Several Reassuring Developments

March 25, 2019

Last Friday had been a brutally difficult day in financial markets after the U.S. 3-month T-bill rate moved above the 10-year Treasury note yield for the first time since the Great Recession.

Monday has seen reassuring news on several fronts but not before share prices in the Pacific Rim tumbled 3.0% in Japan, 2.3% in Hong Kong, 2.0% in China, 1.9% in India and South Korea, 1.8% in Indonesia, 1.5% in Taiwan and 1.1% in Australia.

Chicago Fed President Evans overnight predicted the next hike of the federal funds rate is unlikely before the second half of 2020, but he doubts the U.S. will experience a recession in the interim.

Bank of Japan Board member Harada asserted that quantitative and qualitative monetary stimulus in Japan has lifted productivity and employment while reducing the jobless rate.

ECB Governing Council members Coeure and Hansson respectively said the European Central has tools to address weaker growth if necessary and that restarting quantitative asset purchases could be one option.

In Turkey, where a vicious cycle of currency depreciation and domestic inflation acceleration has depressed the lira about 28% over the past twelve months, the central bank releases an unscheduled announcement committing to the use of all tools of monetary policy and liquidity management to restore price stability. “The Central Bank will closely monitor fluctuations and unhealthy price formations in financial markets and will use all monetary policy and liquidity management instruments to maintain price stability and support financial stability, if deemed necessary.” The lira rose in reaction.

A six-month streak of decline in Germany’s IFO-compiled business climate index was interrupted in March by a 0.9-point rebound in that reading to a 3-month high of 99.6. That still likes well below last August’s reading of 104.1, but at least both perceived current conditions and expectations of how the economy will evolve over the coming six months were better than seen in the February survey. IFO officials said the “German economy is showing resilience.” However, March also saw the lowest reading in manufacturer expectations since November 2012.

The Mueller investigation concluded with no finding of collusion between President Trump and the Russians during the 2016 presidential campaign. This doesn’t mark the end of investigations but avoids a worst-case impact on U.S. political stability.

A 1.9% jump during January in Austrian industrial production resulted in an 8.2% year-on-year advance, the bigest since January 2011.

The dollar has been calm so far today, with no net change against the Swiss franc, kiwi, peso or loonie, upticks of 0.2% relative to the yen and sterling, and downticks of 0.1% vis-a-vis the euro, Australian dolar, and Chinese yuan.

Share prices in Europe have slipped only 0.1-0.4% in the U.K., France, Germany, and Switzerland.

Ten-year sovereign debt yields, which dropped sharply last week, rebounded 3 basis points today in the U.S. and U.K. and a basis point in Germany.

But the Japanese JGB 10-year dipped another basis point after news that the all-industry index had weakened 0.2% both on month and year-on-year in January due mainly to a 3.5% plunge that month in industrial production.

Comex gold strengthened 0.3% overnight, while the price of West Texas Intermediate crude oil eased 0.2%.

PPI inflation in Spain accelerated in February to a 3-month high of 1.9% but stayed still well down from 5.3% as recently as September. PPI inflation in Finland eased to a 1-year low of 3.0% last month.

In the Czech Republic, consumer confidence weakened to a 30-month low in February, and business sentiment dropped to a 20-month low.

Singapore consumer prices rose 0.5% in February both compared to January and to February 2018. This represents the lower bound of a 0.5-1.5% inflation range this year that officials in the country are predicting.

U.S. data releases later today include the Chicago Fed National Activity Index and the Dallas Fed regional manufacturing survey.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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