Central Banks and Weak European Data in the Spotlight

June 26, 2019

The Central Bank of Iceland’s 7-day term rate has been cut 25 basis points to 3.75% following a 50-basis point reduction at the prior monetary policy review last month. These moves represent a trend reversal from a 25-basis point increase last November.  In a released statement explaining the decision, officials anticipate a contraction of domestic demand and observed weaker-than-assumed tourism. Inflation is projected to ease, and measures of expected inflation have moved lower recently. There’s scope to relax monetary policy further if needed.

The Czech National Bank Board left its 2-week repo rate unchanged at 2.0%, having raised such by 25 basis points last month. That had been the first change of 2018, but the rate was hiked 45 bps in 2017 and 125 bps in 2018. A released statement suggests that the rate is not likely to be increased again over the coming year. The tightening in May was a response to faster price and wage inflation. Caution is warranted because “risks and uncertainties related to the impacts of protectionist measures in global trade, a more pronounced and potentially more protracted slowdown in economic growth in the euro area and the exchange rate of the koruna going forward.”

The Reserve Bank of New Zealand’s Official Cash Rate was left unchanged at 1.5% at the latest monetary  policy review, but officials in a statement flag a possibility that a lower rate “may be needed.” The cut the OCR by 25 basis points at the prior meeting in May amid a weakening global economic outlook and subdued domestic demand. Today’s statement notes downside risks around employment and the inflation outlook.

The Bank of Thailand’s 1.75% one-week repo rate has been maintained. Officials consider policy accommodative and appropriate. At this review, projected growth  in 2019 was revised downward by half a percentage point to 3.3%, and inflation is seen quite subdued. The central bank rate has been at 1.75% since a 25-basis point increase last December, which was the first hike since August 2011 and constituted a trend change compared to a pair of cuts in March and April of 2015. In a unanimous vote, “the Committee assessed that the Thai economy would expand at a slower pace than the previous assessment mainly due to merchandise and services exports. Inflation was projected to be in line with the previous forecast.”

Fed Chairman Powell in public remarks acknowledged rising uncertainties related to trade and global growth but also defended the need for an independent monetary policy.

Austria’s manufacturing purchasing managers index fell 0.8 points to a 55-month low in June and at 47.5 signaled the most rapid pace of deterioration since late 2014.

German consumer confidence dropped to a 27-month low in July, but French consumer sentiment in June improved to a 14-month high.

Danish retail sales were 0.6% below the year-earlier level in May, and a measure of investor sentiment toward the Swiss economy dropped 15.7 index points in June to a five-month low.

The advanced estimate of the U.S. trade deficit in May shows a significant increase in the gap to $74.55 billion. U.S. durable goods orders recorded back-to-back monthly drops of 2.8% in April and 1.3% in May. The year-to-date increase was trimmed to 1.0%.

Malaysian CPI inflation printed at 0.2% for a third straight month in May. India’s index of leading economic indicators rose 0.7% in May, rebounding from a 0.1% dip in April.

The dollar overnight rose 0.5% against the yen but fell 0.5% versus the kiwi. Other bilateral movements were small.

Equity market movements today have been unremarkable.

Ten-year sovereign debt yields ncreased today. WTI oil has surged 2.5%, but Comex gold gave up some of its recent gains.

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

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