Focus Returns to Central Banks

October 23, 2013

Concern persisted overnight that the People’s Bank of China is poised to diminish injections of liquidity to counter property price inflation.  Short-term market rates are higher there.

Bank of England minutes from this month’s earlier policy committee meeting revealed unanimity not to change the asset purchase program limit of GBP 375 billion but a likelihood that the next policy change will be in the direction of tightening.  For now, unemployment remains above the 7.0% forward guidance threshold and none of the three knockout conditions exists that would override that guideline.  But amid several recent signs of greater-than-assumed economic activity, there was no thought of augmenting the existing stimulus.

Australian consumer prices recorded the largest quarter-on-quarter rise in a year, dampening any chance of a further rate cut there.  The annual report of the Reserve Bank of Australia gets published tomorrow.

Central bank interest rate decisions will be announced today in Canada and Turkey.  Such announcements are due Thursday from central banks in Norway, Sweden and the Philippines.

The dollar has strengthened 1.7% against the kiwi, 1.0% versus the Australian dollar, 0.6% vis-a-vis sterling, 0.3% relative to the loonie ahead of the Bank of Canada’s expected decision not to change its 1.0% overnight interest rates, and 0.2% against the euro.  The dollar has fallen 0.9% against the yen and 0.1% versus the yuan.

Share prices fell overnight in most markets around the Pacific Rim and Europe.  Declines were seen of 2.0% in Japan, 1.4% in Hong Kong, 1.1% in China, 1.0% in South Korea, 0.8% in Indonesia.  Equities show losses so far today of 1.9% in Spain, 1.6% in Italy, 0.9% in France and 0.5% in Britain and Germany.

The 10-year British gilt, Japanese JGB and German bund yields slid by 3, 2, and 1 basis points today.

The WTI crude oil price is 1.2% lower at $97.08 and has fallen about a dime (9.7%) since September 13. Gold is unchanged at $1342.50 per ounce.

The government reported a 2.7-point decline in Chinese business sentiment to a two-month low of 55.3 in September.

According to the Conference Board, indices of leading economic indicators in August slid 0.2% in Australia and rose 0.4% in Germany.  Indices of coincident economic indicators edged 0.1% higher in both countries.  France’s statistical agency, INSEE, reported a one-point uptick in French business sentiment to 98 in October.

Australian consumer prices advanced 1.2% between 2Q and 3Q13, the biggest quarterly gain since 1.4% in the third quarter of 2012.  On-year CPI inflation eased to 2.2% from 2.4% in 2Q and 2.5% in the year to 1Q.  Core inflation stood at 2.3% in 3Q.  Australia’s central bank targets inflation in a 2-3% range.

Singapore CPI inflation eased from 2.0% in August to 1.6% in September.  South African CPI inflation slowed to 6.0% as expected from 6.4% recorded in August.

The British Bankers Association reported 42,990 mortgage approvals in September, the most since December 2009 and 10.7% greater than August’s total.

Danish consumer confidence edged down to a reading of 4.6 from 4.7.  A preliminary reading of Euroland consumer sentiment will arrive later today.

The Spanish economy left a 2+ year recession in 3Q, when GDP edged up 0.1%.  GDP was still 1.2% below its year-earlier level, however.  Spain’s trade deficit widened 1.01 billion euros to EUR 1.80 billion in August.

Euroland debt-GDP ratios in the second quarter were published by Eurostat.  The whole common currency area saw debt climb to 93.4% of GDP from 92.3% in 1Q and 89.9% in the second quarter of 2012.  Some of the countries with debt exceeding GDP by mid-2013 are Greece (169.1%), Italy (133.3), Portugal (131.3%), Ireland (125.7%), and Belgium (105.0%).  Portuguese debt at mid-2012 had been 118.1% of GDP, and Spain’s debt ratio then was 77.6% but now is at 92.3%.  Comparatively low ratios in 2Q13 belonged to Finland (57.2%), Germany (79.8%), and Austria (75.1%).

Markets continue to react to yesterday’s disappointing U.S. labor market figures.  Other U.S. figures yesterday showed a lessening foreign appetite for U.S. securities in August, a 0.6% increase in construction spending that month, and a soft reading in the Richmond Fed manufacturing index for a second straight month.  The U.S. today reports import prices, the FHFA house price index, and weekly mortgage applications. 

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

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