Greater Investor Optimism

May 14, 2014

Hope is rising that policy steps will be taken in China to support property values.

The Bank of England’s quarterly Inflation Report is not as hawkish as some were expecting.  Although projected a bigger decline in unemployment than seen in the February report, officials maintained a 3.4% 2014 growth forecast and anticipate inflation over the coming 2-3 years staying close to the 2% target.  Slack in the economy is put at 1-1.5%, roughly the same as before.  A firmer exchange rate and subdued wage pressure continue to promote disinflation for now.

The dollar is unchanged against the yuan and Swiss franc, up 0.3% relative to sterling, but down by 0.4% against the kiwi, yen and Aussie dollar and by 0.1% vis-a-vs the euro and loonie.

The yen broke through 140 per euro all the way to 139.49, its strongest quote since March 4.

The ten-year British gilt yields fell by four basis points.  Bunds are steady, and the 10-year Japanese JGB dipped under 0.60% to 0.59%.

Gold and West Texas Intermediate oil are up 0.5% at $1,301.10 per ounce and 0.2% at $101.94 per barrel.

Share prices advanced by 1.4% in South Korea and Indonesia, 1.1% in Singapore and 1.0% in Hong Kong.  Other markets are mostly mildly lower, with losses of 0.1% in China, Britain and Japan, 0.2% in France, India and Germany, and 0.4% in Spain and Italy.  Australia’s bourse closed unchanged.

Industrial production in the euro area fell in March for the third time in four months, dropping 0.3%.  March output was also 0.1% lower than a year earlier, after posting a 1.7% on-year increase in January-February.  First-quarter production grew 0.8% at an annualized rate relative to the final quarter of 2013.

German CPI inflation last month matched the preliminary indication of a 0.2% monthly dip and a 1.3% on-year advance.  French inflation ticked up 0.1 percentage point to a still-subdued 0.7%.  Spain’s inflation rate in April was just 0.4%, same as the preliminary figures had shown.  Finnish 1.1% inflation in April likewise matched the pace in March.  Greek import prices slumped 0.9% on month and 2.4% on year in March.

British unemployment fell by 25.1K in April, a bit less than forecast.  The ILO jobless rate was 6.8% last quarter.  Average hourly earnings in 1Q posted on-year growth of 1.7% with bonuses and 1.3% including only regular pay.

The Swiss ZEW expectations index rose 0.4 points to a reading in May of 7.4.

The volume of New Zealand retail sales advanced 0.7% last quarter, half as much as in the final quarter of 2013. 

Dutch retail sales were 1.5% lower in March than a year before.

Japanese machine tool orders posted a 48.8% 12-month increase in April, climbing from on-year gains of 41.8% in March and 26.1% in February.

Japanese domestic corporate goods prices in April reflected the 3-percentage point sales tax hike almost in full, rising 2.8% from March and accelerating in on-year terms to 4.1% from 1.7% in March and 0.1% in the year to April 2013.  Export and import prices posted 12-month drops of 1.7% and 1.1%.

U.S. mortgage applications increased 3.6% last week, as the 30-year fixed mortgage rate dropped four basis points to 4.39%, the lowest quote since November.

U.S. producer prices will be released today.

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

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