Eye on Central Banks and Spanish Banking System

April 18, 2012

The dollar advanced 0.7% against the yen, 0.4% versus the Swiss franc, and 0.3% relative to the euro.  The greenback is unchanged against the yuan and loonie, 0.1% higher versus the New Zealand and Australian dollars, and down 0.3% against the yen.

Fresh worries about Spanish banks followed news from the Bank of Spain that bad loans represent over 8% of all lending in that country.  This news spurred weakness in European share prices.  The Paris Cac and German Dax fell by 1.0% and 0.5%, while the British Ftse is 0.2% softer.  French President Sarkozy in the midst of election campaigning reiterated his desire for a dialogue with the ECB about the euro.  Spanish 10-year bond yields are below 6.0% but around 400 basis points above comparable German bund levels.

Pacific Rim stocks earlier overnight had risen in continuing reaction to the upbeat IMF growth forecasts released yesterday.  Stocks rose 1.2% in Japan, 2.3% in China, 1.2% in New Zealand, 1.4% in Australia, 1.1% in Hong Kong and 0.9% in Pakistan.

The 10-year British gilt yield rose four basis points.  Minutes from the Bank of England’s April 4-5 Monetary Policy Committee meeting revealed elevated concern that U.K. inflation isn’t going to fall in the medium term as much as projected earlier.  The vote to retain a GBP 325 billion ceiling on the asset purchase plan was 8-1, as long-time advocate of more stimulus, Adam Posen, joined the majority.  Only David Miles wanted such raised to GBP 350 billion.  It now looks like the central bank will not extend quantitative easing in May.

The Central Bank of Chile left its target overnight interest rate unchanged as expected at 5.0%.

The Swedish Riksbank retained a 1.5% repo rate as expected.  Such had been cut 25 bps in February, and a statement today included guidance to future policy that suggests no rate increase before 2013.  CPI inflation is below the 2% target and expected to stay low for the balance of 2012.  Some relief was expressed that the economy may be stabilizing.  Two Swedish policymakers again dissented in favor of a 1.0% policy rate.

Gold and oil prices edged down 0.2% and 0.1% to $1648.30 per ounce and $104.10 per barrel.

Construction output in the euro area sank 7.1% in February and was 12.9% lower than a year earlier.

Euroland’s current account posted a surprise EUR 1.3 billion deficit in February and recorded a minuscule EUR 2.1 billion surplus over the last twelve reported months.

The latest monthly batch British labor statistics reveal a smaller-than-forecast 3.6K rise in the claimant unemployment count in March, a marginal improvement in the ILO-basis jobless rate to 8.3% in December-February, and little wage pressure.  Wage earnings in December-February were 1.6% higher than a year before when bonus pay is excluded and up just 1.1% including bonuses.

The Swiss ZEW expectations index improved to 2.1 in April from zero in March.  Icelandic harmonized consumer price inflation accelerated to 7.8% last month.

Westpac’s Australian index of leading economic indicators firmed 0.2% in February, the smallest gain in three months.  New Zealand consumer sentiment recovered 3.4% in April.  Consumer price inflation in South Africa dipped a tenth of a percentage point to 6.0% in March.

There are no meaningful U.S. data releases today, just weekly oil inventories.  The Bank of Canada will be publishing its quarterly Monetary Policy ReportCentral banks in Brazil and Turkey will announce interest rate decisions.  Markets are also starting to anticipate the Washington meeting on Friday of G20 central bankers and finance ministers, as well as round one of the French presidential elections on Sunday.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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