Reserve Bank of Australia Surprises Many with Decision Not to Ease Further this Month

March 3, 2015

The U.S. dollar fell overnight by 0.5% against the Aussie dollar, 0.4% versus the kiwi, 0.3% relative to the yen and 0.1% vis-a-vis the loonie.  The dollar is unchanged against sterling and the yuan but has risen 0.3% against the Swiss franc and 0.1% relative to the euro.

Share prices lost 2.6% in China, 0.7% in Hong Kong, 0.4% in Australia, and 0.1% in Japan and Indonesia.  Stocks rose 0.5% in Singapore and India and have rebounded 1.1% so far in Greece.  Other European bourses are lower, with declines of 0.5% in Spain, 0.2% in Switzerland and Italy and 0.1% in Germany, France, and Great Britain.

Ten-year sovereign debt yields have climbed eight basis points in Greece and four bps each in the U.K. and Japan but are unchanged in Germany and Switzerland.

Comex gold, $1,207.70 per ounce, is also unchanged.  WTI oil bounced upward 1.3%, catapulting above $50 to $50.25 per barrel.

The Reserve Bank of Australia’s official cash rate, which had been reduced in February by 25 basis points, was left unchanged at the record low level of 2.25%.  Analysts had narrowly favored another reduction, and a released statement left that option open as a future possibility.

Industrial production in the eurozone fell significantly for a second straight month due to plunging energy production.  The latter dived 3.1% in December and by a further 3.2% on month in January, causing overall production to slump 0.9% in January to a level already 1.7% below the fourth-quarter mean.  Non-energy industrial production slipped 0.2% in both December and January.  Between those months, industrial production fell by 3.6% in The Netherlands, 3.1% in Lithuania, 2.6% in Ireland, and 2.6% in Greece.  Smaller setbacks occurred in Germany, France and Spain.

German retail sales volume shot up 2.9% in January, bringing the four-month gain since September to 6.0%. 

The British construction purchasing managers index climbed a full point to a 4-month high of 60.1 in February.  December had seen the index touch a 17-month low of 57.6.

Non-oil PMI survey results were reported for Egypt, Saudi Arabia and the United Arab Emirates.  Egypt’s PMI sank 2.5 points to a 17-month low of 46.8, and the U.A.E. PMI reading, although buoyant at 58.1, was the lowest score since October.  Saudi Arabia’s PMI rose 0.7 points to a 4-month high of 58.5.

A factor deterring Australian monetary authorities from cutting the official cash rate again this month was wariness about overheating the housing market.  Australian building approvals were today reported to have leaped 7.9% on month in January, posting a much greater-than-forecast 9.1% year-on-year advance. 

In a separate Australian data release, the current account deficit narrowed last quarter to A$ 9.588 billion from A$ 12.130 billion in 3Q.  Such was the smallest deficit since the first quarter of last year.

Japan’s monetary base registered on-year growth in February of 36.7%, down slightly from 37.4% in January, 37.3% in 4Q14 and 43.2% in full-2014.  The base is what a central bank most closely controls with its monetary policy.  The BOJ’s goal is to increase such by 80 trillion yen per year.  The BOJ balance sheet at end-February was JPY 320.4 trillion, up from JPY 300.2 trillion at end-2014.

On a more encouraging note, Japanese labor cash earnings posted on-year growth of 1.3% in January, maintaining the elevated trend seen in December.

Retail sales in Hong Kong slumped 14.6% on year in January, more than three times faster than the 4% decline between December 2013 and December 2014.

South Korean consumer prices were unchanged in February, depressing their 12-month rate of increase to just 0.5% from 0.8% in January.

Turkish CPI inflation, in contrast, accelerated 0.3 percentage points to 7.55% last month.  Turkish producer prices were 3.1% higher than in February 2014.

Swiss real GDP increased by a faster-than-forecast 0.6% between 3Q14 and 4Q14, keeping on-year growth steady at 1.9%.  Real GDP rose 2.0% on average last year, similar to the 1.9% gain in 2013.

Sweden’s current account surplus narrowed 5.6% last quarter to SEK 62.8 billion.

Romanian producer prices and retail sales respectively fell 2.1% and rose 6.7% in the year to January.

The U.S. NAPM index and IBD/TIPP optimism index get released today.  More importantly, Canada reports fourth-quarter GDP growth and monthly producer prices. 

Central bank policy announcements are scheduled Wednesday-Thursday from Canada, Brazil, Poland, the ECB, Bank of England, and Bank Negara Malaysia.  The Fed Beige Book survey is published Wednesday, and numerous Fed officials including Chair Yellen speak publicly over the coming two days.  Service-sector PMIs get reported, and market attention will also shift to the upcoming trio of monthly U.S. labor market reports.

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

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