Dollar and European Equities Firm after Yellen Clarification

September 25, 2015

Fed Chair Yellen in a speech at the University of Massachusetts repeated that an interest rate hike by yearend is likely and indicated that she personally favored starting gradual rate normalization by then.  Investors seem pleased with that clarification and reduction of policy uncertainty.

Japanese core consumer prices fell 0.1% on year in August, returning to negative territory for the first time since April 2013 when QQE was launched.

The Japanese government downgraded its economic assessment for the first time in eleven months.  The assessment in September says “Japan’s economy is on a moderate recovery while slowness can be seen in some areas.”  The word “slowness” replaces “variation in the tempo of improvement” from the prior month’s assessment.

Officials at China’s central bank called the impact of the recent small yuan devaluation transitory and unsustainable.  They said now is the right time to pursue currency reforms in China and indicated a preference for yuan stability.

French consumer confidence rose three points to a reading in September of 97, best since October 2007.

Eurozone M3 growth unexpectedly decelerated in August.  M3 was 4.8% higher than a year earlier after spiking to a 5.3% gain in July, and M3 growth in June-August averaged 5.0%.  Slower M1 growth of 11.4% was the main cause of the deceleration.  Loans by banks to the private sector were 0.8% higher in August than a year before, with loans up 1.0% to households and 0.4% in nonfinancial firms.

Responding to Yellen’s comments, stocks in Europe have so far advanced 3.3% in Italy, 2.8% in Switzerland and Germany, 2.5% in Spain, 3.4% in France and even 1.5% in Greece.  The British Ftse is 0.6% higher.  Japan’s Nikkei bounced back 1.8%, but many other markets in the Pacific Rim recorded losses today such as China (down 1.6%), Indonesia (off 0.8%), Singapore (-0.5%), and Australia (-0.6%).

The dollar rose 0.7% against the yen, 0.5% versus the kiwi, 0.4% relative to the Aussie dollar, 0.3% against the yuan, 0.2% vis-a-vis the loonie and 0.1% against sterling.  The Brazilian real strengthened back through the 4.0 level to 3.9327/USD.  The Swissie edged up 0.1%.

Ten-year sovereign debt yields rose 8 basis points in Britain and 2 bps in Germany but stayed unchanged at 0.32% in Japan.

Comex gold, after surging Thursday, settled back 0.9% to $1.144.10 per ounce.  WTI oil rose 1.0% to $45.34 per barrel.

Japanese corporate service prices slid 0.2% on month in August and recorded a 12-month increase of 0.7%, most since April.  The return of core CPI inflation to sub-zero territory was dominated by energy.  Non-energy consumer prices were steady on month and 1.1% higher on year.

The Bank of Japan’s balance sheet as of September 20 was 6.6% greater than the mid-2015 level, reflecting continuing quantitative monetary stimulus.

Industrial production in Singapore fell in August by 3.7% on month, much more than anticipated, and 7.0% on year.  Malaysian unemployment ticked up 0.1 percentage point to 3.3% in July.

Spanish producer prices dropped 2.2% in the year to August, their largest on-year decline in seven months.  Icelandic CPI inflation returned to July’s 1.9% level in September from 2.2% in August.  Austrian industrial output advanced 0.6% on month and 1.3% on year in July.  Italian wages were flat in August and up from a year earlier by 1.2%, same as in July. 

Revised U.S. second-quarter GDP figures will be released today along with the U. Michigan estimate of consumer sentiment and Markit Economics’ preliminary U.S. services purchasing managers survey results.  Bullard and George of the St. Louis and Kansas City Feds speak publicly as will Bundesbank President Weidmann.

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

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