Central Banks, Data, and China All in the Spotlight
January 14, 2016
Following Wednesday’s U.S. stock market selloff, share prices fell 2.7% in Japan, 1.9% in Singapore, 1.6% in Australia, 1.0% in Taiwan, 0.9% in South Korea, 0.6% in New Zealand and 0.5% in Hong Kong. Equities in Europe are currently down on the day by 3.2% in Greece, 2.8% in France, 2.7% in Germany, 2.4% in Italy, 2.3% in Switzerland and 1.8% in the United Kingdom.
Although China’s stock market recovered about 2.0%, concern remains deep about the outlook for Chinese growth and the likelhood of faster depreciation in the yuan. China’s currency in country declined 0.2%, and offshore trading in Hong Kong widened the discount as such fell to as weak as 6.6259 per USD.
European finance ministers are meeting today.
West Texas Intermediate oil gained 1.2% overnight to $30.81 per barrel. Comex gold is 0.4% softer at $1,089.67 per troy ounce.
The U.S. dollar has dipped 0.3% against the loonie, 0.2% versus the euro and 0.1% relative to the Swiss franc. The greenback also strengthened 1.0% versus the kiwi, 0.2% relative to the Aussie dollar and 0.1% against sterling. Dollar/yen is unchanged.
Ten-year sovereign debt yields are down four basis points in the U.K. and two bps in Japan but unchanged in Germany. A rate drop is indicated in the U.S. Treasury yield.
In news from central banks,
- The Federal Reserve Beige Book identified expanding activity in just nine of twelve districts. The report highlighted damage inflicted by the strong dollar on U.S. manufacturing. Boston Fed President Rosengren expressed doubt that the economy could tolerate four rate hikes this year.
- The Bank of England Monetary Policy Committee again by a vote of 8-1 for no change in the 0.5% British Bank Rate. That’s been the level since March 2009. Ian McCafferty again dissented in favor of a 25-bp rate hike, but the majority deferred because of “likely persistence of headwinds weighing on the economy” and producing a more gradual upturn in inflation which is currently well below target. The committee unanimously agreed not to change the GBP 375 billion size of its asset purchase program and to maintain that limit by reinvesting maturing assets in the portfolio.
- Bank Indonesia cut the BI central bank reference rate to 7.25% from 7.5%, its first change since a similar cut last February. Indonesian growth has been weaker than assumed, and inflation is within last year’s 3-5% target. Considering a terrorist attack today in Jakarta, the danger is that the easing of monetary policy will expose the rupiah to intensifying downward pressure.
- The National Bank of Poland left its main seven-day interest rate unchanged at 1.5%, its level since a 50-basis point reduction last March.
- The Bank of Korea’s seven-day repo rate was left at 1.5% for a ninth straight meeting. It was cut twice in 2015 (March and June by 25 bps each) and twice by a similar amount the year before. South Korean exports are shrinking, but inflation has begun to accelerate.
German real GDP increased 1.7% last year and 1.5% when adjusted for differences in the number of working days in the year. The 1.7% advance followed growth of 1.6% in 2014, 0.3% in 2013, 0.4% in 2012, 3.7% in 2011, 4.1% in 2010 and a 5.6% contraction in 2009. Growth averaged 1.3% a year during the past eleven years. In 2015, all of the growth was accounted for by personal and government consumption. Investment contributed 0.2 percentage points of GDP growth, but inventories exerted a 0.4 ppt drag. Net foreign demand augmented GDP by 0.2 ppts, as both exports and imports expanded by slightly over 5%. Germany ran a 0.5% of GDP budget surplus, same as in 2014.
German wholesale prices dropped 0.8% on month in December, the fifth straight monthly decline. Oil prices fell 6.0% on month and 11.7% on year. The WPI fell 1.2% between December 2014 and December 2015. Wholesale price deflation averaged 1.2% in 2015, same as in 2014. The WPI on averaged also fell in 2013 by 0.6%.
Japanese corporate goods prices fell 0.3% on month and 3.4% on year. The on-year decline more than reversed a 1.8% rise between December 2013 and December 2014. In the year to December 2015, export prices dropped 6.5% and import prices plunged 18.2%.
Japanese core private domestic machinery orders dived 14.4% on month in November, reversing a 10.7% rise in October, but were 5.7% greater than a year earlier. Foreign machinery orders plunged 25% on month in November.
The Conference Board reported a 0.3% rise in Japan’s index of leading economic indicators for November. Japanese machine tool orders recorded a larger 25.8% on-year decrease in December following 12-month declines of 17.7% in November, 22.9% in October 19.1% in September, and 16.5% in August.
Australian December labor statistics were better than forecast. The jobless rate stayed at 5.8%, but employment dipped only 1K after a combined 131K leap in October-November.
Wholesale prices in India fell by a smaller 0.7% in the year to December than analysts were expected. Such had declined 2.0% on year in November.
In the year to December, consumer prices edged up 0.1% in both Ireland and Sweden. Consumer prices rose 0.9% in Hungary but slipped 0.2% in Finland.
Italian industrial production dropped 0.5% on month in November, cutting the 12-month working day-adjusted increase to 0.9% from 3.0% the month before.
U.S. jobless insurance claims rose 7K to 284K last week. The four-week average of 278-3/4K compares to 270.5K and 270.75K in the prior two four-week intervals.
U.S. import prices fell 8.2% on year in December after declining 5.6% over the twelve months to December 2014. Fuel plunged 40.5% last year in December-over-December terms, while non-fuel import prices dropped 3.4%, thanks to the strong dollar. Export prices contracted 6.5% last year versus a slide of 3.0% in 2014.
The Philly Fed manufacturing index slumped back into sub-zero territory, printing at -5.9, a 3-month low, after +1.9 in November. December’s reading was the second worst since February 2013, corroborating other evidence of the damage to manufacturing from a strengthening dollar. Fed tightening should exacerbate this deteriorating trend.
Canadian new home price inflation ticked up to 1.6% in November from 1.5% in October.
Peru and Chile are holding interest rate meetings today.
Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.