Expressions of Concern

February 18, 2016

St. Louis Fed President Bullard, who had previously been urging interest rate normalization, gave a speech warning that further rate hikes would be risky in light of the continuing decline of market-based indicators of expected inflation and because a buildup of unhealthy asset bubbles has become less probable.

A member of the Bank of Japan’s Policy Board, Ishida, warned that enduring global market turmoil could weaken Japan’s economy.

Assistant Governor Edey of the Reserve Bank of Australia expressed puzzlement at the pessimism in global financial markets, which is unwarranted in his opinion.

Bank Indonesia policymakers cut their BI reference interest rate by 25 basis points for a second straight month, predicting a continuing weak global recovery.  The rate now drops to 7.0% versus 7.75% at the start of last year, and the primary reserve requirement was also reduced to 6.5% from 7.5% to support demand.

The OECD released its Interim Economic Outlook, cutting its forecast of world growth in 2016 to 3.0%, same as the 2015 result, from an estimate of 3.3% made three months ago.  Projected 2017 growth was lowered as well to 3.3% from a prior forecast of 3.6%.  Growth forecasts for 2016 were cut a half percentage point (ppt) in the U.S. instance, 0.4 ppts for Euroland, and 0.2 ppts for Japan.  In Brazil, which is supposed to host this year’s Olympic Games, real GDP is now expected to contract 4.0% in 2016 rather than 1.2% and to be flat in 2017 instead of recovering 1.8%.  OECD officials concluded that a stronger collective policy response is needed to bolster world demand.

A mixed dollar overnight shows declines of 0.5% against sterling and 0.2% versus the yuan and yen but appreciation of 0.4% relative to the euro and Aussie dollar, 0.3% vis-a-vis the Swiss franc and 0.2% against the kiwi and loonie.

Japan’s Nikkei rallied 2.3% overnight.  Stock markets rose 2.3% in Australia, 2.9% in Hong Kong, 1.2% in Taiwan, 1.3% in South Korea and 1.7% in Singapore but edged down 0.2% in China.  In European markets, share prices are up 1.6% in Germany, 1.1% in Italy, 1.0% in France and Spain but down 0.2% in Britain.

The 10-year Japanese JGB yield is unchanged at 0.02%.  The British gilt firmed a basis point, and the German bund is a basis point softer.

West Texas Intermediate oil rose 2.4% to $31.40 per barrel.  Comex gold slid 0.4% to $1,204.27 per ounce.

Former U.S. Supreme Court Justice O’Connor, the first woman member of the high bench and a Reagan appointee, broke ranks with her Republican colleagues, asserting that Obama should be allowed to appoint Scalia’s replacement.

The eurozone current account surplus of EUR 25.2 billion seasonally adjusted in December was at a 4-month low.  The 2015 surplus of EUR 310.7 billion was 29% greater than the 2014 current account surplus and as a percentage of GDP at 3.0% compared to 2.4% the year before.

Italy recorded a EUR 34.9 billion current account surplus in 2015, up from EUR 3.08 billion in 2014.

French consumer price inflation remained steady at 0.2% in January, confirming the preliminary indication.

Japanese stock and bond transactions last week generated an 817 billion yen net capital outflow, only 36% as much as in the previous week.

Japan had a JPY 646 billion unadjusted customs trade deficit in January, 45% smaller than a year earlier as imports plunged 18% and exports fell 12.9% on year.  The adjusted trade balance was in surplus for a third straight month and, at JPY 119 billion was more than three times larger than the combined November-December surplus.

Chinese CPI inflation accelerated less than expected to 1.8% in January from 1.6% in December, 1.5% in November and 1.3% in October.  Consumer prices had risen 0.8% in the 12 months to January 2015.  Producer prices dropped 5.3% in the year to January 2016, the same decline as in the prior year to January 2015.

New Zealand producer output prices fell in the fourth quarter of last year by 0.8% relative to 3Q and by 0.6% from a year earlier.  Producer input prices also dropped in both quarterly terms (1.2%) and on a year over year basis (1.1%).  Consumer sentiment in New Zealand fell 1.4% in February following a 2.3% January rise.

Australia’s jobless rate unexpectedly increased 0.2 percentage points in January to a four-month high of 6.0%.  Jobs fell 7.9K on top of a 0.8K dip in December but had risen in October-November by a combined 131K.  The Westpac index of Australian leading economic indicators slipped less than 0.1% in January.

Malaysian GDP last quarter was more moderate in 3Q but still exceeded market expectations.  Real GDP rose 1.5% on quarter and 4.5% on year.  GDP increased 5.0% in 2015, down from 6.0% in full-2014.

The U.S. Philadelphia Fed monthly manufacturing index printed 0.7 points higher at -2.8 in February.  This was the sixth negative reading in a row but the highest result since the last positive score in August which was +3.4.  The diffusion index in February 2915 was +13.0, 15.8 points above the February 2016 score.

U.S. jobless insurance claims slipped 7K last week to 262K and averaged 273.25K over the past four weeks, down from 285K on average in the four weeks to January 16.

Still to come: U.S. index of leading economic indicators, which is compiled by the Conference Board.  Also the ECB Account of its last policy meeting.

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

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