Strengthening Case for ECB to Ease Aggressively

June 2, 2014

Dollar gains overnight amounted to 0.6% against the Australian dollar, 0.5% versus the Swiss franc, 0.2% relative to the yen, euro and kiwi and 0.1% against the loonie.  The dollar is unchanged vis-a-vis the yuan and sterling.

Share prices advanced 2.1% in japan, 1.9% in Indonesia, 0.5% in Australia and 0.4% ain South Korea and Indonesia.   Stocks in Europe are up 0.6% in Spain, 0.5% in Italy, 0.3% in Britain and Germany, 0.2% in Switzerland and 0.1% in France.

The 10-year Japanese JGB, German bund and British gilt yields are each a basis point firmer.

Gold at $1,245.60 per ounce is steady, and WTI oil is 0.4% stronger at $103.16 per barrel.

Regional German CPI reports for May revealed sharply lower inflation of 1.1% in North Rhine Westphalia, 0.8% in Brandenburg and Saxony, 0.7% in Hesse and 0.6% in Bavaria.

The euro area’s manufacturing purchasing managers index printed at 52.2 in May, down from a preliminary estimate of 52.5 and a reading in April of 53.4.  The score in May constituted a six-month low.  Within Euroland, the PMI for Germany of 52.3 was 0.8 points below the reading in April and at a 7-month low.  The Italian and Greek readings of 53.2 and 51.0 were two-month lows.  Austria’s 50.9 score was a 10-month low, and the French reading of 49.6 slipped under the 50 neutral threshold and to a 4-month low.  Spain’s 52.9, in contrast, was a 49-month high, and the Dutch reading of 53.6 was at a 2-month peak.

Among other reported manufacturing PMI surveys for May,

  • Japan’s index bounced up to 49.9 from 49.4 but was the second sub-50 score in a row after readings in the first quarter that averaged 55.4.
  • China’s government-authorized index was 50.8, a 5-month high and better than expected.
  • India’s 51.4 edged up 0.1 to a 3-month high.
  • Vietnam’s reading slipped back to a two-month low of 52.5 from 53.1.
  • Indonesia scored a record high of 52.4, up from 51.1.
  • Australia’s PMI revived to 49.2 following a 3.1-point slide in April to 44.8.
  • South Africa’s 44.3 was clearly a disappointing development after 47.4 in April. 
  • A 3.3-point drop in Switzerland’s PMI to 52.5 was also considerably worse than the expected outcome there.
  • Sweden’s PMI fell to a 5-month low of 54.1 from a reading in April of 55.5.
  • And Norway’s 1.3-point decline depressed that index below the 50 line of neutrality for the first time this year.
  • Denmark’s PMI fell back a half-point on top of a 2.1-point drop in April but at 60.2 still conveyed a very buoyant rate of expansion.
  • The Czech PMI improved to 57.3, best in three years and well above its long-term average level of 52.5.
  • But Poland’s PMI worsened 1.2 points to an 11-month low of 50.8.
  • Hungary’s PMI settled back to 53.9 in May following readings of 54.6 in April and 53.7 in March.
  • Russia’s manufacturing purchasing managers index rose 0.4 points but at 48.9 was below the 50 threshold for a seventh straight time.

Late Friday came news of a 25-basis point hike in the Central Bank of Colombia’s key interest rate to 3.75%.  Such had also been raised by 25 basis points in April, which was the first such hike in two years.

In Japan, the Ministry of Finance’s estimate of business capital spending last quarter, a jump of 7.4% was the biggest gain in seven quarters and better than assumed in the preliminary GDP report.  Corporate profits went up 20.2% in the quarter before the consumption tax was raised.  Motor vehicle sales, however, posted a second consecutive on-year drop in May of 5.6% after having plunged by 11.4% in April but rising 14.5% in March.

Australian building permits sank 5.6% on month in April, most since June 2013.  Expected inflation in Australia edged up to 2.9% in May from 2.8% in April.  Australian commodity prices, expressed in Special Drawing Rights, were 12.8% lower in May than a year earlier.  Housing prices sank 1.9% on month in May, most in five years.

British M4 money dipped 0.2% in April and by 0.6% on year.  Mortgage approvals fell 5.5% on month to 62.9K in April, and net mortgage lending totaled GBP 1.7 billion.

Indonesian CPI inflation ticked up to 7.3% in May, and the core rate remained even higher at 7.7%.  CPI inflation in Thailand quickened to 2.6% from 2.4%, and the core rate held at 1.7%.

South Korea had a $5.3 billion trade surplus, 18% wider than the month before.  The economy has run surpluses since January 2012.

Scheduled U.S. data today include the manufacturing PMI, construction spending, and auto sales.  Cleveland Fed President Evans expressed the view that a rate hike is unlikely before later 2015, if not 2016.  Other Fed officials have seemed eager to start sooner.

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

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