A Hopeful Investor Mood

March 14, 2013

European equities rose to their best levels since June 2008, emboldened ahead of a two-day summit of EU leaders in Brussels and by evidence of U.S. economic resilience in the face of fiscal spending cuts.

There have been a slew of central bank interest rate announcements.

  • The Reserve Bank of New Zealand retained a record low 2.5% Official Cash Rate after cutting projected economic growth.  Calling the kiwi significantly overvalued, Governor Wheeler doesn’t expect to be raising the interest rate in 2013 and hinted that a reduction is even possible.  The OCR has been 2.5% since March 2011.
  • The Bank of Korea failed to reduce the 2.75% seven-day repo rate but conceded a slight slowing of growth lately.  Strength in the won remains a big concern.  Analysts expect further ease in coming months and had anticipated a rate cut today.  The decision to leave the rate unchanged, like the prior verdict at the February 14 meeting, was not unanimous.  From a high of 3.25%, the repo rate had been cut by 25 bps last July and again in October.
  • Bangko Sentral ng Pilipinas reduced its special deposit account rate to 2.5% from 3.0% but left the main overnight deposit rate at 3.5%, which is a record low.  The overnight lending rate stays at 5.5%.  The SDA cut is meant to contain peso appreciation.
  • Norges Bank, the central bank of Norway, retained a 1.5% policy interest rate but revealed a predisposition “to keep it low longer than previously anticipated.”  To wit, a first increase is not anticipated by Executive Board members until the spring of 2014.
  • The quarterly review of monetary policy by the Swiss National Bank maintained its existing foreign exchange policy and a 0.0-0.25% overnight money rate corridor.  Since September 6, 2011, the SNB has capped franc strength at 1.2000 per euro, expressing utmost determination to enforce that goal through forex intervention if necessary.  Conditional inflation projections were revised somewhat lower for the entire period through end-2015. 

Stocks advanced 1.2% in Japan, 1.1% in India, 0.9% in New Zealand, and 0.3% in China but fell by 1.2% in Australia and 1.0% in Indonesia.  Equities in Europe are up by 1.0% in Italy, 0.7% in Spain, 0.6% in Germany, 0.5% in France and 0.2% in Britain.

The 10-year JGB yield dipped a basis point, while the 10-year British gilt yield firmed a basis point.  German bunds are steady.

The dollar traded down 0.5% against the Australian dollar and is off by 0.2% against the pound and 0.1% versus the loonie.  The greenback shows gains of 0.2% relative to the yen, euro, and Swiss franc.  The kiwi and yuan are unchanged.

Gold is 0.3% lower at $1584.40 per ounce.  Oil has edged up 0.1% to $92.57 per barrel.

The lower house of the Japanese Diet approved the nominations of Kuroda, Iwata, and Nakaso to become the new leaders at the Bank of Japan.  The upper house votes tomorrow.

Japanese industrial production growth in January was revised down sharply to 0.3% from 1.0% reported initially.  Output had previously posted on-quarter contractions of 2.0% in 2Q12, 4.2% in 3Q and 1.9% in the final quarter of 2012.  Production was 5.8% lower in January than a year earlier.  Capacity usage rose 1.7% in the month but was 6.3% lower than in January 2012.  Capacity fell by 1.2% on year.

Japanese stock and bond transactions generated a JPY 750 billion net capital outflow last week versus an inflow of JPY 1.755 trillion in the prior week.

Xi was formally elected president of China by a near unanimous vote.

A 71.4K jump in Australian jobs last month was the most since 2000 and more than five times greater than forecast.  However, three-quarters of the incremental job creation involved part-time positions.  The unemployment rate stayed level at 5.4%, but the labor participation rate increased to 65.3% from 65.0%.  A separate economic data released revealed that expected inflation over the coming year had edged up a tenth percentage point to 2.3%, still well within the Reserve Bank of Australia’s target.

Wholesale price inflation in India crept higher to 6.84% in February from 6.6% in January. 

Wholesale turnover in South Africa went up 5.4% last month following a 4.1% January decline and was 6.8% greater than in February 2012.

The pace of contraction in employment accelerated last quarter in the euro area with a drop of 0.3% from 3Q and 0.8% from a year earlier.

Swedish unemployment ticked up to 8.5% last month from 8.4% in January and 8.2% in February 2012.  Greece’s unemployment rate of 26.0% last quarter was 1.2 percentage points higher than in the third quarter.  Greek import prices were 1.6% lower than a year earlier in January.  Finnish retail sales were 2.9% higher in January than a year before.  Dutch retail sales were lower over the same span by 0.5% in value terms and 3.0% on a volume basis.  The Dutch trade surplus widened to EUR 3.98 billion in January from EUR 3.3 billion in December and EUR 0.4 billion in January 2012. 

Finnish consumer price inflation ticked up 0.1 percentage points to 1.7% in February.  Spanish retail sales plunged 10.2% between January 2012 and January 2013.  Czech retail sales declined 0.5% on year in January, only a fourth as much as predicted.

The U.S. monthly PPI, quarterly current account, and weekly jobless insurance claims data get reported today.  Canada will be releasing quarterly capacity usage and monthly new home prices.  The Bank of Chile’s latest interest rate announcement is also scheduled.

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

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