Central Banks, Economic Data Surprises, and British Voters in the News This Thursday

December 12, 2019

Polls in Britain’s parliamentary election today will close at 22:00 GMT 17:00 EST. The fate of Brexit is at stake.

U.S. producer prices stayed unchanged in November, defying expectations of an increase and leaving the 12-month  increase at 1.1%. An even bigger surprise was a leap in new jobless insurance claims last week to 252k, most in 27 months.

Industrial  production in Euroland posted their fourth month-on-month drop in five months, declining 0.5% in October and registering a 2.2% fall from a year earlier.

The Swiss combined PPI/import  price  index fell 0.4% on month in November to register its largest on-year drop (2.5%) in 44 months. Domestic producer prices fell 0.3% on month and 1.2% on year.

Japanese core domestic machinery orders sank 6.0% on month and 15.0% on year in October. Orders from the government dropped 10.8%, but export orders rebounded 2.9% after their 12% slump the month before.

German CPI inflation in November was confirmed at 1.1%, matching Octobers lowest level since February 2018. The energy component was 3.7% lower than a year earlier.

French consumer prices dipped 0.1% in November, but their 12-month increase edged 0.2 percentage points higher to a 3-month high of 1.0%, led by higher food costs.

South African PPI inflation decelerated to 2.3% in November, lowest since at least the start oaf 2013, from 3.0% in October and 6.5% last April.

Retail sales in Singapore were 4.3% lower than a year earlier in October.

Food price inflation in New Zealand accelerated to a 25-month  high of 2.4% last month.

Britain’s RICs house price index weakened to a 7-month  low in November.

The European Central Bank retained its interest rates of zero percent on the repo, a -0.5% overnight deposit rate and a 0.25% marginal lending rate. This was the first scheduled policy review chaired by Christine Lagarde, and the released statement contained the following compelling forward guidance on  interest rates and quantitative stimulus:

The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics. On 1 November net purchases were restarted under the Governing Council’s asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

The Central Bank of the Republic  of Turkey reduced its key interest rate to 12% from 14% today, citing weak domestic investment demand, a weakening global economic outlook, significant improvement in the current account, a stable lira that has enabled Turkish inflation to recede, a widespread drop in expected inflation, and low global price pressures.

At Bangko Sentral ng Pilipinas, the Filipino overnight reverse repo, overnight deposit rate, and key lending rate were kept at 4.0%, 3.5%, and 4.5% respectively. There is a “benign inflation environment” as well as solid domestic growth prospects and weak global growth according to a released statement.

Monetary officials at the National Bank of Ukraine implemented their fifth interest rate cut since April, accelerating the size of the reduction to 200 basis points after cuts of 100 bps in October and 50 bps each in September, July and April. The rate now falls to 13.5%. Inflation in Ukraine at 5.1% has fallen toward the 5% medium term target faster than officials were expecting, thanks to a rapid appreciation of the hryvnia.

The Swiss National Bank’s quarterly monetary policy review left the 3-month Swiss Libor target range unchanged at -0.25% to -1.25% and the sight rate target at negative 0.75%. Swiss officials consider the franc to be still overvalued and, in a released statement that also revised projected CPI inflation lower to 0.1% in 2020 and 0.5% in 2021, reaffirmed their willingness to intervened as required to counter excessive upward pressure on the exchange rate.

The Central Bank of Brazil’s Selic interest rate was cut by 50 basis points to 4.5%. This was the fourth recent reduction of a half percentage point following moves in July, September, and November. A released statement notes the decision was made unanimously and talks about comfortable levels of core inflation and confidence that inflation will converge on its target over the relevant monetary  policy time horizon.

In financial market action, the dollar shows a 0.6% overnight gain on sterling but is otherwise little changed. Ten-year sovereign debt yields have slid four basis points in the U.K., 2 bps in Japan, and a basis point in both Germany and the United States. Share prices rose 1.3% in Hong Kong, 1.5% in South Korea, and 0.1% in Japan but fell 0.3% in China and by 0.7% in Indonesia and Australia. The British Ftse is up 0.5%. Continental European stock markets are little changed. The DOW is 0.5% firmer.Oil and gold prices show gains of 0.5% and 0.8%.

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

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