Publication date: 5 March 2015 | Covering: February 2015
Monthly Briefing
- Fed January 27–28: Holds 0–0.25%; retains “patient”; adds “international developments”; March meeting live
- ECB January 22: Draghi announces QE €60 billion per month from March; euro falls sharply toward dollar parity
- Greece: SYRIZA wins January 25 election; PM Tsipras demands renegotiation; creditors insist on compliance
- Minsk II ceasefire: France-Germany-Russia-Ukraine agree February 11–12; fighting continues despite agreement
- Oil: Brent recovers from January lows to US$55–60/barrel; US rig count falls record pace
- Jamaica IMF EFF; BOJ easing continues; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Holds ‘Patient’; Watches International Developments
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its January 27 to 28 meeting, retaining the “patient” forward guidance language while adding a notable new reference to “international developments” among the factors the Committee was monitoring. The addition was widely read as an acknowledgment of the turbulence in global currency and commodity markets — the euro’s depreciation, oil’s collapse, and the deflationary pressures building in the global economy — as legitimate considerations for a central bank that had previously positioned itself as focused primarily on domestic conditions. The market probability of a March rate increase remained below 20 per cent, with the June meeting emerging as the more likely vehicle for the first hike if the data supported it. Chair Yellen had signalled that the Committee would want to see “further improvement in the labour market” and be “reasonably confident” of a return to 2 per cent inflation before acting. With core PCE inflation running well below target and the dollar’s appreciation adding disinflationary pressure through imported goods prices, the inflation condition remained the more challenging bar to clear.
ECB Quantitative Easing Announced; Euro Weakens Sharply
European Central Bank President Mario Draghi announced on 22 January that the ECB would launch a government bond purchase programme beginning in March at a pace of €60 billion per month, to run until at least September 2016 — a total commitment of approximately €1.1 trillion. The announcement met and in some respects exceeded market expectations, sending European equity markets sharply higher and the euro lower. The ECB’s action represented a major escalation in its battle against deflation and weak growth: eurozone consumer prices had fallen year-on-year in December 2014, the first outright deflation since the financial crisis, and the ECB’s previous targeted long-term refinancing operations and asset-backed security purchases had failed to decisively reverse the trend. The euro fell from above US$1.15 at the start of January to approach US$1.05 by early March. ECB QE also put downward pressure on European sovereign bond yields, with German 10-year Bund yields approaching zero and some shorter-dated European government bonds trading at negative yields.
Greece: SYRIZA Wins; Debt Renegotiation Demanded
The SYRIZA party led by Alexis Tsipras won the Greek parliamentary election on 25 January, securing the largest share of seats and forming a government with the nationalist ANEL party. It was the most consequential European election result since the onset of the debt crisis: SYRIZA had campaigned explicitly on a platform of renegotiating the terms of the bailout agreements, rejecting the austerity framework that had produced a 25 per cent contraction in Greek GDP since 2008 and an unemployment rate above 25 per cent. The incoming Tsipras government immediately announced it would not deal with the Troika — the institution conducting the programme review — and demanded a new framework. The IMF, ECB, and European Commission were equally firm that the existing programme conditionality remained the basis for continued support. Negotiations through February were fractious, with a provisional four-month extension eventually agreed in late February that kept Greece in the programme but deferred the substantive renegotiation to a later reform-list submission. Greek bank deposits continued to drain at a rate of several billion euros per week.
Minsk II and Ukraine; Oil Recovery
A second ceasefire agreement for eastern Ukraine — Minsk II — was brokered by France and Germany following extended negotiations between German Chancellor Angela Merkel, French President François Hollande, Russian President Vladimir Putin, and Ukrainian President Petro Poroshenko on 11 to 12 February. The agreement called for a ceasefire, heavy weapons withdrawal, and a political process for Donbas autonomy. Fighting continued in the days following the agreement, and scepticism about Russian compliance was widespread, but the Minsk II framework reduced the immediate risk of further escalation. Oil markets showed tentative signs of stabilisation through February: Brent crude recovered from its January lows toward the US$55 to US$60 per barrel range as the US oil rig count fell at a record pace, suggesting the supply response to lower prices was beginning. The recovery remained fragile, with global supply still elevated and demand growth uncertain.
Jamaica Mortgage Market in February
Jamaica’s mortgage market remained constructive through February 2015. The BOJ’s sustained easing had lowered domestic lending rates from the highs of 2012 to 2013, and the IMF EFF programme’s fiscal discipline maintained investor confidence in Jamaica’s macroeconomic trajectory. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent remained the primary vehicle for affordable home ownership among qualified contributors. Commercial lenders continued to compete for quality mortgage business, and the improving macroeconomic environment was gradually expanding the pool of creditworthy borrowers. Lower global oil prices, filtering through to lower imported energy costs, provided a modest boost to Jamaica’s balance of trade and consumer purchasing power, providing a small additional tailwind to housing affordability.
Looking Ahead
The critical near-term event for global markets is the Fed’s March 17 to 18 meeting, at which the Committee is widely expected to remove “patient” from its forward guidance — the necessary precondition for liftoff at a subsequent meeting. For Greece, the submission of a reform list to unlock the programme extension funds is the immediate test, with the substantive renegotiation deferred to later in the spring. For Jamaica, the upcoming BOJ rate decision and the next IMF programme review progress will be watched closely by domestic market participants as indicators of the trajectory for domestic mortgage rates through mid-2015.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com
Visit our YouTube Community ↗