The Fed Has Spoken, and Now Markets React
September 18, 2015
The ten-year Treasury in futures trading slid another 4 basis points overnight and is 11 bps below its level at the time of the FOMC announcement yesterday.
Ten-year British gilts, German bunds and Japanese JGB yields fell overnight by 11, 8, and 2 basis points.
The dollar is especially weak against commodity-sensitive currencies, falling 1.4% against the New Zealand and Australian dollars and 1.1% vis-a-vis the Canadian dollar. The dollar also declined overnight by 0.7% versus the yen, 0.6% relative to the Swiss franc, and 0.3% against sterling. While the euro edged just 0.1% higher, the dollar is now down 0.9% against the common European currency since the FOMC decision, and it has lost 1.4% in that span relative to the yen.
Gold is climbing in response, gaining 0.6% since Thursday’s close and 1.7% since the Fed announcement.
West Texas Intermediate crude oil as of 11:00 GMT slipped 0.3% overnight and the same since the announcement.
European share prices are very weak, with losses today so far of 2.2% in Italy and Spain, 2.4% in France and Germany, 1.7% in Greece and 1.1% in Great Britain. Japan’s Nikkei fell 2.0%, but China’s Shanghai Composite index firmed 0.4%. Stocks also rose 0.4% in Hong Kong and New Zealand, 0.5% in Australia, and 1.0% in India and South Korea.
The biggest market takeway from Yellen’s press conference is that if the Fed is so concerned about developments in China as to delay its rate hike, investors ought to be worried, too. However, Chinese property price data out today actually suggest some fragile stabilization in that market. There was a month-on-month price rise of 0.3%, and the 2.3% on-year decline calculated by Reuters was smaller in August than July’s 3.7% on-year drop. Moreover, more cities (nine of 70) reported higher property prices than a year earlier. Only three cities had done so in July.
Reserve Bank of Australia Governor Stevens predicted that world interest rates would stay low for some time longer but was upbeat that Australia would get through this period in pretty good shape.
Minutes from the Bank of Japan’s early August policy Board meeting rehashed what had been said in the statement released by the central bank back then, namely confidence in continuing economic recovery because of the resilience of domestic demand, indications that expected inflation is rising, and overall satisfaction that quantitative easing is working as intended. Of course, private analysts think otherwise.
Japanese department store sales posted a smaller on-year rise of 2.7% in August. In Tokyo, sales growth slowed to 6.1% from 7.2%.
Consumer confidence in New Zealand, which touched a 3-year low in August, rebounded 0.9% this month. Job ads in that economy fell 1.7% last month.
South Korean producer price deflation swelled to 4.4% in August from 4.0% the month before.
The eurozone seasonally adjusted current account in July of EUR 22.6 billion was the second smallest monthly surplus this year. The surplus during the 12 months through July equaled 2.6% of GDP.
Dutch consumer sentiment printed at +5 in September, in between August’s reading of 6 and July’s of 4. Dutch consumer spending rose 1.3% in the year to July, down from an on-year increase of 2.4% in June.
Construction output in Italy rose 0.3% in July, its first advance since April. Output fell 1.5% in the latest three reported months compared to the prior 3 months. Italy recorded a EUR 6.65 billion current account surplus in July, 12.8% narrower than a year earlier. The surplus equaled EUR 36.2 billion during the 12 months through July.
The Greek jobless rate in 2Q15 of 24.6% was 2.0 percentage points lower than in 2Q14.
Canadian consumer prices and the U.S. index of leading economic indicators get reported today.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.