October 2, 2013

This month’s meeting and press conference of the European Central Bank’s Governing Council is scheduled today rather than on the customary first Thursday because Germany is closed tomorrow for Unity Day.  The ECB is located in Frankfurt.  No change in interest rates is expected, and no significant new revelations are anticipated, either.

Two central banks already have announced their decision. 

  • The Bank of Iceland (Sedlabanki) retained its 7-day collateralized lending rate at 6.0% as expected.  It’s been at 6.0% since a 25-basis point hike last November.
  • The National Bank of Poland (Narodowy Bank) left its reference interest rate at 2.5%, which also was expected.  The most recent change was a 25-bp cut in July.

There’s been no breakthrough in the U.S. government partial shutdown.  Debt ceiling needs to be raised by October 17. 

The dollar so far is taking the U.S. political standoff in stride.  The greenback is 0.6% and 0.5% higher against the New Zealand and Australian dollars.  The U.S. currency is also up 0.2% versus the loonie and 0.1% against the euro but down 0.1% relative to the Swiss franc and sterling.  The dollar’s biggest drop, 0.6%, has been at the hands of the yen.  The Chinese yuan is steady as the National Day holiday in China continues.

Amid some disappointment over the lack of an announced Japanese corporate tax, the Nikkei slumped 314 points or 2.2% today. The ten-year JGB yield fell another three basis points to 0.63%.

Elsewhere in the Pacific Rim, share prices climbed 2.7% in the Philippines, 1.0% in Indonesia, 0.7% in India, 0.6% in Hong Kong, 0.5% in New Zealand and 0.2% in Australia.  Singapore equities fell by 0.9%. 

In Europe, stocks rose 1.0% in Italy as a splinter group of conservative senators led by Formigoni will not support Berlusconi in toppling the government of Prime Minister Letta in today’s vote of confidence.  In other European bourses, equities fell by 0.8% in London, 0.7% in Paris, 0.5% in Frankfurt, and 0.2% in Madrid.

Despite a 0.5% advance, gold remains below the $1300 level at $1293 per ounce following yesterday’s sharp drop in North America.  The price of WTI crude oil slid 0.5% to $101.76 per barrel.

Two pieces of weaker-than-projected Australian economic data emerged today.  A second straight trade deficit was recorded in August, this time of A$ 815 million.  Also, building permits sank 4.7% on month in August, some nine times faster than forecast.  The 12-month advance in permits dropped to 7.7% from 28.3% in the year to July.

A 0.9% increase in New Zealand commodity prices was the most in five months.  A top official of the Reserve Bank of New Zealand predicted a lower peak in interest rates this cycle because the theoretical interest rate level that neither boosts nor depresses growth has declined.

On-year growth in Japan’s monetary base accelerated to 46.1% in September from 42.0% in August, 30.2% in 2Q, 15.2% in 1Q and 7.0% in 2012.  Doubling the base within two years is a central goal of the Bank of Japan’s aggressive quantitative easing.

The Asian Development Bank released semiannual growth forecasts that revised downward projections for the whole area as well as for China and India.  The ADP now expects GDP in Asia to rise 6.0% this year and 6.2% in 2014.  It sees Chinese growth of 7.6% followed by 7.4% next year and Indian growth of 4.7% in 2013 and 5.7% in 2014.

The British construction purchasing managers index dipped 0.2 points to 58.9 in September from a 71-month high in August.

Romanian PPI inflation slowed to 0.6% in August from 1.7% in July, and retail sales growth of 0.9% on month and 0.5% from August 2012 exceeded expectations.  In Hungary, July’s trade deficit was revised upward by 26 million to EUR 448 million, which is still 23% smaller than the June deficit.  Spain and Ireland reported double-digit unemployment.

U.S. mortgage applications dipped 0.4% last week in spite of a 13-basis point decline of the 30-year fixed mortgage rate to 4.49%.  The ADP estimate of U.S. private sector jobs growth in September is due today, and Bernanke, Bullard and Rosengren of the Federal Reserve are speaking publicly.  But the main event of the day is ECB President Draghi’s press conference at 12:30 GMT.  Major developments in the U.S. shutdown seem unlikely today.

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

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