Simultaneous tightening and easing
- The Reserve Bank of Australia gave a demonstration of masterful inactivity and left rates unchanged, though clearly signalled an easing bias. One concern that was voiced related to the Sydney housing market. It is possible that the RBA wishes to see the effects of the December policy tightening (regulation) before deciding on further easing (monetary).
- The Euro area has seen a regulatory tightening, but unlike Australia this has been more clearly overwhelmed by other policy measures. Yesterday's stronger than expected reading for inflation seems to mark a trough in Euro area consumer prices, which we see picking up as the year progresses.
- The light dusting of snow at the start of the year may have temporarily deterred the US consumer from purchasing another sports utility vehicle, and auto sales are likely to reflect that. However, yesterday's data signalled consumer spending growth near 3% in real terms, giving a solid foundation to our above trend GDP forecast this year.
- Japanese total cash earnings were weak again, falling in real terms as the effects of the consumption tax continue to play out. The Japanese deflation mentality has always been more about wage expectations than price expectations, which is why improved earnings in the spring wage round are so important.