Central Banks Stand Down

January 21, 2016

In these tumultuous times, it would not be surprising to see monetary policy changes taken to help dissipate the high level of market fear.  Instead,

  • The ECB Governing Council retained its interest rate structure, consisting of a 0.05% refinancing rate flanked by a negative 0.30% deposit rate and a +0.25% marginal lending rate.
  • Brazil’s monetary policy committee, Copom, did not raise its 14.25% Selic rate to combat a plunging currency and accelerating inflation that lies well above target.  Analysts were anticipating a 50-basis point rate hike.
  • Bank of Japan Governor Kuroda claimed that the BOJ Board is not contemplating a negative interest rate and once again blamed lower energy prices for the failure of core inflation to rise above zero.
  • Bank Negara Malaysia retained a 3.25% benchmark interest rate, the level since a 25-bp hike in July 2014, asserting that the stance is accommodate and providing aid to economic growth.

Equities in the Pacific Rim slumped about 3% in China, 2.4% in Japan, 2.2% in Hong Kong, and 1.1% in Singapore.

In Europe, stocks were modestly higher prior to ECB President Governor Draghi’s press conference but jumped higher when he said, “We expect them (policy rates) to remain at present or lower levels for an extended period of time.”  Share price gains now amount to 3.8% in Italy, 2.5% in Germany, France and Italy, 2.0% in Switzerland and 1.6% in Great Britain.

WTI oil has fallen 1.2% to $28.02 per barrel, while gold has edged up 0.1% to $1,101.93 per ounce.

The ten-year German bund and British gilt yields rose two and one basis points, while their Japanese counterpart is a basis point lower.

Just prior to the ECB press conference, the dollar showed overnight downticks of 0.2% against the euro and 0.1% versus the Swissie, yen and loonie but was up 0.4% relative to sterling, 0.2% against the Aussie dollar and 0.1% vis-a-vis the kiwi.  The yuan is steady.

Japanese stock and bond transactions generated a net 830 billion yen capital outflow last week.  There had been a JPY 1.05 trillion net outflow in the first week of January.

Japan’s all-industry index fell 1.0% in November, reversing a 0.9% rise in October.  This monthly proxy of GDP was affected in November by month-on-month drops of 3.0% in construction, 0.9% in industrial production and 0.8% in services.  The all industry index was 1.1% greater than a year earlier in October-November, down from on-year increases of 1.3% in 3Q and 1.4% in 2Q.

Supermarket sales in Japan were unchanged in December compared to the year-earlier month.

Consumer sentiment in Turkey fell to a reading in January of 71.6 from 73.6 in December and 77.1 in November. 

Consumer sentiment in Denmark weakened in January to a score of 4.6 after printing at 6.1 in December and 5.6 in November.

Consumer confidence in The Netherlands also worsened this month, touching an 8-month low of +4, two points below December’s score.  Consumer spending posted weaker on-year growth in November of 0.3% versus 12-month advances of 1.7% in October and 2.2% in September.

New Zealand consumer confidence bounced back 2.3% this month after dropping by 3.3% in December.

French manufacturing sentiment printed at 102 for a third straight month in January, while service sector sentiment recovered two points to a reading of 100 following a 3-point decline the month before.

New Zealand’s manufacturing purchasing managers index improved to a 14-month high of 56.7 in December, rising 1.8 points on month.

Australian home sales fell 2.7% in November on top of October’s 3.0% slide.  The economy’s index of leading economic indicators, according to the Conference Board, rose 0.3% in November versus a 0.1% downtick the month before.

Swiss year-on-year M3 money growth decelerated to 1.6% in December from 2.1% in November.

The Royal Institute of British Chartered Surveyors’ house price balance index ticked up to 50% in December from 49% in November.

South African wholesale turnover fell 1.4% in November but posted a 12-month increase of 3.9%.

Consumer price inflation in Hong Kong ended 2015 at 2.5% compared to 4.9% in December 2014. Average inflation was 3.0% last year after 4.4% in 2014.

New U.S. jobless insurance claims increased by 10K last week to 293K.  The latest four-week moving average of 285K compares to 272.5K in the prior four weeks to December 19 and 271K in the four weeks to November 21.

The Philadelphia manufacturing index recorded a fifth straight negative reading in January, this time of -3.5.  Such was the least negative score in this streak and 6.5 points better than November’s revised reading of -10.2.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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