Sharp Response from Turkey’s Central Bank Lifts Lira

January 29, 2014

After a late-night emergency monetary policy meeting in Turkey, the overnight borrowing and lending rates were raised by 450 and 425 basis points, respectively, to 8.0% and 12.0%, while the one-week repo rate increased by 550 bps to 10.0%.  These changes far eclipsed even the boldest forecasts and initially at least boosted the Turkish lira by as much as 10%.

Japan’s Nikkei rebounded 2.7% or 403 points.  In other Pacific Rim markets, stocks climbed 1.7% in Indonesia, 1.3% in South Korea, 1.0% in Australia, 0.8% in Hong Kong and the Philippines, 0.7% in New Zealand, 0.5% in Malaysia, and 0.4% in China.  Equities slid 0.2% in India, 0.5% in Singapore and 1.6% in Taiwan.  In Europe, the Spanish Ibex has advanced 1.1%, but other gains are small by comparison (e.g., 0.5% in Germany, 0.4% in Italy, 0.3% in Britain, 0.2% in France and 0.1% in Switzerland).

The dollar is unchanged from Tuesday closing levels against the loonie and Swiss franc, up 0.3% verus the Aussie dollar, 0.2% relative to sterling and 0.1% vis-a-vis the yuan, while down 0.2% against the yen and 0.1% versus the kiwi.

Ten-year Japanese JGB and German bund yields are a basis point higher.  The 10-year British gilt dipped one basis point.

Gold climbed 0.6% to $1,258.80 per ounce, whereas WTI crude oil fell by 0.8% to $97.17 per barrel.

The FOMC is expected to cut its monthly asset purchases by another $10 billion to $65 billion.  The announcement is due at 19:00 GMT and will not be followed by a press conference or accompanied by new forecasts.  It’s the last policy meeting of the Bernanke era.  The main market interest will be on who dissents and how the statement characterizes the U.S. economy.

Bank Negara Malaysia retained a 3.0% interest rate as expected.  This has been the level since May 2011. 

President Obama’s State of the Union address did not measure up to the hype.  He proposed a laundry list of items, many of which have been recommended in past years but not passed by the congress.

Euroland money and credit figures were more disappointing than expected.  M3 grew only 1.0% between end-2012 and end-2013, down from 1.5% in the year to November.  4Q-over-4Q saw M3 climb 1.3%, down from 3.7% between the final quarters of 2011 and 2012.  On-year M1 growth slowed to 5.8% in December from 6.5% in November, and credit to the private sector contracted 2.4% in the year to December versus a drop of 1.6% in the year to November.  Marketable instruments sank 16.4% on year, while loans to firms dropped by 3.0%.  Mortgage loans increased a mere 0.7%.  ECB President Draghi has become increasingly uneasy about the stagnation of bank lending and is galvanizing support to do something about the problem.

German consumer confidence improved 0.5 points to a reading of 8.2 in February, beating analyst expectations.

The UBS indicator of Swiss consumption jumped 0.41 points to 1.81 in December.  Such had risen by 0.14 points in November.

The British Nationwide house price index rose 0.7% in January and accelerated to a 12-month increase of 8.8% from 8.4% in December.

Spanish retail sales unexpectedly fell 1.0% in the year to December because of an outsized 3.5% month-on-month drop.

Italy’s business sentiment index unexpectedly relapsed in January, declining to 97.7 from 98.2 at the end of 2013.

Industrial production in Cyprus plunged by an even greater 14.4% between end-2012 and end-2013.

The Westpac index of Australian economic indicators edged up 0.1% last month, reversing a 0.1% dip in November.

South Korean industrial production posted a large 3.4% jump in December, resulting in a surprising 2.6% 12-month rate of increase.  South Korea recorded a current account of $6.43 billion in December and $70.3 billion in 2013.

Singapore unemployment stayed level at a low 1.8% in the final quarter of 2013 and averaged 1.9% for 2013 as a whole after 2.0% in 2012.  Singapore producer prices rose 0.8% on month and 2.0% on year in December.

Besides the Fed, there will be an interest rate announcement today from New Zealand’s central bank, which is due around 20:00 GMT.  Officials there are expected to keep a 2.5% official cash rate.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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