Spotlight Today Belongs to Central Banks

January 28, 2015

Financial markets await the FOMC statement due at 14:00 EST (19:00 GMT).  Meaningful changes are not anticipated.  No press conference is scheduled afterward.

The Monetary Authority of Singapore (MAS) tweaked monetary policy after its first unscheduled policy meeting in thirteen years.  Ordinarily policy, which is oriented around the management of the currency rather than a nominal interest rate, gets reviewed semi-annually in April and October.  But after reducing projected inflation quite substantially, officials flattened the slope of the S-dollar’s target corridor.  The band’s width and midpoint were not adjusted.  Policy still allows for a gradual appreciation of Singapore’s currency.

As at the prior meeting on December 17, the Bank of Thailand by a 5-2 vote agreed to keep its policy interest rate at 2.0%.  Two of the seven members of the monetary policy committee voted again to cut the interest rate to 1.75%.  Some concern about the effects of prolonged very low interest rates made the majority uneasy about easing policy further.

Bank Negara Malaysia left its overnight policy interest rate at 3.25%, the level since an increase last July.  Policy was characterized as accommodative and appropriate.

Speculation about a possible Australian interest rate cut at next week’s meeting has been dispelled in the wake of quarterly consumer price data.  While headline inflation declined 0.6 percentage points to a 2-year low of 1.7% last quarter, core inflation did not drop below the 2% target floor as some analysts were anticipating.  The trimmed mean core inflation rate slid to 2.2% from 2.5%, and the weighted median core inflation gauge fell to 2.3% from 2.6%.

The new Greek Prime Minister Tsipras reiterated his intention to renegotiate Greek debt and backtrack on the path of extreme austerity that has been followed previously.

Saudi officials reiterated that they will not play the role of market stabilizer.  WTI oil in response dropped abruptly by 3.0% to $44.84 per barrel.  Comex gold is 0.3% lower at $1,287.70 per ounce.

The U.S. dollar shows mixed changes.  It has strengthened 0.4% against the euro and loonie and 0.1% versus the Swissie and sterling, while delining by 0.3% vis-a-vis the Australian dollar and by 0.1% vis-a-vis the yuan, kiwi, and yen.

The 10-year U.S. treasury yield eased two basis points to 1.80%.  10-year sovereign debt yields rose 3 bps in Japan and 2 bps in Germany but are unchanged in Britain.  Greek yields remain above 9.0%.

Share prices dropped 1.4% in China but rose 0.5% in South Korea and 0.2% in Japan, Hong Kong and Singapore.  U.S. stocks opened marginally firmer following Tuesday’s sharp slump.  In Europe, equities have declined 1.2% in Spain, 0.5% in Italy, 0.3% in France and Switzerland but are 0.6% firmer in Germany.

Japan’s cabinet retained the same economic assessment that a gradual economic recovery is still intact.

French consumer confidence printed at 90 this month, same as in December but slightly weaker than forecast.

German import prices sank 1.7% on month in December, lengthening the 12-month rate of decline to 3.7% from 2.1% in November and 1.2% in October.  Excluding mineral oil import prices, the index would have been unchanged on month and up 0.1% from end-2013.  Import prices fell 2.2% on average last year following a drop of 2.6% in 2013, while export prices slid 0.3% in 2014 and 0.6% in 2013.

Consumer confidence in Germany rose by 0.3 points to a 159-month high of 9.3 in February.

Chinese consumer confidence fell 0.4% in January after advancing 1.4% in December.

France’s index of leading economic indicators was unchanged in November.  So was the index of coincident economic indicators according to the Conference Board.

The UBS Swiss consumption indicator recovered to a reading in December of 1.42 from 1.29 the month before and 1.32 in October and 1.39 in September.

Irish retail sales rose 0.5% on month and 5.1% on year in December.  The Norwegian jobless rate unexpectedly dipped 0.1 percentage point from 3.8% in 3Q to 3.7% last quarter.

U.S. mortgage applications dropped 3.2% last week, and the 30-year fixed rate mortgage ticked up to 3.83% from 3.80%.  Today’s main event will be the FOMC’s first scheduled statement of 2015 on monetary policy.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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