ECB Cuts Interest Rates, Surprising Analysts Who Didn’t Expect Such Before December.

November 7, 2013

The dollar has marked time overnight and on balance is unchanged against the euro, yen and kiwi, up 0.1% versus sterling and the Swiss franc, up 0.3% relative to the Aussie dollar, and down 0.1% vis-a-vis the loonie.

Share prices dropped 0.8% in Japan, 0.6% in China and the Philippines, 0.7% in Hong Kong, 0.4% in India and 0.2% in Australia.  In Europe, equities have fallen by 0.7% in Italy, 0.3% in Spain, 0.2% in Great Britain, and 0.1% in France.  The German Dax is 0.1% higher, however, despite a flurry of criticism lately directed at that government’s beggar-thy-neighbor policies.

The ten-year Japanese JGB and British gilt yields are down two and one basis points, respectively, while German bunds are unchanged.

Gold has dipped 0.3% to $1314.30 per ounce.  Oil has risen 0.3% to $95.04 per barrel.

Three central banks earlier unveiled their latest interest rate decisions.  None made a policy change.  Investors are most interested in the ECB, which was thought unlikely to change its interest rates.  Greater attention is directed at the 13:30 GMT press conference after the ECB surprised pundits with a 25-bp rate reduction.  Euroland inflation dropped sharply in October, kindling new worries about a slide into deflation.

  • Bank Negara Malaysia as expected kept its policy interest rate at 3.0%, its level since May 2011.
  • The Bank of England, as expected, retained a 0.5% Bank Rate and an asset purchase ceiling of GBP 375 billion.  That program has been fully subscribed for the past year, and the 0.5% interest rate has been used since March 2009.
  • The Czech National Bank, also as expected, did not modify the 0.05% interest rate.

Investors are also awaiting the first estimate of U.S. GDP for last quarter, which unfortunately could be even less representative than usual because of the two-week government shutdown last month.  These figures get released in an hour along with weekly jobless insurance claims.  Consumer credit also arrives today.

Australian October labor statistics were weaker than forecast.  A 27.9K drop in full-time workers nearly offset a 28.9K rise in part-timers.  October’s total employment level was about 6K less than July’s total three months earlier.  The unemployment level in October meanwhile held steady at September’s upwardly revised 5.7%, and the participation rate stayed at a low 64.8%.

Australia’s construction purchasing managers index leaped 6.8 points to 54.4, which was the first reading above the 50 expansion versus contraction threshold in more than three years.

Germany’s construction PMI printed at a 2-month high of 52.6 in October, half a point better than in September but 2.5 points below the 17-month high hit in August.

German industrial production data were disappointing for September.  Instead of a flat result, such fell 0.9% on month and was just 1.0% greater than in September 2012.  Output expanded 0.6% between 2Q and 3Q after a 2.1% increase in 2Q, and September’s level was 0.1% less than the 3Q average.  Production of capital goods dropped 2.1% in September.

Spanish industrial production was 1.4% higher on year in September when adjusted for variations in the number of working days, and this result beat analyst expectations.  After a decline of 2.1% in August, Danish industrial output recovered 1.6% in September.  Norwegian industrial production rose 0.7% in September and showed a smaller 1.4% 12-month rate of decline.  Portuguese unemployment settled back 0.8 percentage points to a still elevated 15.6% last quarter.  Swiss consumer confidence improved four points to minus 5 between 2Q and 3Q. 

Dutch consumer prices dipped 0.3% in October, depressing the on-year increase to 1.6% from 2.4%. Ireland’s CPI slid 0.2% on month and showed an on-year uptick in October of just 0.1%.  Austrian wholesale prices were 3.0% lower than a year before in October.

Japan’s index of leading economic indicators increased from 106.8 in September to 109.5 in October, best since May 2007.  The index of coincident economic indicators, 108.2, was at the highest level since July 2008.

The People’s Bank of China broke a streak of several days by not injecting any liquidity into the market today.  Thai consumer confidence weakened to a reading of 76.6 in October from 77.9 in September.  Taiwan’s October trade surplus was 50% wider than September’s surplus. 

South African factory output posted declines in October of 4.7% from September and 2.1% from a year earlier.

Brazilian CPI inflation of 5.84% in October was essentially unchanged from September.

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



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