New Zealand Interest Rate Hike and Soft Chinese Data

March 13, 2014

New Zealand became the first advanced economy to lift its benchmark interest rate.  The central bank, RBNZ, raised the Official Cash Rate to 2.75% from 2.5% and signaled that more increases will be forthcoming over the coming two years.  The action sent the kiwi to a new trade-weighted high.

Chinese industrial production growth in January-February of 8.6% from a year earlier was the weakest 12-month rise since August 2009 and down from 10.0% in the final quarter of 2014. Retail sales growth slowed to 11.8% in the first to months of 2014 from 13.5% in the final quarter of 2013.  Fixed asset investment posted a 17.9% on-year advance in January-February, down from 19.6% in full-2013.

ECB President Draghi again said a policy easing now is not needed in the euro area, propelling the euro as high as $1.3968 overnight its strongest level since Halloween 2011. 

The Bank of Korea left its seven-day repo rate unchanged at 2.5%, its level since three 25-basis point cuts implemented sequentially in July 2012, October 2012, and May 2013.

Bank Indonesia left the BI benchmark interest rate at 7.5%.  175 basis points of tightening to support the rupiah were engineered between June and November of 2013.  The central bank decisions in South Korea and Indonesia were anticipated.

Robust Australian labor market data for February were reported, including a 80.5K jump in full-time employment, the biggest monthly gain since 1991.  Overall jobs went up by 47.3K on top of an 18K rise in January, but the jobless rate stayed at 6.0% because of a 5-month high of 64.8% in the labor participation rate.

The Australian dollar advanced 0.8% against the greenback.  The U.S. dollar’s other overnight changes are declines of 0.5% versus the kiwi and loonie, 0.4% relative to sterling, 0.3% vis-a-vis the Swiss franc and euro, 0.2% versus the yen and 0.1% against the yuan.

Share prices rose 1.2% in China, 0.9% in Indonesia, 0.7% in Taiwan, 0.5% in Australia, 0.3% in New Zealand, and 0.1% in South Korea.  There were declines of 0.7% in Hong Kong, 0.5% in Singapore, 0.4% in Indonesia and 0.1% in Japan’s Nikkei-225 index.  Stocks in Europe are up 0.7% in Italy, 0.2% in Germany and 0.1% in France but down 0.3% in Switzerland and 0.1% in Britain.

The ten-year British gilt and German bund yields are steady.  The 10-year Japanese JGB firmed another basis point.

WTI oil and gold prices edged up 0.3% and 0.1% to $98.25 per barrel and $1,371.40 per ounce.

Malaysian searchers did not find any parts of missing flight 370 in the area suggested by Chinese satellite photos.  Malaysian industrial production growth slowed to a 12-month rise of 3.7% in January from 4.8% in December.

The standoff in Ukraine made no progress toward resolution.  Russian President Putin again denied starting the incident.

Japanese private domestic machinery orders climbed 13.4% in February, almost double expectations, but were 2.2% lower in January-February than the average 4Q13 level.  Foreign machinery orders rose by 2.7%.  Japanese stock and bond transactions last week generated a net JPY 594 billion capital outflow, which was about half as big as the prior week’s outflow.

In the year to 4Q13, Hong Kong recorded industrial production growth of 0.5% and a 5.5% drop in producer prices. 

Expected Australian inflation according to the MI-TD measure, fell to a 3-month low of 2.1% in February from 2.3% in January.

The British Royal Institute of Chartered Surveyors’ house price balance index fell further to 45% in February from 53% in January, 56% in December and 58% in November.

Spanish retail sales recorded a 2.4% monthly advance in January, resulting in a 12-month rise of 0.5% after an on-year drop of 1.0% in December.  Dutch retail sales volume was 0.6% greater in January than a year earlier.

Italian CPI inflation slowed to 0.5% last month from 0.7% in January.  The Greek jobless rate rose a half percentage point to 27.5% last quarter.

Investors await the release of U.S. retail sales, import prices, business inventories, and weekly jobless insurance claims. Canada will be reporting capacity usage and house prices.  In Latin America, central bank interest rate announcements are due from Peru and Chile, and the data front brings Brazilian retail sales and Mexican industrial production.

Fed Board of Governor nomination hearings in the senate will be held today for confirming Stanley Fisher, Brainard, and Powell.

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

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