DBdaily: AsiaPac Edition - Ahh... Soothing...
17 July 2013 (8 pages/ 224 kb)

http://pull.db-gmresearch.com/p/2174-659D/93561580/DB_DbDailyAPAC_2013-07-17_0900b8c08709bf54.pdf

HEADLINES...
Markets: US equities initially climbed as Bernanke’s Congressional testimony reiterated that QE paring was data dependent. However the gains faded following a surprise 9.9% slump in new home starts and 7.5% slide in permits.  Similarly the Fed chairman’s testimony saw bond yields rally, with the move extending on the back of softer than expected data.  
US:  Bernanke’s testimony had a dovish bent. Housing starts declined -92k to 836k while permits fall -74k to 911k in June. MBA new mortgage applications rose 0.5% in the last week.
CAN:  The BoC left rates unchanged at 1.0% (as expected), with the Statement on the dovish side.
UK: BoE minutes show previous votes for QE being retracted in anticipation of a switch to policy guidance next month.

THE DAY AHEAD...
US:  Fed's Bernanke to testifty to the Senate, Initial Jobless Claims, Leading Indicators (Jun), Philly Fed (Jul), TIPS Auction 10 Yr, Treasury Announcement 2 Yr /5 Yr/Yr
EMU:  ECB's Jorg Asmussen to speak, Current Account (sa) (May)
UK:  Retail Sales (Jun)
AUS:  NAB Business Confidence (Q2)
NZL:  ANZ Job Advertisements (Jun), ANZ Consumer Confidence Index (Jul)

Ahh.. Soothing ...
My US colleagues note that Chairman Bernanke’s prepared testimony before the House Financial Services Committee maintained a dovish tone, consistent with his remarks at the NBER conference last week. In the testimony the Chairman highlighted an unsatisfactory jobs situation and elevated unemployment—consistent themes among the dovish core of the Committee. The Chairman continues to anticipate a tapering of asset purchases sometime later this year (and ending in H1 2014 as the unemployment rate reaches 7.0%), but this is contingent upon a strengthening of the pace of growth and continued healthy job gains (which we see as in the vicinity of the year-to-date average of roughly +200k per month).
More broadly, the economy must grow in line with the Fed’s economic projections. According to the latest central tendency forecasts, policymakers expect real GDP growth around 2.3-2.6% this year and the unemployment rate at 7.2-7.3% by year end. Thus, with first half GDP growth projected to come in near 1.5%, the economy will need to accelerate above 3% in H2 to meet policymakers’ expectations.
We believe this should be possible if housing activity continues to strengthen and household spending improves as the impact of the tax increases fades.
In this vein the June housing starts and permits data were disappointing.  Starts declined 92k to 836k while permits fell 74k to 911k. The majority of the drop-off in both starts and permits was due to the multi-family category which was down -26.2% and -21.4%, respectively. Single-family starts (-0.8% vs. +0.5% in May) and permits (+0.6% vs. +1.0% in May) were relatively unchanged in the month.
The multi-family component of the data tend to be more volatile than the single family, which is one potential reason why the starts and permits data seemingly run contrary to the recent surge in the NAHB homebuilder sentiment survey. That is, the volatility in multi-family starts suggests that there may be more ‘noise’ than ‘signal’ in the June starts and permits data.  Indeed the current level on homebuilder sentiment points towards housing starts over 1  million according to our US economics team.  
On Fed policy we remain of the view that the taper will be initiated at the September 17-18 FOMC meeting, but the Chairman’s dovish testimony suggests that the probability has diminished somewhat. There are two employment reports between now and the September meeting – with the labor market data among the most important to monitor when it comes to the Fed’s ‘data dependent’ path.  Here we note that the day ahead’s initial jobless claims data correspond to the July employment survey period, although there may also be an ongoing impact from midyear auto sector retooling in the claims figures.
Returning to Bernanke’s testimony he continued to empha the “two levers” of monetary policy—asset purchases and interest rate policy/guidance. He specifically noted that a “high degree of monetary accommodation” can still be sustained in the absence of asset purchases. Thus, it is incumbent upon Fed watchers not to misinterpret mention of highly accommodative policy as necessarily a continuation of the current pace of asset purchases. The Chairman again emphad that the asset purchase program is tied to the near-term momentum in the economy, while interest rate policy and guidance will be used to achieve the Fed’s broader mandate over the longer term. In highlighting this notion, my US colleagues think Mr. Bernanke appears to be attempting to maintain the option of instituting the taper at some point later this year while at the same time keeping expectations of the first Fed rate increase anchored in 2015.
In Canada the Bank of Canada left its target for the overnight rate unchanged at 1%. The Statement was, however, a little more dovish, with the Bank slightly altering the phrasing of the last sentence. Instead of indicating that "some modest withdrawal (of stimulus) will likely be required consistent with achieving the 2% inflation target"; the Bank stated that "over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target". Although these two final statements are very similar, we consider it to be more somewhat dovish than previously given the Bank scaled back its forecasts for growth and inflation in 2014.
Finally, on Italy my Eurozone colleagues write that: “On Friday 19 July, there will be a no-confidence vote against Interior Minister and vice-PM Angelino Alfano. Alfano is also the secretary of Berlusconi’s PDL and the most senior representative of the centre-right in the Italian grand coalition government. In our view, Alfano is among the most committed of the PDL leaders to the grand coalition. Were he obliged to step down as Interior Minister, the fall of the government would become more likely.”
They add that: “In the case of a split of both PDL’s government allies, PD and Monti’s Scelta Civica, Alfano could still win a confidence vote with up to 30 votes of margin. However, in our opinion a split of the PD would seriously weaken the government even if Alfano maintains both his positions as vice-PM and Interior Minister.” (See Italy: Another risk for Government stability, published on 17 July 2013 for more.)