Stronger Pound and a Central Bank Rate Cut in Malaysia

January 22, 2020

The dollar declined 0.7% against sterling but is narrowly mixed against other major currencies today. Stronger-than-expected British labor statistics released yesterday seemingly reduce the likelihood of further monetary stimulus by the Bank of England. Today’s batch of U.K. economic data releases produced a 5-month high in the orders component of the monthly CBI industrial trends survey in January, a 23-quarter high in manufacturing optimism also reported by the Confederation of British Industry, and a somewhat smaller-than-forecast public-sector net borrowing in December. Public-sector debt as of end-2019 stood at 80.2% of GDP, down from 81.7% a year earlier.

Pacific Rim stock markets, which had been rattled Tuesday by the caronavirus scare, rebounded today by 1.3% in Hong Kong, 1.2% in South Korea, 0.9% in Australia, 0.8% in New Zealand, 0.7% in Japan but just 0.3% in China. European share prices are little changed today so far.

Ten-year British gilt and German bund yields respectively dipped two and one basis points overnight.

WTI oil is down 0.9%, and the price of gold is 0.2% softer.

Bank Negara Malaysia became the third major central bank within a week to cut its key interest rate following moves last Thursday by the South African Reserve Bank and the Central Bank of the Republic of Turkey. BNM’s key interest rate was cut 25 basis points to 2.75%, its lowest level in almost nine years. The rate reduction was unexpected and follows a initial 25-bp cut engineered last May. In a released statement, officials depicted today’s easing as a “pre-emptive measure to secure the improving growth trajectory amid price stability.” Inflation last year averaged less than 1.0% in Malaysia, and downside growth risks remain such as “uncertainty from various trade negotiations, geopolitical risks, weaker-than-expected growth of major trade partners, heightened volatility in financial markets, and domestic factors that include weakness in commodity-related sectors and delays in the implementation of projects.”

South Korean real GDP grew 1.2% in 4Q, the fastest quarterly pace in just over two year, resulting in a one-year high in year-on-year growth of 2.2%.

Japanese department store sales posted an on-year decline in December for the third straight month since the national sales tax was raised by two percentage points. The drop of 5.0% followed a 6.0% decline in November and a 17.5% plunge in October.

The Westpac monthly measure of Austraian consumer confidence dropped 1.8% in January to a 3-month low.

South African CPI inflation accelerated to a 3-month high of 4.0% in December from 3.6% in November. Last year’s average inflation rate was 4.1%.

French business sentiment ticked one index point lower for a second straight month in January mainly because of a 4-point decline in retail sector sentiment.

Italian industrial orders slid 0.3% on month and posted a larger 4.3% drop between November 2018 and November 2019.

Dutch consumer confidence slipped to an 8-month low in January.

Polish producer price inflation of 1.0% in December was the highest since April.

Canadian consumer prices rose 2.2% between end-2018 and end-2019.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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