurozone’s surplus for trade in goods with the rest of the world during March was the widest since the single currency was launched in 1999, as exports jumped.
  • The surge in exports to a record is another indication that the currency area is set to end the fourth year of its recovery on a high. But it may also reinforce concerns in the U.S. administration about the value of the euro on foreign exchange markets, and a trade deficit with the eurozone that appears to be growing.

Reuters: Euro zone recovery, Macron win give ECB chance to consider unwinding policy

  • An economic recovery and robust outlook in the euro zone mean the European Central Bank may be able to look at normalising its ultra-loose monetary policy, German Bundesbank President Jens Weidmann said on Saturday.
  • Weidmann, one of the most conservative ECB policymakers, said the election of Emmanuel Macron as French president should give the single currency bloc an additional economic boost.
  • “The strengthening economic development in the euro zone and the robust outlook make a normalisation (of monetary policy) conceivable,” Weidmann said at a meeting of the financial leaders of seven leading world economies in Bari, Italy.
  • “The election victory of Macron gives a chance that the euro zone economy gets an additional momentum,” Weidmann said.

The Economic Times: Federal Reserve on course to reduce asset purchases, says William Dudley

  • The Fed will gradually reduce the amount of assets that it buys or probably put some caps on how much they can sell in the market in a way that is least disruptive and well communicated to the market, said Dudley, who is the president of the New York Federal Reserve and the only permanent voting member among the 12 regional Federal Reserve Banks.
  • “For the last few years, as treasury securities mature and mortgage-backed securities prepay, we have been taking those proceeds and reinvesting them back into treasuries and mortgage-backed securities. If the economy continues to follow our expectations, sometime later this year or next year we will decide to normalise our balance sheet and we expect to do that by gradually reducing the amount of assets that we reinvest and probably put some caps on how much we are allowed to run off into the marketplace,” Dudley said.

CNBC: Fed could trim balance sheet monthly over 3-4 years: Chicago Fed’s Evans

  • The U.S. Federal Reserve could start to wind down its balance sheet gradually to get back to a normal size in three to four years, Chicago Federal Reserve Bank President Charles Evans said on Friday.
  • “It would be reasonable to have an amount that you would take out of the balance sheet each month that would be digestible for the Treasury,” said Evans.
  • “Making sure that the path of the balance down is gradual but sufficient to get to a more normal level before too long, say within three to four years.”

CNBC: Fed’s Harker says two more rate hikes this year are ‘appropriate’

  • The U.S. economy is now “normal” and its labor market is roughly “at full health,” a Federal Reserve policymaker said on Friday in repeating his support for two more interest-rate hikes this year.
  • “Things are looking good, we’re essentially at normal now and … I continue to see two more rate hikes as appropriate this year,” Philadelphia Fed President Patrick Harker said in prepared remarks.
  • “We’re looking at a labor market more or less at full health, with very little slack,” Harker, who votes on monetary policy this year under a rotation, said at Drexel University.

Wolf Street: Worst Restaurant Tailspin Since 2009/2010 Crushes Lower End

  • So another chain restaurant is “preparing” to bite the dust. Ignite Restaurant Group, which operates the Joe’s Crab Shack chain with 113 locations and the Brick House Tavern chain with 25 locations, and used to operate the Romano’s Macaroni Grill chain with 150 locations until it sold it in 2015, is preparing to file for bankruptcy, “people familiar with the matter” told Bloomberg.
  • In the quarter ended September 26, 2016, the last quarter for which the company bothered to release an earnings report, same-store sales fell 6.8%; total revenues plunged 10% to $120 million.
  • A liquidity problem turns into a solvency problem: It had $729,000 of cash and about $26 million of “available borrowing capacity under its current credit facility.” Not exactly a lot, considering that the company lost $15.2 million in Q3, up from a loss of $4 million in Q3 2015.

Zero Hedge: “Flood Of Off-Lease Vehicles” Set To Wreak Havoc On New Car Sales

  • The percentage of new car ‘sales’ moving off dealer lots via leases has nearly tripled since late 2009 when they hit a low of just over 10%.  Over the past 6 years, new leases, as a percent of overall car sales, has soared courtesy of, among other things, low interest rates, stable/rising used car prices and a nation of rental-crazed citizens for whom monthly payment is the only metric used to evaluate a “good deal”…
  • Of course, what goes up must eventually come down.  And all those leases signed on millions of brand new cars over the past several years are about to come off lease and flood the market with cheap, low-mileage used inventory.
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