Four Central Banks in the Spotlight
May 21, 2014
Minutes from the Bank of England’s meeting on May 7-8 revealed an increasing inclination by some members of the Monetary Policy Committee to entertain the thought of starting to raise interest rates, but the vote against doing so at that meeting remained unanimous. The debate is focused on determining how much slack remains in the economy and how quickly such is receding. British retail sales data, released today, showed a greater-than-forecast 1.3% advance in April and accelerated on-year growth in retail sales of 6.9% (7.7% excluding auto fuel).
Investors await the release of FOMC minutes later today. Yellen, Kocherlakota, and George speak publicly later today as well.
The Bank of Japan as expected did not change policy. Aggressive quantitative and qualitative easing since April 2013 has maintained virtual zero interest rates at the short end, greatly depressed long-term rates (the 10-year JGB is at 0.58%), and is expanding the monetary base at a rate of 60-70 trillion yen per year. The vote to keep these settings was unanimous. However, Koichi continued to recommend limiting forward policy guidance, which is open-ended until 2.0% core inflation is secured in a stable way, instead to a limit of two years. The economic assessment was broadly the same overall but contained an upward appraisal of private business investment and a somewhat less optimistic view of the trend in public works spending. Governor Kuroda was even more optimistic than before that the economy is and will recover further, handling the consumption tax hike as well as expected.
For a twelfth straight policy meeting, officials at the Bank of Iceland again left the key central bank interest rate unchanged at 6.0%. A recovery of the Icelandic crown has promoted a decline in inflation back to target.
The dollar is narrowly mixed, with declines of 0.3% against sterling, 0.2% versus the yen, and 0.1% relative to the yuan but upticks of 0.2% against the Australian dollar and 0.1% vis-a-vis the euro, Swiss franc, and loonie.
Share prices in the Pacific Rim jumped 1.0% in China but fell by 0.5% in New Zealand, 0.3% in Taiwan and India, 0.2% in Japan, and 0.1% in Singapore. In Europe, stocks are up 0.3% in Italy and by 0.2% in Germany and Spain. The Paris Cac is unchanged, and equities show losses of 0.2% in Zurich and 0.1% in London.
West Texas Intermediate oil prices climbed another 0.8% to $103.10 per barrel. Gold is 0.2% softer at $1,292.50 per ounce.
The 10-year British gilt yield rose two basis points in response to more hawkish Bank of England minutes and strong retail sales data.
Japan’s seasonally adjusted customs trade deficit in April of JPY 845 billion was the smallest since last August. The unadjusted surplus was 7.8% lower than a year earlier. Overall exports climbed 5.1% on year including a 9.8% jump in shipments to China. Imports advanced 3.4% on year despite a 15.4% plunge in crude oil.
Japanese supermarket sales, which had jumped 9.4% on year in March before the consumption tax hike, fell by a lesser 5.4% on year in April.
Malaysian CPI inflation dipped 0.1 of a percentage point to 3.4% in April. South African CPI inflation ticked up a similar amount to 6.1% last month.
Euroland’s seasonally adjusted current account surplus narrowed EUR 3.0 billion in March to EUR 18.8 billion but averaged 2.5% of GDP over the past twelve months. There was an EUR 8.9 billion “basis balance” deficit in March as the unadjusted current account surplus of EUR 20.9 billion was more than offset by net long-term capital outflows of EUR 22.2 billion on direct investment and EUR 7.6 billion on portfolio investment.
Labor costs in Australia increased 0.7% on quarter in 1Q14, leaving the 12-month advance unchanged at 2.6%. Private wage costs were 2.5% higher than a year earlier, while wages in the public sector went up 2.9%. The Westpac gauge of Australian consumer sentiment fell by a sharp 6.8% in May to a reading of 92.9 from 99.7 in April.
Swiss M3 money growth slowed to 8.0% in April from 9.1% in March. Dutch consumer confidence improved three points to minus 2 last month, although Dutch consumer spending slumped 2.3% on year in March, its biggest such decline since June 2013. According to the Conference Board, the French index of leading economic indicators, up 0.3% in March, and index of coincident economic indicators (down 0.1%) are consistent with continuing slow economic improvement. Danish consumer sentiment climbed for a third consecutive month, rising 2.3 points to a score of 7.8.
U.S. mortgage applications last week rose 0.9%, a fourth as much as in the previous week. The 30-year fixed mortgage rate dropped another six basis points to a six-month low of 4.33%. Weekly oil inventories also get reported today, but no meaningful data releases are slated in the United States. The main event will be the aforementioned FOMC minutes. Mexican retail and wholesale turnover statistics arrive.
Copyright 2014, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: BOJ, euro area current account, FOMC, Japanese trade