Sovereign Debt Yields Fall Further Despite FOMC Minutes

February 23, 2017

10-year sovereign debt yields are down 5 basis points in The Netherlands, 4 bps in France (helped by a Macron/Bayrou political agreement to support one another against the Far Right), 3 bps in Britain, and 2 bps in the U.S. and Germany.

Minutes from the FOMC meeting of January 31/February 01 reveal a widely held predisposition to hike rates again sooner rather than later.

The dollar is below Tuesday closing levels but only modestly relative to the euro, yen, sterling, Swissie, and Canadian, New Zealand and Australian dollars.

Stock markets fell 0.4% in Australia and New Zealand, 0.3% in China and Hong Kong, and 0.1% in Japan. Equities also are trading a bit lower in Germany, Greece, and Switzerland.

Gold advanced 1.0% to $1,245.60 per ounce. Oil recovered 1.5% to $54.53, lifted by yesterday’s revelation of lower-than-assumed U.S. inventories.

The Bank of Korea’s policy interest rate, which has been 1.25% since a 25-basis point cut last June, was kept at that level. Officials observe moderate growth and inflation close to target.

Australian private business investment fell 2.1% last quarter, about four times greater than had been anticipated.

Japan’s indices of leading and coincident economic indicators in December were revised slightly downward, but the LEI still surpassed November’s level by 2.2 points and constitutes an 18-month high. The trend of the CEI is “improving.”

Japanese corporate service prices fell 0.5% last month and posted the same 0.5% 12-month rate of increase as in December.

Japanese stock and bond transactions last week generated a net JPY 482 billion capital outflow, more than reversing the JPY 466 billion inflow in the prior week.

The Japanese government’s monthly economic assessment was released. Overall, officials still see a moderate recovery with delayed improvement in spots. Within that view however, the assessment for personal consumption was downgraded for the first time since last March. Home construction was also downgraded, but business investment and imports were upgraded.

China’s leading and coincident economic indicators respectively increased by 1.1% and 0.9% in January. Consumer price inflation in Singapore tripled to 0.6% in January from 0.2% in December.

German real GDP expanded 0.4% last quarter and 1.2% year on year (1.7% after adjusting for variations in the number of business days). Between 3Q and 4Q, government spending and personal consumption rose 0.8% and 0.3%. Investment in machinery and equipment slid 0.1%, but construction rebounded 1.6%. Net exports exerted a 0.4 percentage point (ppt) drag, but inventories augmented GDP growth by 0.3 ppts. Real GDP climbed 1.8% in 2016 following a 1.5% rise in 2015. Nominal GDP was 2.5% higher in the fourth quarter than a year before and posted a 3.3% calendar year advance.

German consumer confidence unexpectedly fell to a reading of 10.0 in March from 10.2 in February but was higher than the November and December readings.

French overall business sentiment was unchanged in February. Manufacturing improved to the best reading since June 2011, but retail was weaker than in January.

Swiss industrial production sank 1.2% in the year to 4Q16, reversing a 1.1% third quarter-on-third quarter increase. Output in December was 0.1% less than a year earlier.

Italian retail sales unexpectedly fell 0.5% in December on top of a 0.7% drop in November and were 0.2% lower than at end-2015.

The Confederation of British Industries monthly distributive trades survey printed 17 points higher at +9 in February after plunging to -8 in January from +35 in December.

U.S. jobless insurance claims remained historically low at 244K last week and a 4-week average of 241K. The mystery continues to be that labor market tightness reflected in this data and in the sub-5% unemployment rate continues to coexist with historically mild growth in real hourly wage earnings.

The Chicago Fed National Activity Index fell 0.23 points to a 2-month low of -0.05 in January and was also below its year earlier level of +0.12.

The FHFA measure of U.S. housing prices increased 0.4% in December and 1.5% last quarter.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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