Fresh Focus on Chinese Policy

February 23, 2016

China again has been the straw that stirred things us.  The catalyst today was the largest daily reduction of the yuan’s fixing value by officials at the People’s Bank of China in several weeks.  The result was renewed risk aversion.

A secondary depressant was a weaker-than-expected German business climate in February reported by the Ifo Institute.

Investors await several U.S. data releases:  The Case Shiller house price index, existing home sales, consumer confidence, the Richmond Fed manufacturing index and weekly chain store sales.  Stanley Fisher, Vice Chair of the Federal Reserve, speaks publicly.

Share prices in the Pacific Basin closed down 1.6% in India, 1.2% in Indonesia, 0.8% in China, and 0.4% in Japan and Australia.

Stocks in Europe have thus far fallen 0.9% in Switzerland, 0.6% in Germany, 0.5% in the U.K., and 0.3% in Italy and France.

The dollar fell 0.7% against the yen, which is predisposed to strengthening when investors look for a safe haven to park wealth. 

The dollar is 0.6% softer against the Swiss franc.  Swiss National Bank President Jordan said officials haven’t detected a stampede into cash following the imposition of negative interest rates.

The dollar otherwise rose 0.3% against sterling and the euro, as well as 0.1% versus the kiwi but fell 0.3% vis-a-vis the kiwi.

West Texas Intermediate crude oil eased back 0.5% to $33.24 per barrel.

Gold rose 0.6% to $1,215.65 per ounce, but zinc led a drop in other metal prices such as those for copper and nickel.

Ten-year sovereign debt yields increased six basis points in the U.K. and a single bp in Germany.  The 10-year Japanese JGB remains at negative 0.01%.

German fourth-quarter GDP was confirmed to have risen 0.3% on quarter and 2.1% on year, but the year-over-year advance was only 1.3% if adjusted for the variation in the number of working days.  Real GDP increased 1.5% in 2015 as a whole.  Between 3Q15 and the last quarter of the year, personal consumption grew just 0.3%, half as much as in the prior quarter.  Exports fell 0.6%, while imports advanced 0.5%, causing net foreign demand to exert a 0.5 percentage point drag on GDP growth.  Inventory building augmented economic growth by just 0.1 percentage point. 

German economic conditions weakened further in the current quarter, and manufacturing was the hardest-hit sector.  The IFO business climate index dropped to a 14-month low of 105.7 in February from readings of 107.3 in January, 108.6 in December and 109.0 in November.  Expectations sank 3.5 points in February, dipping below the 100 neutral threshold to 98.8.  That impact was blunted by a 3-month high in the current situation sub-index. 

IFO’s German services climate index fell 0.9 points to a 7-month low of 27.2.  Like the business index, the weakness was caused by weakening expectations in spite of a slight uptick in current conditions.

French business sentiment according to the INSEE statistical agency slipped two points to 100 overall.  The manufacturing reading stayed level at 103, but services weakened.

South Africa’s index of leading economic indicators edged down 0.1% in December. 

Australia’s index of leading economic indicators fell 0.2% in December.

Hong Kong CPI inflation picked up 0.2 percentage points to a 7-month high of 2.7% last month.  The former British colony’s jobless rate stayed at 3.3%.

Consumer prices in Singapore fell 0.6% on year in January, same as in December.

Czech producer prices recorded a larger 3.4% on-year decline in January.

Governor Carney of the Bank of England said the central bank has several options for easing its monetary stance further if that becomes necessary.

Turkey’s monetary policy stance was left unchanged.  The one-week repo rate stays at 7.5%, and the overnight rate corridor shows a lending rate of 10.75% and a borrowing rate of 7.25%.

Officials at Hungary’s central bank also are meeting today.

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

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