The Morning After Delivers More Central Bank News

September 19, 2013

In the wake of the Federal Reserve’s decision not to cut quantitative stimulus just yet, the euro soared to a 7-month high of $1.3569, gold has climbed 4.4% to $1365.5 per ounce, other commodities like WTI crude oil (+0.6% to $108.76) are also higher, share prices are higher in Europe and Asia (especially where selling pressure had previously been most severe), the yen has fallen 1.0%, and 10-year German bunds and British gilts have dropped 13 and 14 basis points. 

Futures trading in Treasuries indicate a higher 10-year yield of 2.70% than yesterday’s post-FOMC low, however.

The kiwi is 0.6% stronger against the U.S. dollar, whereas the Aussie dollar has dipped 0.1%.  Beleaguered currencies like the Indonesian rupiah and Indian rupee have strengthened, paring prior losses.  The U.S. currency rose 0.4% against sterling after touching a multi-month low of $1.6166 yesterday.  The dollar sows net losses of 0.2% against the euro and 0.3% versus the Swiss franc but is again unchanged against China’s yuan.

European stocks show gains thus far of 1.5% in Britain, 1.1% in Germany, Spain and Italy and 1.0% in France.  In the Pacific Rim, Japan’s Nikkei closed with a gain of 1.8%.  Share prices rallied 4.7% in Indonesia, 3.4% in India, 2.8% in the Philippines, 1.8% in Singapore, 1.7% in Hong Kong and 1.1% in both New Zealand and Australia.  Trailing markets were China (+0.2%) and Taiwan and South Korea, which fell by 0.5% and 0.4%.

The Swiss National Bank’s quarterly monetary review resulted in a more upbeat statement that raised projected inflation and growth but left its 3-month libor target at 0.0-0.25% and, more importantly, renewed a promise to intervene if needed in unlimited quantity to ensure that the franc does not strengthen beyond 1.2000 per euro.

Norway’s central bank kept a 1.5% key interest rate and provided forward guidance that such is unlikely to rise before the third quarter of 2014 and thereafter will drift only gradually upward. 

The Hong Kong Monetary Authority, whose interest rate policy shadows whatever the Fed does in order to enforce a fixed HKD/USD parity, left its base rate at 0.5%.  The South African Reserve Bank also has a scheduled policy announcement today.

Japan’s customs clearance trade deficit in August was JPY 960 billion on an unadjusted basis, 25% greater than the deficit a year earlier, and JPY 791 billion seasonally adjusted after a downwardly revised JPY 911 billion in July.  Exports and imports posted double-digit on-year advances due to higher prices as volumes hardly changed.

Japan’s all-industry index, a monthly supply-side proxy for GDP, rose 0.5% in July after a 0.7% drop in June.  July’s index was 0.4% higher than the 2Q average and 1.7% greater than a year earlier.

The revised Japanese index of leading economic indicators of 107.9 laid between June’s reading of 107.3 and May’s of 110.4.  The index of coincident economic indicators ticked 0.1 higher to 107.7.

Conflicting tones about Bank of Japan policy were evident in overnight speeches by Governor Kuroda (the policy is working) and fellow Board member Kiuchi, who sees greater downside than upside growth risks and is wary that prolonged quantitative easing will damage financial markets.

New Zealand GDP expanded 0.2% last quarter, beating analyst expectations.  Growth was driven by domestic demand as exports fell.  GDP was 2.7% higher than in the second quarter of 2012.

British retail sales volume fell back 0.9% in August after a 1.1% rise in July.  A drop had not been predicted and trimmed the on-year advance to 2.1% from 3.0% in July.  Sales in June-August were 1.7% greater than in March-May, nonetheless.

The CBI survey of British industrial trends produced a nine-point advance to +9 in September, the best reading since March 2008.  Such had a negative 18 score as recently as June.

Switzerland’s trade surplus narrowed 25.6% on month to CHF 1.85 billion in August.  Greek unemployment was at a lofty 27.1% last quarter.  Dutch consumer sentiment stagnated at a reading of minus 33 between August and September, while its jobless rate ticked marginally lower to 8.6% in August.  Ireland reported second-quarter GDP growth of +0.4% versus 1Q and -1.2% on year accompanied by a larger current account surplus of EUR 2.9 billion.

Scheduled U.S. data today feature the 2Q current account, the Philly Fed manufacturing index, existing home sales, the Conference Board’s index of leading economic indicators, and weekly jobless insurance claims.  Canada will be reporting wholesale turnover.

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

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