Mostly Marking Time Ahead of FOMC Revelations

June 19, 2013

The recent trend toward a firmer yen got a boost from Japanese trade data.  The yen touched overnight highs of 94.82 per dollar and 127.04 per yen, but the net appreciation against the U.S. currency from Tuesday’s close was only 0.2%.  Other dollar changes have been similarly contained, with no net movement against the euro, loonie or yuan, downticks of 0.2% versus the New Zealand and Australian dollars, and rises of 0.2% relative to sterling and 0.1% against the Swiss franc.

At 18:00 GMT (14:00 EDT), the Federal Reserve releases the greatly awaited FOMC statement along with fresh macroeconomic forecasts and the distribution of rate preferences among committee members.  Even more important to the market, Chairman Bernanke holds a press conference starting at 14:30 EDT.

Concern about the state of China’s money markets put upward pressure on short-term interest rates and downward pressure on most Asian stock markets.  A notable exception was a 1.8% rise in Japan’s Nikkei, and another was a 1.0% climb in the Australian index.  Otherwise, equities fell by 1.1% in Hong Kong, 0.7% in China, Indonesia, and South Korea, 0.5% in Singapore and 0.4% in New Zealand.  In European trading, the German Dax has risen 0.6%, and stocks are up 0.2% in Italy and 0.1% in France and Britain.  The Spanish Ibex has slid 0.2%.

The yield on 10-year Japanese JGBs slipped two basis points to 0.80%, while those on German bunds and British gilts have edged a basis point lower.

The price of gold is unchanged at $1566.60 per ounce.  The price of WTI oil has risen 0.5% to $98.91 per barrel and is again knocking at the $100 door.

Japan’s unadjusted customs clearance trade deficit of JPY 994 billion last month was about JPY 200 billion smaller than forecast, and it embodied solid on-year growth of 10.1% in exports and 10.0% in imports.  The monthly advances in seasonally adjusted exports and imports was equally reassuring at 3.2% and 4.7%, and the seasonally adjusted JPY 821 billion deficit was about 8% less than forecast.  Export and import volumes, however, continued to record on-year declines.

Improvement was also reported in Japanese department store sales, which posted an on-year rise of 2.6% in May following a dip of 0.5% in the year to April.  Tokyo department store sales were 5.1% greater than in May 2012.

New Zealand’s current account deficit narrowed to a two-year low last quarter, but the deficit over the latest four reported quarters, some 4.8% of GDP, remained fairly substantial.  New Zealand central bank officials for some time have been outspoken in calling the kiwi overvalued and have on occasion intervened to contain its strength.

The Conference Board reported increases of 0.3% in both Australia’s indices of leading and coincident indicators in April.  Westpac’s index of leading economic indicators went up by 0.6% in April after a mere 0.1% uptick in March.

Malaysian CPI inflation edged up a tenth percentage point to 1.8% in May.  The Filipino current account surplus of $75 million last month was $200 million smaller than in April.

Construction output in the euro area popped up 2.0% in April, reversing a 1.8% drop in March.  Construction output remained 6.6% lower than in April 2012 but was 0.8% above the first-quarter average level.

Minutes from the Bank of England June monetary policy meeting, the last before Mark Carney takes over as governor, revealed another 6-3 vote in favor of not doing further quantitative easing.  The outgoing governor King plus Paul Fisher and David Miles have recommended at each of the last five meetings that the Bank of England implement a GBP 25 billion increase of the GBP 375 billion of asset purchases done in the past.  The majority believes that British economic prospects are improving slowly and worries that any further QE could do more harm than good. 

The Swiss ZEW expectations index, a gauge of investor confidence, was unchanged in May with a reading of 2.2. 

Sweden reported some encouraging economic news.  Markets were surprised to learn that unemployment fell in May in both seasonally adjusted and unadjusted terms to 7.9% and 8.2%, respectively, from 8.4% and 8.7% in April.  Swedish consumer confidence rose 0.7 points to a reading of 4.3 in June, and the summary business tendency index went up 2.7 points to 94.5.

The French index of leading economic indicators slumped 0.5% in April.  However, a 0.2% rise in the index of coincident indicators suggests that a very mild recovery may not be much longer in coming.

Spain’s EUR 0.16 billion trade deficit in April was worse than assumed, but a 5.2% on-year increase of Spanish industrial orders easily beat expectations.

South African CPI inflation edged down 0.3 percentage points to 5.6% in May.  Prices fell 0.3% on a month-on-month basis.  South Africa’s ZAR 191 billion current account deficit in the first quarter of 2013 equaled roughly 5.8% of GDP.

Mark Carney’s replacement as governor of the Bank of Canada, Stephen Poloz, delivers his first speech as the central bank’s leader today about an hour and half before Fed Chairman Bernanke will be holding his press conference.  Poloz will stress continuity of Canada’s low interest rate policy.  Bernanke’s message will be more nuanced and focused on U.S. quantitative easing.  The Bank of Canada did not go the QE route.

Tomorrow, investors will learn the preliminary purchasing manager survey results for China, Germany, France, and the euro area as a whole.  Japanese small business sentiment is also scheduled for release on Thursday.

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

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