Five Central Banks Share Spotlight

July 17, 2013

Federal Reserve Chairman Bernanke delivers his semi-annual monetary policy report before the House Financial Services Committee today.  Formerly known as the Humphrey-Hawkins testimony, Bernanke is expected to draw a distinction between reducing quantitative easing and raising ultra-low interest rates.  But the issue is not the lowness of the shortest end of the spectrum, which the Fed controls directly, but rather the behavior of the long end, which has risen significantly.  At 2.55%, the 10-year Treasury yield future is two basis points higher than yesterday and slightly more than 90 bps higher than at the start of May.  The Fed Beige Book of regional conditions also gets released today.

The Bank of Canada has a scheduled interest rate announcement at 14:00 GMT, which will be accompanied by a new Monetary Policy Report.  The 1.0% interest rate is not expected to change.  It’s been at that level since September 2010.

Bank of England minutes of the July Monetary Policy Committee revealed a 9-0 vote in favor of the status quo, breaking 5-meeting string of 6-3 votes.  This was the first meeting of Governor Mark Carney’s era.  The minutes expressed slightly more confidence in the economy and inflation outlook.  And while some members saw a decent chance of more stimulus in the future, the group felt that now the costs of such a move would outweigh the benefits.  In response to the lessening predisposition toward more QE, the ten-year gilt yield jumped eight basis points today, and the Ftse lagged other European stock markets.  Sterling advanced 0.4% against the dollar and more versus other currencies.

Bank of Japan minutes from the June Policy Board meeting expressed some internal disagreement over how to respond to the sharp rise of JGB yields the month before.  Opposition against fine-tuning the policy framework prevailed.

The Bank of China has abetted the slowdown of Chinese growth and the rebalancing of that growth through stingy provisions of liquidity.  Chinese data released today will encourage that tough love approach.

  • Foreign direct investment shot up 20.1% on year in June, most in over two years and enough to lift the first-half advance to 4.9% from 0.7% in January-May.
  • The Conference Board reported that the index of leading Chinese economic indicators rose 1.0% in June, three times faster than May’s gain.  The index of coincident economic indicators posted a healthy 0.8% increase last month.

Except against the pound, the U.S. dollar is generally stronger ahead of Bernanke’s testimony, with gains of 0.7% versus the yen, 0.6% relative to the Aussie dollar, 0.5% vis-a-vis the kiwi, 0.3% against the euro and loonie, and 0.1% versus the Swiss franc.  The yuan is again steady.

Share prices fell 1.5% in China, 0.5% in Singapore, and 0.1% in Australia and the Philippines.  Equities rose by 1.1% in South Korea, 0.8% in Indonesia, 0.5% in Thailand and India, 0.3% in Hong Kong and 0.1% in Japan, Malaysia and New Zealand.  In Europe, stocks are up 1.5% in Italy, 0.6% in France, and 0.4% in Germany and Spain.

Gold and oil prices are down 0.4% at $1285.90 per ounce and 0.1% at $105.89 per barrel.

The 10-year JGB yield edged a basis point lower, while the German bund is unchanged.

Euroland construction output fell by 0.3% in May, its second decline in three months.  Output was 5.1% smaller than in May 2012. 

British labor statistics improved.  The claimant jobless count fell by 21.2K in June after a 16.2K drop in May, and the outstanding claimant count represented just 4.4% of the labor force.  ILO-based unemployment held steady at 7.8% in March-May.  Wage earnings with bonus pay accelerated to a 12-month increase of 1.7% in March-May (1.0% excluding bonuses) from 1.5% (0.9%) in February-April.

The Swiss ZEW expectations index improved to a reading in July of 4.8 from 2.2 in June but fell a bit short of analyst forecasts.

Australia’s index of leading economic indicators rose 0.2% in May but accelerated to an on-year 4.9% increase. 

South Korean producer prices were unchanged in June from May and 1.4% lower than a year before.

U.S. housing starts and building permits will be reported today.  Mortgage applications fell 2.6% last week, as the 20-year rate held steady at 4.68%.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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