An Outsized Interest Rate Cut by Australia’s Central Bank

May 1, 2012

The Reserve Bank of Australia’s Official Cash Rate was slashed by 50 basis points to 3.75%, twice the expected reduction.  The Aussie dollar and kiwi in response fell by 1.1% and 0.7% against the greenback.  The U.S. dollar otherwise rose 0.2% against sterling and 0.1% versus the yen and yuan while edging down 0.2% against the Swiss franc and 0.1% relative to the euro.  The loonie is steady.

Numerous markets did not open because of May Day observances, including those in Germany, France, Spain, Italy, Sweden, Switzerland, China, Hong Kong, Taiwan, South Korea, India, Singapore, Malaysia, Thailand, The Philippines and Vietnam.  Normally, today would have seen the release of many manufacturing purchasing manager survey results, but these instead will be staggered over today and tomorrow.

Japan’s Nikkei-225 index plunged 1.8% to 9,351.  Share prices in contrast rose 0.8% in Australia, 0.6% in New Zealand, and 0.4% in Indonesia.

The yields on 10-year British gilts and Japanese JGBs fell two basis points apiece to 2.09% and 0.88%.

Oil and gold prices fell 0.4% and 0.2% to $104.42 per barrel and $1660.90 per ounce.

At 3.75%, Australia’s Official Cash Rate has been lowered to its lowest level since December 2009 – February 2010 and is a full percentage point below the peak of 4.75% maintained for a whole year between early November 2010 and early November 2011.  The Reserve Bank of Australia’s easing followed lower-than-assumed CPI and PPI inflation last quarter and evidence of slightly less economic activity than anticipated.

In Australian data released today,

  • The SDR-based Aussie commodity price index fell 1.6% on month and by 4.2% on year in April.  Such had risen 2.1% in the year to March 2012.
  • Housing prices dropped 1.1% in 1Q12 and by 4.5% from the first quarter of 2011.
  • Australia’s manufacturing purchasing managers index reflected a faster rate of contraction, printing at 49.0 in April after readings of 49.5 in March, 51.3 in February and 51.6 in January.

New Zealand’s prime minister reiterated that the budget should be back in surplus by fiscal 2014-15.  Average hourly earnings in New Zealand advanced 1.3% in the first quarter after holding flat in 4Q11.  Private regular wages rose 0.5% last quarter.

South Korean CPI inflation edged down to 2.5% last month from 2.6% in March, and the core CPI posted a 12-month 1.6% rate of increase after 1.9% in March.  South Korea’s trade surplus narrowed to $2.1 billion last month, and Seoul officials said such may be smaller in 2012 as a whole than assumed previously.

Indonesian CPI inflation accelerated to 4.5% in April from 4.0% in March, and that economy saw much higher growth in imports (18.2%) in the year to 1Q12 than exports, which rose 6.9%.

The yen remains marginally stronger than the key 80 per dollar levelJapanese motor vehicle sales recorded an on-year increase of 92.0% in April after rises of 78.2% in March and 31.9% in February.

Taiwanese officials have revised down projected 2012 GDP growth by about a half percentage point to 3.4%.  India’s trade deficit of $13.9 billion in March was 3.7 times larger than the deficit in March 2011 as imports shot up 24.3% versus a contraction of 5.7% in exports.  Thai CPI inflation slowed more than projected to 2.5% in April.

There are two purchasing manager surveys conducted in China.  The HSBC index released April 23 had shown a preliminary reading of 49.1, the sixth straight sub-50 score in a row.  A revised estimate of that survey is due Wednesday.  In the meantime, the government’s CFLP purchasing managers index reported today gave a different signal, rising to a 13-month high of 53.3 from 53.1 in March, 51.0 in February, and 50.5 in January.  The production sub-component had a robust and encouraging reading of 57.2.  As with other PMI scores, 50.0 is the “no change” line separating an expansion of activity from a contraction.

The Dutch manufacturing PMI reading of 49.0 in April after 49.6 in March was the sixth sub-50 reading in seven months and indicated a larger rate of contraction than seen at the end of the first quarter.

The Danish manufacturing PMI shot up to 61.8 in April, the strongest reading in twelve months, from 53.0 in March.

The British factory PMI printed 1.5 points lower at 50.5 in April after 51.9 in March and 51.5 in February.  Exports orders sank to a 35-month low and posted a reading well below 50.

The Irish PMI also conveyed a picture of stagnation, printing at 50.1 in April after 51.5 in March and 49.7 in February.  Moreover, input price inflation picked up further.

Scheduled U.S. data releases today feature the monthly manufacturing purchasing managers survey, construction spending, auto sales, and weekly chain store sales.  A number of Fed officials speak publicly today, including Evans, Lockhart, Kocherlakota, Williams, and Plosser.

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

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