Markets React to Summers’ Withdrawal, Syrian Agreement, Bavarian Election and Draghi Remarks

September 16, 2013

Larry Summers took his name out of contention to be the next Federal Reserve chairman.  So has Tim Geithner.  Presumably Janet Yellen will get the nod, but Donald Kohn remains a dark horse in the race.  Conclusion is that normalization of Fed policy will proceed more slowly has lifted stocks and depressed bond yields.

The price of WTI crude oil, $106.84 per barrel, is 1.3% lower following an U.S.-Russian agreement on a diplomatic solution to the crisis over Syria’s use of chemical weapons.

The conservative Christian Social Union won state elections in Bavaria, securing about 49% of the vote versus 43.4% in the last election.  The CSU is a regionally-based partner of Chancellor Merkel’s CDU in the national government.  National elections are scheduled for September 22.  Merkel’s other partner, the Free Democrats, polled less than the 5% threshold for parliamentary representation, however.

ECB President Draghi gave a speech in which he reiterated the forward policy guidance that the central bank will not be raising its ultra-low interest rates for an extended period of time.  He spoke of a nascent and fragile economic recovery with continuing high unemployment.

The dollar has declined 1.5% against the Australian dollar, 0.9% versus the kiwi, 0.5% relative to the loonie, 0.3% against the euro, yen and sterling, and 0.2% vis-a-vis the Swiss franc.  The Chinese yuan remains unchanged and close to 6.1200 per dollar.  Gold is 0.6% stronger at $1,316.

The 10-year German bund and British gilt yields are four basis points softer.

Share prices reacted most positively in emerging markets, advancing 3.4% in Indonesia, 2.8% in the Philippines, 1.9% in Singapore, 1.5% in Hong Kong, 1.4% in Taiwan, and 1.0% in South Korea.  There were lesser gains of 0.9% in New Zealand, 0.5% in Australia and 0.1% in India and Japan.  Chinese equities slipped 0.4%.  But in Europe, stocks have so far risen 1.2% in Germany, 0.9% in France, 0.8% in Britain and Spain, and 0.7% in Italy.

CPI inflation in the euro area was confirmed to have risen 0.1% on month and 1.3% on year in August.  The 12-month increase was down from 1.6% in June and July and 2.6% in August 2012.  Energy prices dipped 0.3% on year versus an 8.9% increased posted in the prior year to August 2012.  Core CPI inflation, which excludes energy, food, alcohol and tobacco, held steady at 1.1% versus 1.6% in the year to August 2012.

Ezone labor costs climbed only 0.9% in the year to 2Q13, down more than 50% from their 2.1% increase in the prior year to 2Q12.  Non-wage consumer prices increased 0.1%, down from 12-month increases of 1.4% in 4Q12 and 1Q13 and 1.8% in 2Q12.

Japan was closed today to observe Respect for the Aged day.  But a poll of Prime Minister Abe’s voter approval rating showed a 4.1 percentage point improvement to a Fibonacciesque 61.8% in September.

Consumer confidence in New Zealand dropped 1.0% between the second quarter and third quarter of 2013.  The performance of services index in New Zealand weakened 4.9 points in August but still had a reading above the 50 threshold (53.2).

Wholesale price inflation in India accelerated further above the central bank’s presumed 5% comfort level to 6.1% in August from 5.79% in July and 4.89% in June.  Rupee depreciation has been a source of the deterioration.

The British Rightmove index of house prices fell 1.5% in September, reducing the 12-month increase to 4.5% from 5.5% in the year to August.

Czech producer prices dipped 0.1% in August, cutting the on-year advance more than in half to a mere 0.5%.  On-year Danish PPI inflation swung from 0.5% in July to negative 0.9% in August.

Italy’s trade surplus widened 64% to EUR 5.948 billion in July from EUR 3.619 billion in June.  Norway’s trade surplus narrowed 18% to NOK 28.8 billion in August from NOK 35.3 billion in July.

Two meaningful U.S. economic indicators — industrial production and the Empire State manufacturing index — will be released today.  Existing Canadian home sale figures arrive, too.

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

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