Muted Reaction to Draghi’s Verbal Intervention

April 24, 2014

European Central Bank President Mario Draghi issued his bluntest warning yet regarding a readiness to escalate and broaden asset buying should inflation follow a lower-than-assumed path.  He explicitly said that additional euro appreciation could trigger such action unless the disinflationary implications are offset by other developments.

The dollar is only 0.1% firmer against the euro and Swiss franc, and there has been no net overnight change in the U.S. currency versus the yen, loonie, yuan and sterling.  The dollar gained 0.5% and 0.3% relative to the New Zealand and Australian dollars in spite of a second rate hike engineered by the Reserve Bank of New Zealand (RBNZ).

Following a 25-basis point hike on March 13, the RBNZ Official Cash Rate was lifted by another 25 bps to 3.0% and accompanied by an almost identical statement to that released after the first tightening.  These two moves reverse a 50-bp cut in March 2011 immediately following a devastating earthquake three years ago.

European share prices are firmer in contrast to narrowly mixed closings in the Pacific Rim.  Equities are up 0.9% in France and Italy, 0.7% in Britain, 0.6% in Spain, 0.4% in Germany and 0.1% in Switzerland.  Japan’s Nikkei lost 1.0%, while stocks rose 0.8% in Singapore, 0.5% in India, and 0.2% in New Zealand, Australia, and Hong Kong.  Equities slipped by 0.2% in China and 0.1% in Taiwan and South Korea.

Ten-year sovereign U.S. and British yields are up four and three basis points.  The 10-year German bund and Japanese JGB yields are a basis point firmer.

The price of gold fell by 0.9% to $1,274.40 per ounce, whereas West Texas Intermediate oil is 0.2% higher at $101.65 per barrel.

Germany’s IFO Economic Institute, located in Munich, reported a surprise 0.5-point advance in the business climate index to a reading of 111.2 in April.  The improvement almost returns the index to February’s 111.3 level and shows that corporate conditions have not been hurt by the crisis in Ukraine, which remains very tense.  Most of April’s improvement came from a 0.9-point rebound in business expectations, but the current situation also went up 0.1 point.  Manufacturing and wholesaling accounted for the bulk of April’s improvement, while retailing deteriorated somewhat.

The IFO German services climate index rose 2.9 points to a three-month high of 22.1 due to rises of 0.8 points and 4.8 points in current conditions and expectations, respectively.

The French business sentiment index dipped a point to a reading of 100 in April, but March was revised upward from 100 to 101.

The Confederation of British Industries released upbeat results from its April monthly survey of distributive services.  The index improved 17 points to 30.  Analysts were looking for just a four-point rise.

Dutch business sentiment fell 0.8 points to a reading of 0.3, and Dutch consumer spending dropped 1.2% on top of a 1.7% decline in the prior month.  Czech business sentiment dipped 0.1 to 9.9 in April, while consumer confidence rose 1.7 points to negative 3.8.

The Swiss trade surplus narrowed 10.7% on month to CHF 2.05 billion in March.

Irish producer price deflation intensified in March, falling by 0.6% from February and 3.1% in on-year terms after a 1.7% February-over-February decline.  Finnish producer prices sank 2.1% on year, also more than the February-over-February drop of 1.3%.

Finnish unemployment advanced 0.1 percentage point to 8.6% in February on a seasonally adjusted basis.  The Polish jobless rate in March of 13.5% was down from 13.9% in February and 14.0% in January.  Polish retail sales recorded a 3.1% on-year advance in March, less than half as much as the 7.0% February increase.

The index of Chinese leading economic indicators improved 1.2% in March following a 0.9% rise in February, and the index of coincident economic indicators went up 1.1% in the most recent month.

South Korean GDP growth in the first quarter matched the 0.9% quarter-on-quarter pace in the final quarter of 2013.  On-year growth accelerated slightly to 3.9%.

Japanese corporate service prices posted a 0.7% 12-month rate of increase in each month of the first quarter, down from 1.0% readings in November and December of 2013.  Japanese stock and bond transactions generated a JPY 142 billion net capital inflow last week, which was smaller than in the previous week.

South African PPI inflation jumped 0.5 percentage points to 8.2% last month.

Turkey’s central bank left its one-week repo rate unchanged at 10% and its overnight lending and borrowing rates at 12% and 8%, respectively.  These decisions had been expected, but in a nod to mounting pressure from government officials on the central bank to relax monetary restraint, the penalty rate on late window borrowing was cut by 150 basis points to 13.5%.

U.S. new jobless insurance claims rose more than anticipated last week to 329K.  Such had averaged 303K in the previous two weeks.

U.S. durable goods orders provided a pleasant surprise, however, jumping by 2.6% in March after February’s gain of 2.1%.  Orders were 8.8% greater than in March 2013.  Non-defense orders (not including aircraft) went up 2.2% on month and 4.5% on year.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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