FOMC Day and an Australian Data Surprise

April 27, 2016

The Federal Open Market Committee will release a statement at 14:00 EDT (18:00 GMT) on the results of its third policy meeting of 2016.  The federal funds rate is not expected to change, and attention will be focused on comments regarding U.S. economic conditions and likely prospects for clues to the timing of the next policy change.

Donald Trump and Hillary Clinton moved much closer to securing the Republican and Democratic Party presidential nominations with big wins in Tuesday’s primaries.  Five primaries (PA, MD, DE, RI, and CT) were held.  Trump won all five in the Republican race with voting shares ranging from 54.4% in Maryland to 63.8% in Rhode Island, and he now has 950 delegates in all and needs just 287.  Clinton lost Rhode Island with 43.3% of the vote there but capture the other four states with shares ranging from 51.7% in Connecticut to 63.0% in Maryland.  She has 2141 committed delegates to Sanders 1321 and needs just 242 more to win the nomination.

Australian consumer prices, which had been expected to rise 0.2% on quarter in 1Q16, instead fell 0.2%, trimming the on-year inflation pace to a four-quarter low of 1.3%, down from 1.7%.  Of the two measures of core inflation, one dropped 0.4 percentage points to 1.7% in the case of the trimmed mean index and the weighted median index slumped 0.5 percentage points to 1.4%, down from an on-year pace of 2.4% a year earlier.  The U.S. currency advanced 2.0% against the Aussie dollar in response to this surprise result.

The U.S. dollar also appreciated 0.7% against the kiwi but fell by 0.2% relative to the loonie and 0.1% versus the euro, Swissie and yen.  Sterling and the yuan are unchanged.

In spite of a 1.8% advance in West Texas Intermediate crude oil, which poked briefly above $45/barrel for the first time in five months, equities have not had a good session especially for technology stocks, where first-quarter earnings reports have been weaker than anticipated.

  • In the Pacific Rim, Japan’s Nikkei lost 0.9%, and stocks fell by 0.6% in Australia, 0.7% in Singapore, 0.4% in China, and 0.2% in South Korea and Taiwan.
  • In Europe, Greek stocks plunged 4.5%, but bourses are up 0.4% in Germany, 0.3% in Switzerland, France and Italy, and 0.1% in Britain.

The Japanese 10-year JGB yield rose five basis points to -0.08%.  A Bank of Japan policy announcement due Thursday is expected to trim projected growth and inflation and could unveil additional stimulus.

Comex gold rose 0.3% to $1,246.30 per ounce.  Silver gained even more, but industrial metal prices softened.

Japan, like Australia, announced disappointing statistics.  

  • A 1.2% January advance in the all-industry index was completely reversed with a 1.2% drop in February, led by a 5.2% plunge in industrial production but also downticks of 0.2% in construction and 0.1% in service-sector activity.  January-February on average was 0.1% below the 4Q15 level. 
  • Small business sentiment sank a full point to a 5-month low of 47.8 in April.

Chinese industrial profits were 11.1% higher than a year earlier in March after posting a 4.7% decline the month before.

New Zealand had a trade deficit of NZD 3.838 billion in fiscal 2015/16 ending March, 61.8% wider than the prior fiscal year’s deficit.  There had been a trade surplus of NZD 798 million in fiscal 2013/14.

Consumer confidence in South Korea rose 1% to a reading of 101 last month. 

The first estimate of British GDP growth last quarter showed an as-expected increase of 0.4% from the final quarter of 2015 and on-year growth of 2.1%, same as in the prior quarter.  The index of service-sector activity went up 0.7% in December-February from the previous three-month period, which was less than expected.  British GDP expanded 2.5% per year on average during the three years through 2015, up from 1.6% per annum in 2010-12.

But the Conference of British Industries April distributive trades survey slumped 20 points from +7 in March to a 39-month low of -13.  The result was much weaker than forecast, leading most analysts to believe the drop will be reversed partly in May.

German consumer confidence rose 0.3 points to 9.7 in May, an eight-month high.  French consumer sentiment, however, remained unchanged in April at 94, down from readings of 95 in February 97 in January and 96 last December.  Italian consumer confidence sank 0.7 points to 114.2 in April.  Italian overall economic sentiment printed 2.5 points lower at 100.2.

Sweden’s economic tendency index worsened 1.9 points to a reading of 104.6 in April, as both household and manufacturing sentiment weakened.  Sweden’s seasonally adjusted trade surplus widened to SEK 1.6 billion, and the unadjusted SEK 3.9 billion surplus was 18% bigger than a year earlier despite a 3% drop in exports.

U.S. pending home sales and Brazil’s central bank policy decision will be reported today.

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

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