Looking Ahead to German Election, Fed Chairperson Nomination, and U.S. Fiscal Showdown

September 20, 2013

It’s been a comparatively quiet end to an exhausting week.  On the immediate horizon is Sunday’s German parliamentary election, with polls showing a likely Grand Right-Left coalition led by Angela Merkel.  President Obama is expected to nominate Janet Yellen, the current Fed Vice-Chairperson, to follow Bernanke.  It’s believed that a potential crisis over raising the U.S. debt ceiling was a main deterrent to Fed tapering at this time.

A narrowly mixed dollar overnight shows upticks of 0.3% against the loonie and 0.2% relative to the Australian dollar, no change vis-a-vis the yuan and sterling, and a 0.1% dip against the yen, euro, Swiss franc and kiwi.

The main overnight development came from the Reserve Bank of India, which

  • Cut the Marginal Standing Facility rate by 75 basis points to 9.5% and took other actions to lessen emergency measures that had supported the battered rupee;
  • But also hiked the repo and reverse repo rates unexpectedly to 7.5% and 6.5%.  The idea is to reestablish the repo rate as the centerpiece of monetary policy and with today’s hike to dampen elevated inflation and promote a higher savings rate.
  • These actions knocked the rupee as much as 1.3% lower and sent Indian share prices down 1.7%.

In other Pacific Rim bourses, equities fell by 1.9% in Indonesia, 1.3% in the Philippines, 0.5% in New Zealand and Taiwan, 0.4% in in Australia, Singapore and South Korea, and 0.2% in Japan.  Stocks advanced 1.7% in Hong Kong and 0.2% in China.  In Europe, the Paris Cac and German Dax are up 0.2% and 0.1%, but shares in Italy and Spain have dipped 0.2% and 0.1%.  The British Ftse is unchanged.

The yields on 10-year British gilts, German bunds, and Japanese JGBs are unchanged at 2.90%, 1.92% and 0.67%.

Gold fell back 0.9% to $1357 per ounce, trimming its sharp post-FOMC run-up.  Oil is 0.2% softer at $106.16 per barrel.

Bank of Japan Governor Kuroda expressed optimism about a pick-up in other economies that will help Japanese exports, industrial production, and inflation to strengthen.

Japanese department store sales recorded a 2.7% on-year advance in August after a 2.5% drop in July. Stock and bond transactions last week generated a 605 billion yen outflow versus a 22 billion yen inflow in the prior week of September 7.

Public sector net borrowing in Britain was marginally less in August than analyst expectations and also lower than a year earlier.

Italian industrial orders fell 0.7% in July and by 2.2% on year.  Industrial sales fell 0.8% on month.  The results were weaker than forecast.

Real Dutch consumer spending continued to record an on-year decline, falling 2.2% in July after a 2.6% drop in June.  Spain’s trade deficit widened to EUR 790 million in July from 11 million euros in June.  Icelandic wages were 5.7% higher than a year earlier in August but up only 1.9% on year in June-August.

Canadian consumer prices, Ezone consumer confidence and Mexican unemployment data will be reported later today, but there are no U.S. releases scheduled.  Kocherlakota and George of the Federal Reserve speak publicly.

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

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