Uncertain Cypriot Situation Still Overhanging Markets

March 19, 2013

Despite talk of fine-tuning the proposed Cypriot levy on bank deposits, uncertainty in this area and the risk of copy-cat actions elsewhere in the euro area continue to worry investors worldwide.  A hope exists that small depositors may be exempted, but then big deposits would be penalized more heavily than proposed initially.  The Cypriot parliament will debate the issue later today.

In Europe, equities have dropped by 0.9% in Spain, 0.8% in France, 0.6% in Germany, 0.4% in Britain and 0.3% in Italy.

Japan’s Nikkei advanced 2.0% as Governor Shirakawa stepped down and gave an unrepentant farewell address that denied the existence of a causal link between growth in the monetary base and inflation.  He also said that overly aggressive monetary stimulus via quantitative easing could hurt the credibility of the yen.  Japan’s index of leading economic indicators was revised to 96.3 for January from 95.0 reported earlier.  The coincident index was also revised upward, printing at 92.0 instead of 91.6 reported before.  Those indices were at 92.8 and 91.9 in December.

Elsewhere in the Pacific Rim, stocks fell by 1.7% in the Philippines, 1.5% in India, and 0.6% in Australia but rose 0.9% in China and 0.4% in Taiwan, Singapore and Indonesia.

The ten-year German bund and British gilt yields fell by three basis points apiece.  Japanese JGBs of the same maturity held a yield of 0.60%.

Movement in commodities overnight has been scant.  Gold dipped 0.2% to $1601.60 per ounce, whereas oil edged up 0.1% to $93.81 per barrel.

The dollar likewise is mostly steady, with no change against the yuan, a dip of 0.1% versus the Swiss franc, and gains of 0.4% relative to the kiwi, 0.3% against the Australian dollar, 0.2% vis-a-vis the euro, and 0.1% against the yen and loonie.

Minutes from the Reserve Bank of Australia meeting held this month observed signs of interest-sensitive sectors responding to prior monetary stimulus.  The minutes argue that the full impact of rate cuts since the autumn of 2011 has not been felt but leaves the door open to further stimulus if such were to prove necessary.  Deputy governors Lowe and DeBelle spoke overnight.  Lowe addressed the virtues of a stronger Aussie dollar as a force helping to avoid imbalances during the recent investment boom. 

The Reserve Bank of India cut its repo and reverse repo rates by 25 basis points, while keeping the 4.0% cash reserve requirement unchanged.  The RBI statement, however, stressed limited leeway to cut rates further.  India has experienced slower growth but also has excessive inflation.

New Zealand Finance Minister English called the kiwi overvalued.  New Zealand officials have said such frequently of late.

Chinese foreign direct investment was 1.35% lower on year in January-February.  That economy’s index of leading economic indicators rose 1.3% in February according to the Conference Board, matching January’s increase.

British consumer price and producer price data for February were reported.

  • The CPI as expected went up 0.7% on month and 2.8% on year.  Core CPI inflation remained at 2.3%.  The Bank of England targets CPI inflation at 2.0%.
  • The retail price index rose 0.7% and recorded a 3.2% 12-month increase, down from 3.3%.  RPIX inflation, which excludes mortgage interest payments, was also 3.2%.
  • Producer output price inflation ticked up 0.2 percentage points to 2.3%, but the core PPI-O dipped to 1.3% from 1.4%.
  • Producer input price inflation accelerated to 2.5% from 1.9% in January.  Core PPI-I was higher, too.

The ONS index of British house price inflation, formerly compiled by the Department of Communities and Local Government, slowed sharply to 2.2% in January from 3.3% in December because of a 0.7% on-month decline.

The German ZEW Institute released German and Ezone March measures of investor sentiment showing a fourth straight improvement in Germany but an unexpected setback in the Ezone as a whole.  The German expectations index advanced 0.3 points to 48.5.  Such bottomed in November at minus 15.7.  The current conditions index for Germany more than doubled to 13.6 from 5.2 the month before.  In the euro area, however, the expectations index fell to 33.4 in March from 42.4 in February, and current conditions fell 0.5 points to print at minus 76.1.

Car sales in the 25 EU nations posted a larger 10.5% on-year drop in February versus an 8.7% decline in the year to January.

Italian industrial production rose 0.8% in January.  Analysts had forecast a slight decline.  Output was 3.6% lower than a year earlier nonetheless.  Italy recorded a EUR 4.61 billion current account deficit in January.

Construction output in the euro area sank 1.4% on month and 7.3% on year in January.  Those results follow fourth-quarter declines of 1.1% from 3Q and 4.4% from the fourth quarter of 2011.

Scheduled U.S. data releases today include weekly chain store sales and monthly housing starts and building permits.  Canada reports wholesale turnover and the survey of manufacturing orders, sales and inventories. 

Wednesday sees the FOMC announcement, which is to be followed by a Bernanke press conference.  Note the times of these events have been changed.  The statement will be released at 14:00 local time (18:00 GMT) and the press conference starts at 14:30.  From now on, the statements will always be issued at 14:00 instead of 14:15 as before, whether or not a press conference is scheduled. 

U.S. Treasury Secretary Lew is in China for the first day of a two-day visit of talks there.

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

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