Many Central Banks Are Heard From

December 11, 2014

Even before the highly awaited U.S. retail sales report, several central bank policy announcements held the market’s attention.

The Reserve Bank of New Zealand kept its official cash rate at 3.5%.  Although inflation is currently modest, it is expected to approach 2% later in the forecast period, and that will likely necessitate a further increase of the central bank interest rate.

The Central Bank of Russia boosted its one-week auction rate by a full percentage point to 10.5% and warned of more tightening if the exchange rate continues to slide.  This was the fifth recent rate increase.  The ruble nonetheless lost further ground today.

The Bank of Korea’s seven-day repo rate was kept at 2.0%, but the released statement spoke of lower growth and inflation prospects and did nothing to dissuade recent speculation that policy will be eased early next year.

Bank Indonesia’s reference interest rate had been increased for the first time in a year at November’s policy meeting but was left unchanged at this month’s one.  Indonesian inflation exceeds the 3-5-5.5% target range, however, and the 10-year Indonesian bond yield rose to a 5-week high.

Bangko Sentral ng Pilipinas left its key borrowing rate unchanged at 4.0%.  Such had been raised by 25 basis points in July and a second time in September.  A statement from Filipino monetary authorities noted mounting global risks to growth and revised projected domestic inflation downward.  After the rate decision, Moody’s upgraded its rating for The Philippines.

No change occurred in the Swiss accommodative monetary policy after the latest quarterly review.  Intervention will continue to be used in force if necessary to enforce a 1.20 francs per euro cap on the exchange rate.  The path of projected inflation was yet again revised downward.  Deflationary risks persist, and officials expect the franc to depreciate eventually.

Norway’s central bank surprised market players with a 25-basis point cut of the benchmark interest rate to 1.25%.  This was the rate’s first change since a similar-sized reduction in March 2012.  1.25% matches the Great Recession low, and officials expect the rate to stay at that or possibly an even lower level through the end of 2016.

The second TLTRO of the European Central Bank added EUR 129.8 billion of liquidity, up from EUR 82 billion in September’s first targeted LTRO.

The dollar prior to the release of U.S. data was trading 0.8% higher against the Australian dollar, 0.4% firmer versus the yen, and up 0.2% relative to the yuan and sterling.  The euro was unchanged.  The kiwi had risen 0.2%.  The loonie had dipped 0.1%, but the Swiss franc was 0.1% firmer.

Japan’s Nikkei lost 0.9%.  Japanese core private domestic machinery orders sank 6.4% on month in October, marking the first drop in five months and easily surpassing the expected size of decline.  Manufacturing and non-manufacturing orders each fell, as did foreign machinery orders.  Japan’s tertiary index slid by an as-expected 0.2% in October and was 0.9% below its year-earlier level.  Prime Minister Abe’s government is going to win Sunday’s election by a comfortable margin and may even secure a majority on its own.  But confidence in Abenomics is low.

A 0.7% advance in U.S. retail sales last month surpassed forecasts.  Sales had risen 0.5% in October.  The latest 12-month increase is 5.1%.  Non-auto retail sales rose 0.5% on month and 4.3% on year.  U.S. import prices reversed October’s 1.2% increase with a 1.5% drop in November.  This lengthened the 12-month rate of decrease to 2.3% from 1.8%.  U.S. jobless insurance claims dipped by 3K last week to 294K and was associated with a four-week average of 299.25K.

Australian labor statistics were mixed but not thrilling on the whole.  The unemployment rate ticked up 0.1 percentage point to a one-year high of 6.3%, and while a 42.7K rise in jobs far exceeded expectations, full-time workers only went up 1.8K in November.  Expected CPI inflation in Australia settled back to 3.4% in December from 4.1% in November and matched October’s forecast.

In Britain, the house price index compiled by the Royal Institute of Chartered Surveyors fell to 13% in November from 20% in October, 30% in September, 40% in August and 56% in May.  Several housing market measures point to cooler conditions.

German CPI inflation last month was confirmed at the preliminary estimate of no change on month and a reduced 12-month pace of 0.6%.  It was double that if one excludes energy, which fell by 2.5%, and food.

A number of other governments reported CPI data, too. French consumer prices dipped 0.1% on month and rose 0.3% on year.  Sweden’s CPI posted drops of 0.1% on month and 0.2% on year.  Irish consumer prices were only 0.1% above the year-earlier level. On-year inflation was at negative 0.7% in Hungary and +1.26% in Romania.  Portugal’s inflation rate held at zero.  New Zealand food prices dropped 0.5% on month and recorded a smaller 0.6% 12-month rate of rise.

Irish real GDP expanded just 0.1% last quarter, slowing the on-year change to 3.6%.

Malaysian industrial production rose 0.6% in October and 5.0% on year.  South African wholesale turnover fell in October by 3.7% from September and 2.4% from October 2013.

Ten-year British gilt yields are five basis points lower, and comparable Japanese and German rates are down a basis point.

After scraping 64-month low of $60.94 yesterday, WTI oil has rebounded 0.7% to $61.41.  Comex gold is down 0.4% at $1,224 per ounce.

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

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