Weaker Pound and Dollar
November 12, 2014
Sterling fell 0.5% against the dollar, which has otherwise depreciated 0.8% relative to the kiwi, 0.3% versus the euro, 0.2% vis-a-vis the yen and Australian dollar and 0.1% against the loonie. The Swiss franc at 1.2022 per euro moved nearer to the 1.2000 ceiling that Swiss National Bank officials promise unlimited intervention to prevent further gains. The yuan is steady.
Share prices were mixed in the Pacific Rim but have declined in Europe. Equities rose 1.4% in China, 0.6% in Hong Kong, 0.4% in Japan and India, 0.3% in Indonesia and 0.2% in South Korea but lost 1.3% in Taiwan, 1.0% in Australia, 0.3% in Singapore and 0.1% in New Zealand. Stocks in Europe have fallen by 1.8% in Italy, 1.2% in Germany, 1.1% in Spain, 0.9% in France, 0.4% in the U.K., and 0.3% in Switzerland.
The Bank of England’s dovish quarterly Inflation Report triggered a softer pound, a drop in the Ftse and a five-basis point slide in ten-year British gilts. Hawkish remarks by a Bank of Japan Board member, Miyao, lifted the 10-year JGB yield by six basis points to 0.51%. Philly Federal Reserve President Plosser also made hawkish comments overnight.
WTI oil fell by 0.7% to $77.45 per barrel. Comex gold is 0.1% firmer at $1,164.40 per ounce.
The Bank of England’s Inflation Report observed that market rates now imply no change in its 0.5% Bank Rate until October 2015, eight months later than at the time of the previous quarterly report. More importantly, today’s report did not find this shift unreasonable in light of a downwardly revised inflation outlook. BOE officials now expect inflation to average 1.1% about six months from now, to perhaps dip below 1.0% some time in the first half of next year, and not to return to the 2.0% target for three more years. Global growth prospects have weakened even though central bank officials foresee decent British GDP expansion of 2.7% next year and 2.6% in 2016.
The latest released batch of U.K. labor statistics was pretty encouraging. Officials project faster growth in wages than prices.
- The claimant count of unemployment fell 20.4K last month, which is in line with analyst expectations. The associated unemployment rate of 2.8% was unchanged from the month before.
- Wage growth including bonus pay climbed 1.0% on year in 3Q14, up from 0.7% in June-August. Regular pay accelerated to a pace of 1.3% in 3Q from 0.9% in June-August and 0.8% in May-July.
- The ILO-basis rate of unemployment was 6.0% in 3Q, same as in June-August but below the second quarter’s 6.3%. Unemployed workers on such a basis fell by 115K last quarter.
The Conference Board’s index of British leading economic indicators fell 0.4% in September, exactly reversing August’s rise, and the index of coincident economic indicators only went up by 0.1%, half as much as seen in August.
New Zealand labor costs climbed 0.6% last quarter, same as the gain in 2Q, and posted an on-year rise of 2.6% for the fourth quarter in a row. Commenting on the data, Reserve Bank of New Zealand Governor Wheeler called the kiwi too highly valued, observed that restrictions against mortgage lending need to be kept sometime longer, and expressed surprise at the strength of immigration.
The Westpac gauge of Australian consumer confidence jumped 1.9% in November, twice as much as in October.
Japan’s tertiary index, a measure of service sector activity, advanced 1.0% in September and was 0.6% greater that month than the 3Q average level. The on-year drop in the tertiary index slowed to 1.1% from 2.7% in August. The tertiary index had swooned 3.8% in the spring quartere.
Japanese M2 money growth accelerated to 3.2% in October from 3.0% in 3Q but remained below on-year gains of 4.2% in the final quarter of 2013 and 4.0% in 1Q14. Broad liquidity growth of 3.2% was the same in October as in September.
South Korea’s jobless rate stayed at 3.5% last month, which was what analysts were expecting.
Industrial production in the euro area climbed 0.6% in September, thanks to a 2.9% advance in capital goods. Among other categories, intermediate goods fell by 0.6%, while consumer durables and non-durables dropped by 2.6% and 0.9%. Irish output soared 22.1% on month, but there were declines of 2.9% in Italy, 1.4% in Portugal, 3.5% in Greece, and 1.8% in the Netherlands. Overall industrial production was also 0.6% higher than in September 2013 but 0.1% lower than the 3Q14 average level.
German wholesale prices dropped by 0.6% on month and 0.7% on year in October. Mineral fuel prices sank 2.0% on month and 3.2% on year. The overall WPI had risen 4.7% in 2010 and 5.8% in 2011 but then slowed abruptly to 2.1% in 2012 and negative 0.6% in 2013.
Portuguese consumer prices were unchanged in October from a year earlier.
Philly Fed President Plosser, who retires next March, once again warned that the fed funds rate, which is to be data-determined rather than moved on a specified time schedule, is likely to start climbing sooner than thought until recently. Minneapolis Fed President Kocherlakota, a dove, speaks publicly later today.
Ryuzo Miyao of the Bank of Japan said the recent reinforcement of quantitative stimulus shouldn’t increase the difficulty of reversing the policy, which he believes will commence sometime in late 2015.
U.S. stock futures point to a softer trend at the open. No meaningful U.S. data are scheduled today, but tomorrow sees release of the JOLTS index and weekly jobless insurance claims.
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian labor costs, Bank of England Inflation Report, Euroland industrial production
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