Bank of Japan Sets the Tone

April 4, 2013

A revamped Bank of Japan Board outdid market expectations with its launch of new operational guidance, objectives, and goals.  In response the yen plunged 2.4% against the dollar.  The 10-year JGB yield is 11 basis points lower and, at 0.45%, is resting just above the June 2003 all-time low of 0.44%.  The Nikkei-225 index advanced by 2.2%.

The BOJ initiative has transcended the impact of poor data involving Ezone service-sector purchasing managers data and U.S. jobless claims.  Share prices are up 1.3% in Italy, 1.0% in Spain, 0.8% in France and 0.5% in Germany.  The dollar has risen 0.6% against the euro and Swiss franc, 0.4% relative to the New Zealand and Australian dollars, and 0.1% versus the loonie and Swiss franc.  The yuan is 0.2% stronger against the dollar, which also shows a 2.5% gain against the yen.

Ten-year German bund and British gilt yields are three basis points lower even though neither the ECB nor the Bank of England changed key interest rates.

  • The ECB refinancing rate was held at 0.75% and remains flanked by a zero deposit rate and a 1.5% marginal lending rate.
  • The Bank of England’s Bank Rate was kept at 0.5%, and the Asset Purchase Program’s size remains at GBP 375 billion.

Oil and gold prices are down by 0.2% at $94.30 per barrel and 0.5% at $1546.50 per ounce.

Aside from Japan, stocks mostly fell in the Pacific Rim, including drops of 1.2% in Singapore and South Korea, 0.9% in Australia and 0.1% in China and Hong Kong.

U.S. jobless insurance claims unexpectedly jumped to an unpleasant 385K last week from 357K the prior week and 343K on average between February 23 and March 23.  If it goes above 400K for a while, the jobless rate is apt to climb.

The service-sector purchasing managers index in the euro area printed at 46.4 in March, lowest since a similar reading last October and down from a recent high of 48.6 in January.  Germany’s 50.9 reading was revised down from 51.6 estimated initially and represents a 4-month low.  The French score of 41.3 was also revised significantly lower and is at a 49-month low.  The similar readings for Italy of 45.5 and Spain of 45.3 are at 3- and 2- month highs but substantially under the 50 no-change threshold.  Ireland had the only score that exceeded 50 (52.3 to be exact) but was 1.3 points lower than February’s reading.  Business confidence has been clobbered by the Italian election and Cyprus lending crisis fiasco.

Euroland’s composite PMI, which embodies both manufacturing and services, printed at a four-month low of 46.5, same as the preliminary indication.  Individual composite PMI readings were 41.9 for France (a 48-month low), 50.8 for Ireland (an 8-month low), 50.6 for Germany (a 3-month low), 44.9 for Italy ( a 3-month low) and 44.8 in Spain (a 3-month low).  These results point to a GDP contraction last quarter of 0.3-0.5% (not annualized) and indicate deteriorating momentum as the current quarter began.

Euroland producer prices increased 0.2% on month and slowed to a 12-month 1.3% rate of increase from 1.7% in January. 

Britain’s service sector PMI was better than forecast, in contrast, clocking in at 52.4 after 51.8 in February, 51.5 in January, and 48.9 in December.

Sweden’s service-sector PMI sank surprisingly sharply, swing from an above-50 score of 52.6 in January and 54.6 in February to a sub-50 reading of 47.3 in March.

Australia’s service sector PSI printed below 50 as well, but at 49.6 versus 48.5 in February, 45.4 in January and 43.2 in December, such conveys a lessening pace of contraction.  Adding to this better picture, Australia also reported a 1.3% rise of retail sales in February following a similar 1.2% increase in January.  Finally, Australian building permits climbed 3.1% in February, more than reversing January’s decline.

In other Nordic news, Norwegian core retail sales went up 0.5% in February, which was less than January’s sequential increase, and Denmark’s fourth-quarter contraction of real GDP was revised to 0.7% from 0.9%.  GDP had risen 0.8% in 3Q but recorded on-year declines of 0.6% in the fourth quarter and 0.5% for 2012 as a whole.

Czech retail sales were 1.7% weaker than a year before in February, while Hungary’s on-year drop in sales was 1.4%.  Iceland’s trade surplus narrowed 34% from January’s level to 7.64 billion crowns in February.

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

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