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Capital account parochialism

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  • The US Federal Reserve starts its two day meeting . We are not looking for any change to rates (obviously) nor to the quantitative measures - as Q4 GDP slows. However we do see a pullback in quantitative policy this year (the Fed has already moderated its balance sheet relative to GDP).
  • The Financial Times is making much of the fact that NET investment flows into the Euro area periphery have increased over the course of 2012, which it presents as being a return of confidence in the Euro area. However, this might be a somewhat simplistic interpretation.
  • A cursory glance at capital account data shows that at least some peripheral flows reflect not foreign investment into the home market, but capital account parochialism - the reversal of capital globalisation. Domestic investors are pulling funds back. The motivation behind such flows is obviously key.
  • French and German consumer confidence data is due today and may offer something of a study in contrasts. The French business sentiment data has been hitting new lows, as German business sentiment has improved. Will this divergence also be reflected in the consumer numbers?

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