Focus on Bank of England and ECB

February 7, 2013

The dollar is narrowly mixed with gains of 0.4% against the kiwi, 0.2% versus the euro and yen, and 0.1% against the Australian dollar but declines of 0.3% versus the Swiss franc and sterling and 0.1% relative to the loonie.  The yuan is steady.

After Wednesday’s 3.8% leap, the Nikkei settled back 0.9%.  Elsewhere in the Pacific Rim, share prices fell 0.6% in China, 0.5% in Singapore, 0.4% in New Zealand, and 0.3% in India and Hong Kong, but equities rose 0.5% in the Philippines and 0.3% in Taiwan and Australia.  In Europe, share prices are up 1.0% in Spain, 0.8% in Italy, 0.4% in Germany, and 0.2% in France, but the British Ftse has edged 0.2% lower.

Ten-year German bund and British gilt yields are higher.  Auctions of Spanish and French sovereign debt produced higher yields than at the prior auction; however, Spain managed to sell more than expected.  The 10-year Japanese JGB yield is a basis point softer.

The price of gold slipped 0.2% to $1676.30 per ounce.  The WTI oil price rose 0.3% to $96.90 per barrel.

The Bank of England released a fairly lengthy statement after its meeting even though officials as expected did not modify policy settings — a 0.5% bank rate and a GBP 375 billion size on the asset purchase program.  Ordinarily when policy is not changed, the monetary policy committee defers to its minutes for any explanation.  Today’s statement, moreover, seemed intended to dissuade markets from worrying about a rate hike.  At the moment, the choice appears to lie between keeping the status quo or tightening, not between the status quo or easing.

Mark Carney, the incoming Bank of England Governor and outgoing Bank of Canada Governor, testified in parliament, promoting flexible inflation targeting and advising care in the exit strategy, lest market confidence in monetary policy be squandered.

The ECB also left its key interest rates unchanged.  The refinancing rate has been at 0.75% since a cut at the July 2012 meeting.

British industrial production grew by a greater-than-projected 1.1% in December, and factory output jumped 1.6%, the most in five months.  In December-on-December comparisons, industrial production fell by 1.7%, and factory output was down 1.5%.

Britain’s goods and services trade deficit narrowed to GBP 3.2001 billion in December from GBP 3.577 billion in November.  The average monthly deficit of GBP 3.122 billion in 2012 was 58.8% wider than that in 2011.  The merchandise trade shortfall of GBP 8.897 billion compared to GBP 9.275 billion in November and a 2012 average of GBP 8.885 billion.

German industrial production increased 0.3% in December, close to market expectations, but was 1.0% lower than a year earlier.  A 1.2% jump in factory output was mitigated by decreases of 8.9% in construction and 3.4% in energy.  Industrial production sank 2.9% between 3Q12 and 4Q12.

Spanish industrial output plunged 8.5% between December 2011 and December 2012.  Danish and Hungarian industrial output fell 3.4% over the same period. 

The French trade deficit widened 24.7% on month to EUR 5.349 billion in December.  Finland’s trade balance swung to a EUR 735 million deficit from a EUR 185 million surplus.

The Swiss consumer climate gauge improved 11 points to a reading of minus 6 last quarter.  Swiss reserves edged down CHF 150 million to CHF 427.05 billion in January.

Australia’s jobless rate held steady at 5.4% in January.  Employment climbed by a greater-than-forecast 10.4K, but a 9.8K decline in full-time work underscored the continuing sluggishness of the labor market.  Meanwhile, the Australian construction purchasing managers index reflected an intensifying contraction of activity, printing in January at a depressed 36.2 after a reading in December of 38.8.  The National Australia Bank’s business confidence index slid a point to negative 5 last quarter.

New Zealand employment contracted 1.0% last quarter, twice as fast as the decrease in 3Q12.  But because of a 1.2 percentage point drop in labor participation, the unemployment rate fell to 6.9% from 7.3%.

Japanese core private domestic machinery orders advanced 2.8% in December after a 3.9% increase the month before.  Such rose 2.0% last quarter and is projected to increase 0.8% in the current period.  This news will add to hope that Japan’s economy is emerging from recession.  Domestic orders fell 0.9% in 2012 as a whole.  Foreign machinery orders are perking up.  Although they were 24.1% weaker in December than a year earlier, such increased 10.2% between 3Q12 and 4Q12 and are projected to grow another 4.9% in the first quarter of 2013.

Japanese stock and bond transactions generated a net JPY 877 billion capital outflow last week versus a JPY 897 billion inflow in the week of January 25.

Japanese international reserves slipped $826 million to $1.267 trillion at end-January, which was less than December’s decline of $2.72 billion.

Japan’s index of leading economic indicators rose 1.4 points to 93.4 in December.  The index of coincident indicators improved by 2.5 points.

U.S. productivity, unit labor costs, and weekly jobless insurance claims get reported today, as do Canadian home prices and building permits and Mexican consumer and producer prices.  The big even is ECB Pdt Mario Draghi’s press conference at 13:30 GMT.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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