Scent of Monetary Restraint Coming to the U.K.

June 13, 2014

The annual Mansion House Speech from Bank of England Governor Mark Carney suggested that the first hike of the central bank interest rate may happen sooner than markets are assuming and possibly before year-end.  Actions against house price inflation appear imminent but will be introduced in a measured way.

Three other central banks overnight left policies unchanged.

  • The Bank of Japan Board retained a quantitative target of growing the monetary base by 60-70 trillion yen a year and left the overnight uncollateralized call rate at 0.0-0.1%.  It has recently averaged 0.07%.  Officials otherwise expressed greater optimism about growth in other advanced economies but kept most elements of their economic assessment steady.
  • The Central Reserve Bank of Peru retained a 4.0% reference interest rate but lower the reserve ratio to 11.5% from 12.0%.  The policy stance was defended as compatible with the inflation objectives.
  • The Central Bank of Chile likewise kept its monetary policy rate at 4.0%, asserting that further cuts are possible and that a recent pick-up of inflation will prove temporary and not jeopardize the 3.0% target.  Growth has been weaker than desired.

Sterling got as close to $1.7000 overnight as $1.6993 and is up 0.2% on balance against the dollar.  The dollar has dipped 0.1% as well against the kiwi and yuan but shows gains of 0.4% versus the Australian currency, 0.2% vis-a-vis the yen and 0.2% relative to the Swissie and euro.  The loonie is steady.

Stock markets this Friday are mostly risk averse.  Equities lost .4% in India, 1.0% in South Korea, 0.5% in New Zealand, 0.4% in Australia, and 0.2% in Indonesia.  The British Ftse is down 1.1%, while stocks have fallen by 0.8% in Germany and Switzerland, 0.7% in France and Italy, and 0.3% in Spain.  But Japan’s Nikkei closed above 15,000 and up 0.6%, and China’s market advanced 1.1%.

10-year sovereign debt yields have risen 3, 2, and 1 basis points in Britain, Germany, and Japan.

Spreading civil war in Iraq drove oil up another 0.5% to $107.03 per barrel.  Gold is 0.1% softer at $1,272.30 per ounce.

In May, Chinese industrial production (+8.8% on year) and retail sales (+12.2%) rose slightly faster than in April and than year-to-date advances of 8.7% and 12.1%, but fixed asset investment continued to slow, with a January-May on-year increase of 17.2% versus a gain of 19.6% in full-2013.

Revised figures on Japanese industrial production in May revealed a deeper 2.8% monthly decline.  Output was was 3.8% greater than in April 2013, down from an 8.2% increase between 1Q13 and 1Q14.  Capacity fell 0.9% on month and 2.0% on year in May, while capacity usage was down 2.2% on month but 7.2% higher on year.

Employment in Euroland rose 0.1% on quarter in 1Q14, the same quarterly gain as registered between the third and fourth quarters of 2013.  Jobs were 0.2% higher than a year earlier after contracting by 0.4% between 4Q12 and 4Q13.  The seasonally adjusted trade surplus of the euro area widened to EUR 15.8 billion in April from EUR 15.4 billion in March, EUR 15.1 billion in February and EUR 13.6 billion in January.  However, both exports (-0.2%) and imports (-0.5%) were smaller in April than in March.

Germany’s second estimate of CPI inflation in May confirmed the flash indication of a 0.1% monthly dip and a smaller 0.9% 12-month rate of increase.  Spanish and Italian consumer prices rose by 0.2% and 0.5% in the year to May.

Construction output in the U.K. advanced 1.2% on month in April and were 4.6% higher on year.  The Conference Board estimated that Britain’s index of leading economic indicators rose 0.5% in April following a 0.3% rise in March.  The index of coincident economic indicators rose 0.2% in both months.

Dutch retail sales rose 3.0% on month and 3.4% on year in April. Sweden experienced 7.8% unemployment in May seasonally adjusted and 8.0% when not so adjusted. 

Singapore retail sales fell 0.7% on month and 4.0% on year in April.

New Zealand’s manufacturing purchasing managers index slipped to a 17-month low of 52.7 in May from 54.4 in April.  Food price inflation in New Zealand stayed at 1.6% in April.

U.S. producer prices in May unexpectedly fell 0.2% on month and showed a marginally lower 12-month increase of 2.0%.  Core PPI also fell slightly on month and posted a 2.0% on year.

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

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