Central Bank Hit Parade

September 4, 2014

In a surprise move, the ECB cut all three of its interest rates by 10 basis points to a marginal lending rate of 0.30%, a refinancing rate of 0.05%, and a deposit rate of -0.2%.  All three rates had been cut in July.  Now markets await other possible steps like the purchase of ABS securities.  Press conference starts at 12:30 GMT.

The Bank of Japan Board left policy settings unchanged, cut its assessment of housing, but kept unchanged the overall view of a moderate recovery trend and core underlying CPI of 1.25% for now but then rising.  Forecast risks have been the same three factors essentially since April 2013.  Governor Kuroda endorsed plans for another sales tax hike in October 2015 and overall was upbeat in his press conference afterward.

The Bank of England left policy settings unchanged and released the usual brief statement containing no information not already known to the market.

The Bank of Brazil’s Selic interest rate of 11% was left unchanged for a third straight time.  Such earlier was raised from 7.25% to 11.0% in nine increments spaced between April 2013 and April 2014.  Inflation is at the upper end of the target range and not seen likely to fall to its point target of 4.5% until 2016.  The statement deleted a previously used clause, suggesting the chance of a near-term cut has been removed.  Presidential elections are due next month.

The Swedish Riksbank kept a 0.25% repo rate as expected.  There was a modest flattening of the projected repo path.  Projected GDP growth this year and next was lowered.  The first rate hike is seen happening in late 2015.

Yesterday’s released Fed Beige Book found no major regional shifts from the prior report.  The economy is expanding at a slight to moderate clip.

Released European data were mixed.

  • German industrial orders shot up 4.6% in July, three times more than forecast, following a 2.7% drop in June and was 2.1% higher than the 2Q mean.
  • The Ezone retail PMI fell 1.8% to a very weak reading in August of 45.8%.  Retail activity that month fell in Germany, France and Italy.
  • Germany’s construction PMI dropped 0.5 points to 47.7 in August, its fourth reading in a row below the 50 expansion-or-contraction threshold.
  • Czech retail sales grew 4.5% on year in July (adjusted for business day variation), down from 6.4% in June but above market expectations.
  • French unemployment (10.2%) remained in double-digit territory and was marginally higher in 2Q than 1Q.
  • New car sales on-year growth accelerated in Britain to 9.4% in August from 6.6% in July.

Australian retail sales firmed 0.4% in July, less than the gain in June.  Australia’s trade deficit of A$ 1.359 billion in July was smaller than June’s deficit by 13%.

South Korean GDP grew 0.5% on quarter and 3.5% on year last quarter.

In market activity, commodity prices are little changed.  The Nikkei lost 0.3%.  European equities rose after the announced ECB rate cut.  Bond yields are narrowly mixed.  The euro hit a low today of $1.3014.

ADP estimates that U.S. private employment rose 204K last month.

Still to come: Draghi’s remarks, U.S. and Canadian trade figures, U.S. weekly jobless claims and quarterly productivity and unit labor costs.

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

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