The Chinese government has reportedly ordered some cities to impose higher down-payments and interest rates on mortgages for the purchase of second homes. There is a lot of media comment about this, but as I write it here it doesn’t seem wildly significant. Still, what is going on is an attempt to read the runes. I have expected the Chinese government to attempt to reduce the amount of lending after the spurt in total social financing last year. There may be further things going on behind the scenes, and it is partly as an indicator of those things, whatever they are, that the latest public move in informative.
Mr. Kuroda has said that he would consider starting asset purchases sooner than planned and will do whatever is needed to end deflation. Two things strike me about these statements. First, Mr. Kuroda’s appointment and the actions he subsequently takes will all be part of the implementation phase of Mr. Abe’s economic plan, to which the markets have already reacted. The Abe plan is now the status quo; successful implementation may not have much of a marginal effect on market sentiment, whereas any slip-ups could have a large effect.
There is also the question, of course, of whether Mr. Kuroda will be able to end deflation in Japan. Mr. Abe has so far been successful in reducing real interest rates (by pushing up inflation expectations, by changing the market’s assessment of the BoJ’s future reaction function); hence monetary policy is already rather looser than it was before. Mr. Kuroda may struggle to do much more, especially if deflation continues to be reported, month after month. His objective will be to get inflation expectations higher still and to keep them there.
Mr. Bersani has been toying with the idea of a Senate-minority government, something I talked about last week. Mr. Grillo has said that he will not give a confidence vote to any government, but Mr. Bersani might make it through one with the help of Mr. Berlusconi. On the other hand, the latter might decide he would rather be inside the government, in which case Mr. Bersani will have to form a coalition. He has dismissed that idea, but I am not convinced by the dismissal; I suspect it is just that he would rather not work with Mr. Berlusconi unless he has to. And who can blame him?
Kenyans go to the polls today. The previous national election saw a certain amount of bloodshed (about a thousand dead as I recall) and a lot of people displaced (over 600,000 I believe). Let us hope that this election will be smoother, and, as a secondary hope, that the candidate who has not been indicted by the International Criminal Court will be the winner.
There has been a lot of interesting data flow over the past few days. Here is a quick summary. US Q4 preliminary GDP came in at 0.1%, down from the advance release. More recent data were more positive, with the ISM PMI, revised Michigan sentiment and vehicle sales all showing improvement. January’s Personal Income and Outlays report showed personal spending up 0.2% as expected, and disposable personal income up 0.3% after adjusting for various unusual factors (headline personal income was down 3.6% MOM!). Elsewhere, China’s PMI’s were on the weaker side, with the non-manufacturing index the weakest it has been since September, and the Eurozone continued to look glum, with unemployment making a new high of 11.9% and CPI falling to 1.8% in the flash estimate.