Spotlight on Several Central Banks

June 18, 2014

Currency markets have been generally quiet ahead of the Federal Reserve policy decision.  A further measured scale-back of quantitative easing is expected but not a change in the federal funds target.  A statement and newly released macroeconomic forecasts arrive at 14:00 EDT (18:00 GMT) followed by Janet Yellen’s press conference at 14:30 EDT.  Ironically, Chairwoman Yellen’s predecessor, Ben Bernanke, is scheduled to be speaking in Zurich at 13:45 EDT.

Minutes from the Bank of Japan’s May 20-21st Board meeting express satisfaction about the contained effect of the consumption tax hike but mounting concern regarding export prospects.  Japan at the same time released May customs trade data that showed weak exports and imports.  Exports fell 1.2% on month and 2.7% on year.  Imports dropped 1.3% on month and 3.6% on year, and the trade deficit was JPY 862 billion seasonally adjusted and JPY 909 billion not so adjusted.

Minutes from the Bank of England’s Monetary Policy Committee meeting on June 5 indicated a rising likelihood that the base rate will be lifted by December and expressed some surprise that markets were not discounting this possibility more seriously.  The British Base Rate has been at 0.5% since a cut in March 2009.  Only if U.K. growth slows appreciably in the second half of the year can a rate hike be delayed much longer.  The output gap has been shrinking faster than assumed previously.

The Bank of Thailand as expected kept its policy interest rate at 2.0%, lowest since end-2010.  The rate had been cut by 25 basis points in March but left unchanged also at the ensuing meeting. 

The Central Bank of Sri Lanka kept its reverse repo rate unchanged at 8.0% and its repo rate likewise steady at 6.5%.  Officials, however, complained that a rate cut in January hasn’t stimulated growth in domestic credit expansion and complained that the spread between bank lending and deposit rates is too wide.

The dollar is unchanged against the yen and loonie, down 0.2% versus the euro and Swiss franc, off 0.1% relative to the Australian and New Zealand dollars, but up 0.1% vis-a-vis the yuan and sterling.

Japan’s Nikkei-225 index climbed 0.9% and back above 15K.  But elsewhere in the Pacific Rim, stocks fell by 1.1% in India, 0.7% in South Korea, 0.4% in China, 0.3% in Australia and 0.2% in New Zealand.  In Europe, the British Ftse, Spanish IBEX, German Dax, Zurich SMI, and Milan MIB have each risen but by less than 0.5%.  The Paris Cac is unchanged.

The yield on 10-year British gilts fell by five basis points despite the hawkish Bank of England minutes.  The Japanese JGB is unchanged, and the 10-year German  bund yield firmed a basis point.

WTI oil rose 0.3% to $106.66 per barrel.  Gold edged down 0.1% to $1,270.40 per ounce.

Construction output in the euro area climbed 0.8% on month and 8.0% on year in April.  Such had risen 2.2% on quarter and 6.9% on year in the first quarter.

The Swiss ZEW expectations index, a gauge of investor sentiment, printed lower at 4.8 this month than May’s reading of 7.4.

The Conference Board released some indices of leading economic indicators.

  • The French LEI stagnated in April after a 0.4% rise in March.  The coincident indicators index reversed a 0.1% dip that had occurred in March.
  • India’s LEI went up 0.7% in May, half as much as in April.  The index of coincident Indian indicators also climbed by 0.7%.
  • Australia’s LEI fell for the first time since August 2013, albeit by just 0.1% in May.  The coincident index edged 0.2% higher.
  • Westpac-MI also released its index of Australian leading economic indicators, which showed a 0.1% uptick in May following a 0.5% drop in April.

The monthly report on Chinese property prices showed the first month-on-month decline in two years, 0.2%, and revealed that only a fifth of cities (15 of 70 surveyed) had experienced a house price rise in May.  That’s down from 44 cities whose property prices rose in April.  The MNI measure of Chinese business sentiment improved, however, to 55.0 in June from 53.7 in May.

Japanese department store sales recorded a smaller 4.2% on-year drop in May after plunging by 12.0% in April. 

The New Zealand unadjusted current account swung to the largest surplus ever, NZD 1.407 billion, last quarter from a deficit of NZD 1.512 billion in 4Q13.  The seasonally adjusted deficit narrowed by more than 30%.

South Africa posted a 161 billion rand current account deficit last quarter.  That was about 25% smaller than forecast and 10% narrower than in 4Q13.  South African CPI inflation accelerated to 6.6% last month from 6.1% in April.  Core CPI was 5.5%.

Portuguese producer prices fell 0.5% in the year to May, similar to a 0.6% on-year drop recorded in April.  Icelandic CPI inflation eased 0.2 percentage points to 1.1% in May.

U.S. mortgage applications plunged 9.2% last week.  A 4.36% 30-year fixed mortgage rate was two basis points higher than in the previous week.

The U.S. current account deficit in 1Q will be reported shortly; benchmark revisions to back data in the current account are customarily done in June as well.  Canadian wholesale turnover data also arrive.  But today’s main event will be the Yellen press conference.

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

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