Data Deluge and Bank of Japan Returns to ZIRP

October 5, 2010

The Bank of Japan cut the interest rate target on overnight uncolateralized money to 0-0.25% but in fact virtually zero (ZIRP).  An asset purchase program was also established with the intent of driving long-term interest rates lower.  Officials now see a slower pace of recovery and a delayed return to a path of sustainable growth with price stability. 

The yen (83.35 per dollar) is unchanged against the dollar on net overnight despite the Bank of Japan’s easing.  The dollar otherwise has dropped 0.6% against the euro, 0.3% against the kiwi, Swissy and sterling and 0.2% versus the Canadian dollar.  Japanese Finance Minister Noda said an easier BOJ stance will hopefully help to stabilize the yen.  The BOJ statement did not mention the exchange rate.

The Reserve Bank of Australia did not raise its Official Cash Rate of 4.5% as a majority of analysts were expecting, and the Aussie dollar fell 0.8% against its U.S. counterpart in response.

Chinese markets remained closed for a national holiday and will stay that way most of this week.  Meanwhile, a variety of euro area officials including Rehn, Trichet, and Juncker remarked that the yuan ought to be stronger against the dollar.

The yield on 10-year JGBs fell three basis points to 0.92% following the BOJ action.  German bunds are steady.  British gilts edged one basis point higher.

Silver advanced to a 30-year high, and gold touched a record high of $1329.60 per ounce.  Oil is 0.7% higher at $82.06 per barrel.

Japan’s Nikkei index of stock prices advanced 1.5%.  Equities firmed 0.7% in Malaysia, 0.6% in Indonesia, 0.5% in Thailand, and 0.2% in Singapore but fell by 1.4% in Sri Lanka, 0.6% in Taiwan, 0.4% in Australia, and 0.3% in New Zealand and India.  The German Dax is unchanged, and the Paris Cac and British Ftse show 0.6% and 0.2% gains thus far.

Bank Indonesia left its benchmark interest rate steady at 6.5% as analysts expected.

Service sector purchasing managers survey readings for September have been released.

  • Australia’s index fell to 45.6 from 47.5 in August and 46.6 in July.  Such was the fifth reading below the 50 breakeven line in a row.  Orders, sales, and jobs all had sub-50 scores as well.
  • The British service-sector PMI was 52.8, up from a 16-month low of 51.3 in August, but business expectations remained very subdued and new orders hit a 15-month low.
  • Euroland’s reading for services was revised upward to 54.1 from a preliminary estimate of 53.6.  Such was still lower than August’s 55.9 reading and at a six-month low.  Euroland’s composite PMI was also at 54.1, down from 56.2 in August and 56.7 in July.
  • Within Euroland, Germany had readings of 54.7 in the composite index, down from 58.4 in August, and 54.9 in services versus 57.2 the month before.  France retained the best readings, 58.1 on the composite index and 58.2 (a 6-month low) for services after 59.5 and 60.4 in August.  The Italian services PMI was 51.3 after 51.4 in August, which implies a markedly lower rate of GDP growth in 3Q than 2Q.  Ireland’s index slumped 4.1 points and through the 50 line of stagnation to 48.8, with a sub-50 score for orders as well.  Spain’s index of 47.9 was 1.3 points lower than in August, suggesting that third-quarter growth might be barely in the black but that GDP almost surely is dropping in the present quarter.  All in all, it looks like real growth in the euro area was cut to around 0.6% in 3Q and halved to about 0.3% in the final quarter of 2010.
  • Japan’s service sector PMI was below 50 for a fifth consecutive time, printing at 48.5 in September after 48.7 in August.  Japan also had a sub-50 composite PMI reading of 49.3 after 49.5 in August, 48.6 in July and 49.8 in June.
  • India’s purchasing managers index in services dropped to 55.6.  While signaling respectable activity, it was down from 59.3 and at a ten-month low, confirming some loss of steam.  India’s composite index of 56.5 was down from 60.3 in August and a 23-month high of 62.8 in June.
  • China’s service-sector PMI of 55.2 constitutes a 19-month low after 57.6 in August.  China’s composite reading of 54.3 was below August’s 54.6.
  • After plunging to 47.0 in August from 54.1 in July, Russia’s services PMI recovered to 51.5.  The composite score was 52.3 in September after 49.9.
  • Hong Kong’s PMI for services rose a half-point to 52.8 from 52.3.
  • The Saudi services PMI was 58.4 versus 59.1 in August, and the United Arab Emirates printed at 52.6 after 52.1.

Australian retail sales firmed 0.3% in August and 3.9% on year.  Australia’s trade surplus recovered to AUD 2.346 billion in August from AUD 1.743 billion in July but was still short of June’s AUD 3.62 billion.  Exports and imports fell between July and August by 2.4% and 5.1%, respectively.  Aussie job ads rose 0.7% last month.

Retail sales volume in the euro area unexpectedly fell by 0.4% in August, cutting the 12-month increase to just 0.6% from 1.1% in July and 1.4% in the year to June.  Sales in July-August were just 0.2% above the 2Q level.

Moody’s will review Ireland’s Aa2 credit rating.  A one-step downgrade is possible.

Swiss consumer prices were steady in September for a second straight month.  On-year CPI inflation was merely 0.3% in both months.

Business sentiment in New Zealand slumped to +6 in the third calendar quarter from +18 in 2Q. 

Taiwanese consumer price inflation swung into the black to 0.3% in September from minus 0.5% in August.  Wholesale price inflation was 3.6% last month.

Romanian real retail sales advanced 5.3% in August and by 9.3% on year.  Average earnings, however, fell 1.2% and by 2.0% on year in August.

The U.S. PMI-services data will be released by the Institute of Supply Management at 14:00 GMT.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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