More Weak Data Creating New Doubts about Future Monetary Policy

August 14, 2014

The dollar is unchanged today against the yen, sterling and yuan.  It has eased 0.5% against the kiwi, 0.3% relative to the Swiss franc, 0.2% vis-a-vis the euro and loonie and 0.1% against the Australian dollar.

The ten-year Treasury yield has slipped below 2.40%, a drop of three basis points to 2.39%.  The ten-year British gilt is also down by 3 basis points, while ten-year German bund and Japanese JGB yields are a basis point softer.

Share prices rose 0.7% in Japan, buoyed by a downward assessment to machinery orders and fresh speculation that the BOJ will augment its quantitative easing.  Equities fell 1.0% in China and 0.4% in Hong Kong but rose 0.7% in India and 0.6% in Australia.  In Europe, stocks have risen 0.5% in Germany and Britain, 0.4% in France and Switzerland and 0.3% in Italy.  The DJIA shows a slight 30-point gain at this writing.

WTI oil is 0.5% weaker at $97.06 per barrel.  Comex gold has dipped 0.1% to $1,313.20 per ounce.

After a 15-month hiatus, the Bank of Korea dropped its repo rate by 25 basis points to 2.25%, lowest since November 2010.  Aside from continuing sub-target inflation, officials noted heightened downside growth risks.

Core domestic Japanese machinery orders, which had slumped in consecutive months by 9.1% in April and 19.5% in May, only bounced back 8.8% in June, about half as much as expected, compelling government officials to downgrade their view on the trend in this key statistic that serves as a leading indicator for business investment.  Domestic machinery orders plunged 10.4% in the second quarter and are projected to revive just 2.9% in the third quarter.  Core domestic orders were 3.0% lower in June than a year earlier.  Foreign demand for machinery orders soared 42.2% last quarter but are expected to decline 28.3% in this one.

The focus in Europe has been on released preliminary estimates of second-quarter GDP growth.  The data were generally somewhat softer than analysts assumed.

  • Euroland as a whole suffered zero growth on quarter and a mere 0.7% of growth between 2Q13 and 2Q14.  Real GDP had contracted 0.6% in the previous four quarters to 4Q13.
  • German and Italian GDP fell 0.2% on quarter and posted respective on-year expansion rates of 1.3% and negative 0.3%.  It was Italy’s second straight quarterly contraction after a 0.1% uptick in the final quarter of 2013.
  • France, like the euro area as a whole, neither expanded nor contracted last quarter and eked out just 0.1% of growth over the past year.
  • Portugal (+0.6%), the Netherlands (+0.5%), and Finland (+0.1%) returned to positive growth in 2Q after contractionary first-quarter performances.
  • Belgian growth of 0.1% was slower than in the three previous quarters.
  • Austrian growth doubled to 0.2% but was slower than during the second half of 2013.
  • In Cyprus, GDP fell 0.3%, half as fast as in 1Q, trimming the on-year contraction to 2.5% from 3.9%.
  • Greece neared breakeven on-year growth, with GDP slipping a mere 0.2% compared to a drop of 1.1% in 1Q and 4.0% in the year to 2Q13.
  • In Eastern Europe, Polish GDP climbed 0.6% on quarter and 3.2% on year, while Hungarian GDP growth slowed to 0.8% on quarter but accelerated further in year-over-year terms to 3.7%.  After a 0.8% rise in 1Q, Czech GDP stagnated last quarter, cutting its on-year rise to 2.6%.  Romanian GDP contracted by a sharper 1.0% following a 0.2% drop in 1Q, which slashed on-year growth to 1.4% from 3.8%.

CPI inflation in the euro area, meanwhile, slowed to a 57-month low of 0.4% in July, thanks to a month-on-month decrease of 0.7%.  Inflation had been at 1.6% in July 2013.  Core inflation held at June’s 0.8%, however.  In comparisons of on-year inflation in July 2014 to rates posted in the year to July 2013, inflation fell to 0.8% in Germany from 1.9%, to 0.6% in France from 1.2%, to 0.0% in Italy from 1.2%, to negative 0.4% in Spain from 1.9%, to 0.3% in the Netherlands from 3.1%, to 0.6% in Belgium from 1.6%, to 1.0% in Finland from 2.5% and to negative 0.8% in Greece from -0.5%.

The BI rate in Indonesia was left at 7.5% by the Board of Bank Indonesia.  It’s been at that level since a 25-basis point hike in October 2013, which culminated a series of increases to support the ailing rupiah and reduce inflation and the current account deficit.

Wholesale price inflation in India slowed to a 5-month low of 5.19% in July from 5.43% in June.  Wholesale prices in South Africa leaped 1.4% in June and were 3.2% higher than a year before.

New Zealand’s business purchasing managers index printed 0.4 points lower in July at 53.0.  Above-50 readings, connoting expanding activity, have been happening since December 2012.  New Zealand retail sales volume grew at an accelerated pace of 1.2% last quarter after rising 0.8% in 1Q.  Brazilian retail sales fell 0.7% in June and decelerated sharply in on-year terms to a gain of just 0.8%.

In Britain, the Royal Institute of Chartered Surveyors reported a lower 49% reading on their house price index for July, weakest since February and down form 52% in June.

The Swiss PPI/import price index was unchanged on month and 0.8% lower on year in July.  The domestic PPI component dipped 0.1% on month and 0.6% on year.  Austria and Finland recorded 12-month CPI inflation of 1.8% and 0.8%, respectively, in July.  Core Polish CPI inflation that month was just 0.4%, matching Euroland’s pace.

New U.S. jobless insurance claims increased last week to 311K from 290K the week before, but the four-week average of 295-3/4 barely changed.  U.S. import prices dipped 0.2% in July and slowed to a 12-month increase of 0.8% from 1.2% in June.  Core non-fuel import price inflation was at a lowly 0.4%.  Export prices stagnated on month and edged only 0.4% higher on year.

New home price inflation stayed at 1.5% in Canada in June.

The Central Bank of Chile is likely to announce an interest rate cut later today.

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

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