The Bank of England minutes for the last market policy meeting confirmed an 8:1 vote in favor of an unchanged policy. Only Blanchflower dissented, voting for a 0.25% cut. In fact, in view of the tighter credit conditions and the worsened conditions of trading partners the committee gave due consideration to a rate cut. Obviously this was not considered a strong enough reason at that time since they perceived a potential problem if this would have been misinterpreted as a signal that the outlook for growth had shifted decisively to the downside. In fact the committee considered that there had been "only limited" signs of slowing in the economy with consumer and business confidence remaining high. Yesterday’s unemployment data showed no sign of any loss of jobs, but indeed the opposite with jobless claims reducing by 12.8K instead of the 4K forecasted though the underlying claimant count rate remained at 2.6%. This tends to act more positively on the Pound and over the next week or two there should be further gains but these may not be too strong with a core of belief growing that the economy is going to see a significant slowdown over the coming year. There was no data from Europe but a couple of comments from ECB officials. Liebscher still pointed out that the record highs in oil prices still point to significant upside risks to inflation. However, he reaffirmed his belief that the Euro-zone growth is “ongoing and rather robust” although added that a mild slowdown will probably occur next year with market uncertainties spilling over into 2008. Liikanen also expounded that view but only saw real problems occurring should the current turbulence extend significantly into next year. Onto the States where inflation saw a small uptick as CPI numbers were released at +0.3% MoM and 2.8% YoY. Core inflation held to forecasts at +0.2% MoM and +2.1% YoY. These aren’t serious bad numbers but the refusal for inflation to moderate will be concerning the Fed which has been basing some decisions on reduced inflationary prospects because of the current problems. As time progresses, it will begin to tie their hands with a need to lower rates to cushion the credit crunch problem but also the need to control inflation which is the primary goal. And yesterday’s Housing Starts will not have helped with a much larger fall than expected, a comment that seems to have occurred for the past few months. September saw starts drop by a large 10.2% to a 1191K rate, well below forecasts of 1283K. Building Permits were off 7.3% to 1230K–below forecasts of 1288K. These numbers are pretty much a disaster and from reports even worse than the most bearish of estimates within the industry. So much so that the talk on the building sites is of more job cuts. Compounded by a huge inventory of unsold homes and a growing number of defaults on mortgages it is very difficult to begin to think of when this mess will finally be sorted out. This will still weight heavy on the Dollar. So how will the G7 meeting really halt a declining Dollar? With the IMF saying it is overvalued and yesterday another IMF official, Johnson, saying the Dollar’s decline is orderly it is difficult to even see any prospect of a meaningful correction. Indeed Johnson described the decline, “We think its part of the natural, healthy process of global rebalancing and as long as it's accompanied by adjustments in other countries ... we think it'll be pretty healthy.” Now, whether the market will attempt to take the Dollar lower ahead of the G7 conference is a totally different matter. The risks of knee-jerk reactions to any comments made within the communiqué that will trigger stops is far too great and the prospect is for a rather boring two days into the weekend. The economic release calendar is winding down also with limited numbers to be able to act as a strong enough catalyst to force a break of range and with no U.S. releases at all tomorrow. There will be plenty of debate and plenty of stories made up to fill analysts’ columns, but the end result, barring any catastrophe, is erratic short term ranges within the larger range of the past 2-3 weeks.
More later when the analysis is complete.
The following economic releases are due today from Asia. Australian September Preliminary BOP Imports
Australian Reserve Bank Monthly Bulletin Japan – September
Nationwide Department Store Sales (YoY)
Tokyo Department Store Sales (YoY) | 
