Busy Session as U.S. Returns from President’s Day Closure

February 18, 2014

The Bank of Japan left unchanged its basic monetary policy of quantitative easing overlaid on zero interest rates.  The central bank’s economic outlook wasn’t changed either in spite of yesterday’s softer-than-expected GDP figures.  Some special facilities were extended another year and given higher limits even though they haven’t been fully utilized in the past.

The Central Bank of the Republic of Turkey made no further interest rate changes after a regularly scheduled meeting.  After an emergency session on January 29, Turkish monetary authorities boosted the one week repo rate by 550 basis points to 10%, the overnight lending rate by 425 bps to 12.0%, and the overnight borrowing rate by 450 bps from 3.5% to 8.0%.  The Turkish lira had weakened sharply because of excessive inflation, a large current account deficit, and Fed tapering that has exposed emerging markets with poor fundamentals to a reversal of capital flow directionality.

Magyar Nemzeti Bank cut its key interest rate by another 15 basis points to 2.70% in continuation of a string of small slices off the policy rate.

Minutes from the February meeting of the Reserve Bank of Australia Board defended the wait-and-see approach following a series of cuts in the official cash rate.  The meeting shifted the forward guidance to a neutral stance from one that place a bias on the possibility of a further reduction.

The dollar rose overnight by 0.6% against the kiwi, 0.5% versus the yen, 0.2% relative to sterling and 0.1% against the yuan, Australian and Canadian dollars.  The dollar slid by 0.2% against the euro and Swiss franc.

The People’s Bank of China removed liquidity from the money market in a move that wasn’t expected and caused share prices to drop 1.3% in the country.  That retreat contrasted with a 3.1% rebound of Japan’s Nikkei.  In other bourses, stocks firmed 0.8% in India, 0.2% in Australia and Hong Kong, but were unchanged in South Korea and Indonesia.  The British Ftse and German Dax show gains of 0.6% and 0.3% , but stoks are down 0.5% in Spain and unchanged in France.

The ten-year British gilt yield settled back three basis points after lower-than-expected U.K. price data.  The German 10-year bund is a basis point, and the 10-year Japanese JGB is sitting on a lowly 0.60%.

West Texas Intermediate oil increased 0.8% to $101.08 per barrel, while gold slipped 0.3% to $1,314.80 per ounce.

Britain posted a sub-2.0% CPI inflation rate in January for the first time in 50 months.  Consumer prices fell by a larger-than-expected 0.6% from November and ended 2013 with an on-year advance of 1.9%.  Core CPI inflation eased to 1.6% from 1.7%.  Retail price inflation slowed to 2.8%, and producer input and output inflation for January were also reported to have slowed.  The PPI-O was 0.9% higher than in January 2013, while the PPI-I recorded a 12-month 3.1% rate of decline, three times bigger than the December-over-December drop.  Lower inflation supports the Bank of England’s revised forward guidance to retain present ultra-easy monetary policy settings even after unemployment declines below 7.0%.

Britain’s ONS reported that the formerly known DCLG house price index posted a slightly smaller 12-month 5.5% rate of increase than had been predicted.

Euroland posted a EUR 221.3 billion current account surplus in 2013, equivalent to 2.3% of GDP and 72% larger than the surplus in 2012.  The “Basic Balance,” which adds long-term capital movements to the current account had a EUR 242.2 billion surplus last year after a surplus in 2012 of EUR 194.9 billion.

South Korean producer prices edged up 0.2% on month but fell 0.3% on year in January. Japanese machine tool orders in January were revised to show a 40.3% year-over-year advance versus a preliminarily estimated increase of 39.6%.

Investors have become more cautious about the German and Ezone economic prospects even as current conditions continue to approve.  According to the ZEW indices, the expectations component fell by 6.0 points to 55.7 in February, while current conditions went up another 8.8 points to 50.0.  For the entire euro area, the ZEW expectations index printed at 68.5, down from 73.3 in January, but the current situation had a reading of -40.2, eight points better than in January.

Car sales in the EU were 5.5% higher than a year earlier in January, down from a 13.3% December-over-December advance.

Swedish consumer prices fell by a larger-than-anticipated 0.8% in the year to January, strengthening the case that the Riksbank might wait even longer than now indicated before starting to normalize interest rates.

The U.S. Empire State manufacturing index weakened more than projected, printing in February at 4.48 after 12.51 in January.  The National Association of Home Builders housing market index and the Treasury TIC data also get released today.

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

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