Awaiting FOMC Decision as First Third of 2014 Winds Down

April 30, 2014

The dollar has slipped 0.3% against the Swiss franc, 0.2% versus the euro and 0.1% relative to the yen and kiwi.  The greenback is 0.1% firmer against the loonie and unchanged versus the Australian dollar, Chinese yuan and sterling.

Share prices in the Pacific Rim fell 1.4% in Hong Kong but rose 1.6% in New Zealand.  Equities dropped 0.9% in Taiwan but gained 0.8% in Singapore.  Other changes were minor including a 0.1% uptick in the Japanese Nikkei.  Shares in Europe have fallen by 0.5% in Italy, 0.4% in France, and 0.1% in Germany.  They are up 0.5% in Zurich and 0.1% in London.

Commodities are softer ahead of the FOMC decision due at 14:00 EDT (18:00 GMT).  No Fed press conference is scheduled.

Earlier today, the Bank of Japan left its policy settings for the overnight interest rate range (0-0.1%) and QQE (quantitative and qualitative easing) unchanged by a unanimous vote of 9-0.  The monetary base is being increased through asset buying by 60-70 trillion yen per year.  The BOJ’s semi-annual Outlook for Economic Activity and Prices was released.  Projected GDP growth this fiscal year was revised downward from 1.4% to 1.1% but left unchanged at 1.5% in FY15.  Officials introduced a forecast for FY16 of 1.3%.  Though subdued, these estimate surpass the rate of potential GDP, presently estimated at just 0.5%, so projections for core inflation were not changed.  Excluding the effect of consumption tax hikes this month of 3 percentage points and in October 2015 of 2 percentage points, core CPI is projected to climb 1.3% in FY14, 1.9% in FY15, and 2.1% in FY16.

The ten-year British gilt yield is two basis points higher.  The 10-year German bund dipped a basis point, and the 10-year Japanese JGB is unchanged.

Preliminary euro area CPI data for April confirmed the ECB prediction that March marked the lowpoint of the trend and would be followed by a rebound the next month.  This gives central bank officials ammunition to ignore calls for an easier stance.  Total inflation rose to 0.7% from 0.5% in March and 0.7% in February.  Core CPI returned to February’s 1.0% pace from 0.7% in March.  The on-year drop in energy narrowed to 1.2% from 2.1% in the prior month, but the rise in non-energy industrial goods of 0.1% after 0.2% in March, 0.4% in February and 0.8% in April 2013 highlights a continuing danger of sliding into deflation.

Several Japanese statistics were reported.

  • Industrial production climbed by a smaller-than-forecast 0.3% in March after dropping 2.3% in January, but the first quarter over 4Q13 increase was robust at 2.8% (11.7% annualized).  The inventory ratio advanced 2.6% on top of a 3.9% increase in February.  Output rose 8.1% between 1Q13 and 1Q14.
  • Motor vehicle production advanced 14% on year in March, constituting a sharp acceleration.
  • Housing starts dropped 2.9% on year in March after posting gains of 1.0% in February, 12. 3% in January, and 18.0% in December.
  • Construction orders, like housing starts, registered the first on-year drop since before mid-2013.  Such fell 8.8% versus a 12-month rise of 12.3% in February.
  • Labor cash earnings increased 0.7% between March 2013 and March 2014, the best result in two years in this gauge of wage inflation.
  • The manufacturing purchasing managers index fell by 4.5 points to a 14-month low of 49.4 in April.  New orders contracted at the fastest rate since December 2012.

South Korean industrial production rose 0.9% in March but recorded a smaller 2.7% on-year increase after a gain of 4.3% in the year to February.

Building permits in New Zealand advanced by 8.3% in March, but business sentiment that month dropped 2.5 points to a reading of 64.8.

Turkey posted a $5.2 billion trade deficit in March, while the Thai trade balance that month showed a surplus of $3.48 billion. 

South African M3 money and private credit grew 7.9% and 8.8%, respectively, between March 2013 and March 2014.

British consumer confidence rose two points to a reading of -3 in April from -5 in March and -7 in February.

The UBS indicator of Swiss consumption rebounded to a reading of 1.84 in March from 1.52 in February.

The volume of German retail sales fell 0.7% in March from February and by 1.9% from a year earlier.  Such had risen in the first two months of 2014 and gained 1.3% between 4Q13 and 1Q14. German labor statistics were better than expected, with the jobless rate holding at a post-1991 low of 6.7% for a third straight month in April and the number of unemployed workers falling by 25K after drops of 16K in February and 14K in March.  On-year employment growth accelerated to 0.9% in March from 0.8% in the first quarter and 0.6% in the second half of 2013.

French consumer spending only rose 0.4% in March following drops of 2.1% in January and 0.1% in February.  French producer prices posted an on-year decline of 2.0% in March.  Italian producer prices fell by a similar 1.6% in the same span, while Italian consumer prices in the year to April accelerated to a 0.6% rate of increase from 0.4% in March.  Icelandic producer prices dived 9.5% between March 2013 and March 2014.  Producer prices fell by a sharp 5.4% in Cyprus and were 1.9% lower in Hungary.  But Malaysia’s PPI increased 3.6% in contrast.

Italian unemployment stayed at 12.7% in March.  Portuguese industrial production sank 1.3% in the year to March, whereas that economy experienced a 1.3% increase in retail sales.  Greek retail sales edged up 0.6% in the year to February.  Spanish GDP climbed 0.4% on quarter and 0.6% on year in the first quarter of 2014.  Spanish retail sales, which had fallen 0.4% in the year to February, rose 0.6% in the year to March.  The flash estimate of CPI inflation in Spain again rose above zero to +0.3% in April from minus 0.2% in March and +0.4% in February.

Scheduled U.S. data today include 1Q GDP, 1Q employee cost index, midwestern PMIs, and the ADP estimate of private jobs growth.  The FOMC releases a decision at 14:00 EDT that will no doubt cut asset purchases by a further $10 billion, and the Treasury announces details of its quarterly refunding operations.  Canadian GDP, PPI and raw materials price index gets reported.

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

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