Service Sector PMI Reports and Fed Official Remarks Head Wednesday’s Action

November 4, 2015

Yellen, Fisher, Dudley and Hacker speak publicly today, creating plenty of opportunity for affirming likeliness of a December Federal Reserve interest rate hike.

The dollar has risen by 0.4% against the euro, 0.2% versus the kiwi, and 0.1% relative to the yen.  It’s unchanged against sterling, the loonie and yuan and down 0.1% vis-a-vis the Swiss franc and Aussie dollar.

Strong share price gains in the Pacific Rim were led by China (4.7%), Hong Kong (2.5%), Indonesia (1.8%), Taiwan (1.7%) and Japan (1.3%).  India’s market dipped 0.1%, and Australia’s eked out a 0.1% uptick.  In European trading, the British Ftse is up 1.1%.  Stocks also have climbed 1.0% in Switzerland, 1.6% in Italy and 1.2% in Spain but are off 0.1% in Germany.

The 10-year German bund yield dipped a basis point to 0.57%, while its Japanese counterpart is a basis point firmer at 0.31%.

Commodity price changes so far today have been nil in the cases of gold and oil.

Three central banks held interest rate policy meetings:

  • Iceland’s 7-day collateralized lending rate was lifted 25 basis points to 6.5%.  This was the third hike of 2015 but smaller in size than those in June and August.  A statement points to more tightening but trims back the likely magnitude of coming moves.
  • The Bank of Thailand’s policy rate was left at 1.5%.  The Last change was a 25-basis point cut in April.  The very low rate was called accommodative and appropriate.  Inflation is still in sub-zero territory.
  • The Central Bank of Poland’s 7-day reference rate was kept at 1.5% as well.  There were two cuts of 50 basis points each in the first quarter of this year.

Producer prices in the eurozone fell 0.2% on month in September and at an annualized rate of 3.1% between 2Q and 3Q.  That matches the 3.1% drop between September 2014 and September 2015.  Between August and September, energy producer prices fell 0.8%, and other elements of the PPI dropped by 0.2%.

Euroland’s composite purchasing managers index increased 0.3 points from a 7-month low of 53.6 in September to a 2-month high of 53.9 in October.  The services PMI reading of 54.1 after 53.7 also represents a 2-month high, but each index was revised down 0.1 point from its preliminary estimate.

  • Within the common currency area, Germany, France, Italy and Spain each reported faster growth in services and overall during October than in September.  Ireland’s 57.7 composite PMI, although still leader of the pack, was at its lowest level since February 2014.

Japan’s service-sector PMI of 52.2 and composite PMI of 52.3 were slightly better than September readings but below August scores.

Japan’s monetary base recorded a smaller 32.5% on-year advance in October than September’s 35.1% gain of the third-quarter’s 33.7%.  The base rose 43.2% in 2014.

Japanese consumer confidence rose 0.9 points to a 2-month high of 41.5 in October.  That’s still quite weak.  Highest scores this year were only 41.7, reached in both March and June.

Caixin’s composite and service-sector purchasing manager indices for China each rose to a 3-month high.  The composite gauge recovered from September’s 80-month low of 48.0 to 49.9, conveying stagnation.  The services index improved 1.5 points to a reading of 52.0.

India’s service-sector PMI rose 1.9 points to an 8-month high of 53.2 despite slower production growth.  Input inflation accelerated.  The composite Indian purchasing managers index printed in October at 52.6, 1.1 points above September’s reading and a 2-month high.

Britain’s service-sector and composite purchasing manager indices, each of which had been at 53.3 in September, rose to 54.9 and 55.4, respectively, thus beating street epectations.  The data suggest that U.K. growth at the start of 4Q was a shade faster than the 0.5% pace of 3Q.

British shop prices posted an on-year 1.8% drop last month, a shade less than the 1.9% September-over-September decline.

Australia’s Performance of Services index fell 3.4 points in October, falling through the 50 no change threshold to print at 48.9, lowest since December 2014 and down from 55.6 as recently as August.

Australian retail sales advanced by 0.4% for a second straight month in September but were just 0.3% greater than a year earlier.  Sales volume in the third quarter climbed 0.6%.  The Australian goods and services trade deficit in September was 23% smaller than forecast.  It’s A$ 2.317 billion size was less than both August’s gap of A$ 2.711 billion and July’s A$2.483 billion.  Exports grew twice as fast as imports on month.

New Zealand’s jubless rate rose to 6.0% last quarter from 5.9% in 2Q and 5.8% in the first quarter.  Employment fell 0.4% on quarter following rises of 0.3% in 2Q and 0.7% in 1Q.  Private regular pay increased 0.4%, down from a 0.5% increase in the previous quarter.

The private purchasing managers index of Singapore fell 1.2 points from a 7-month high of 51.4 in September to a 6-month low of 50.2 last month.

Hong Kong’s private PMI printed at a 3-month in October but remained very weak at 46.6.  A 76-month low of 44.4 had been set in August.

Industrial production reports from Brazil and Ireland struck a stark contrast.  Such fell by a greater 10.9% in the year to September in Brazil’s case but advanced 20.1% in Ireland’s.

Private sector U.S. jobs figures reported by ADP were disappointing.  In October such rose 182K after a downwardly revisd 190K in September.  Jobless claims data have suggested that the labor department’s estimate for total employment growth last month will be back to 200K or above.

U.S. mortgage applications fell 0.8% last week.  The 30-year fixed mortgage rate of 3.98% was three basis points lower than in the prior week.

The U.S. and Canadian trade balances each improved in September.  The U.S. $40.81 billion goods and services deficit was $7.2 billion less than recorded the month before, as exports climbed 1.6% and imports shrank 1.8%.  Canada also experienced positive export growth (0.7%) and a contraction of imports (down 1.3%).  This resulted in a 35% drop of the trade deficit to C$ 1.73 billion.

The U.S. non-manufacturing PMI survey will be reported at 15:00 GMT by the Institute of Supply Management.

Among the many Fed officials speaking today, the remarks of Vice Chairman Stanley Fisher seem the likeliest to shed light on coming monetary policy decisions.  He’s been an outspoken proponent of hiking the federal funds rate before end-2015.

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


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