Awaiting FOMC Pronouncements and Some Relief from Chinese Stimulus

September 17, 2014

Markets continue to react to yesterday’s news that the People’s Bank of China is creating a standing liquidity facility for the five biggest Chinese banks totaling 500 billion yuan or roughly $81 billion.

In the meantime, investors await today’s FOMC statement, updated macroeconomic forecasts and Janet Yellen’s press conference.  The two first items are due at 14;00 EDT (18:00 GMT), and the press conference begins at 14:30 EDT.  The Fed is on schedule to fully phase out its third round of quantitative easing next month.  Attention is focused on a possible tweak of its forward guidance language.

Minutes from the Bank of England’s September 3-4 meeting confirmed that as in August, Weale and McCafferty sought a 25-basis point base rate hike but were rebuffed by the other seven members of the Monetary Policy Committee, who expressed concern about the severity and length of economic weakness in neighboring Euroland.  The key interest rate has been at 0.5% since March 2009, and the GBP 375 billion ceiling on the asset purchase program was left at that level by a unanimous 9-0 vote.

The Bank of Thailand also left its policy interest rate unchanged.  It’s been at 2.0% since a 25-basis point cut six months ago.

U.K. labor statistics were mixed.

  • Wage pressure remained very subdued, showing a gain of 0.6% on year in May-July for total pay and 0.7% when excluding bonuses.
  • The claimant unemployment count fell 37.2K in August, nearly matching July’s slide and exceeding the projected decrease by 12K.  The claimant jobless rate slid 0.1 of a percentage point to 2.9%, while the ILO basis unemployment rate fell to 6.2% in May-July from 6.4% in the second quarter.

In overnight trading, the dollar remained unchanged on balance against the loonie and euro but rose 0.4% vis-a-vis the kiwi, 0.3% relative to the Australian dollar, 0.2% against the yen, and 0.1% versus the Swiss franc.  The dollar is down 0.2% against sterling and 0.1% softer versus the yuan.

The world’s eyes will be on Great Britain tomorrow, where Scots decide whether to choose independence from the Kingdom in a referendum vote.  Opinion polls still indicate a razor-thin, non-statistically significant margin favoring the no vote.  All sorts of geopolitical experts and economists predict utter disaster for Scotland, Britain, and Western efforts to stave off ISIS if the Scots let nationalistic fever get in the way of good common sense.  A decision to go independent will be irreversible even if the doomsayers are proven correct.

In the Pacific Rim, share prices rose 1.0% in Hong Kong and South Korea, 1.1% in Indonesia, 0.7% in Taiwan and Singapore, and 0.5% in China and India.  In contrast, equities fell 0.9% in New Zealand, 0.7% in Australia and 0.1% in Japan.  In Europe, stocks are up 1.0% in Spain and Italy, 0.7% in France, 0.5% in Germany, but just 0.2% in the U.K. where everyone’s holding their breath until the Scottish referendum outcome is revealed.

Ten-year sovereign debt yields dipped a basis point in Britain and Japan and are unchanged in Germany.

WTI oil and Comex gold have strengthened by 0.2% to $95.02 per barrel and $1,238.30 per ounce.

New Zealand recorded a NZD 1.07 billion current account deficit last quarter after a NZD 1.468 billion surplus in the first quarter of 2014.  The four-quarter current account between mid-2013 and mid-2014 registered a NZD 5.8 billion deficit, equal to 2.5% of GDP and the smallest shortfall since 2010.

China’s MNI business index fell 5.1 points to a reading of 52.2 in September.

Switzerland’s ZEW expectations index weakened sharply as well, swinging to -7.7 in September from +2.5 in August.

Construction output in the euro area stagnated in July and was merely 0.4% greater than a year earlier.  Such had fallen 1.1% between 1Q and 2Q but risen 3.4% between the second quarters of 2013 and 2014.

On-year CPI inflation in Euroland was revised up to 0.4% in August from 0.3% reported initially.  Such had been 0.4% in July as well and 1.3% in August 2013.  Energy prices fell 0.6% on month, while all other consumer prices collectively rose 0.2%.  Core inflation, which also excludes food, ticked up to 0.9% from 0.8% in June and July and just 0.7% in May.

New car registrations, a gauge of sales, in the European Union were 2.1% greater in August than a year before, down from a 5.6% pace of rise in July.

Spain’s index of leading economic indicators rose 0.3% in July, half as much as in June, while the index of coincident economic indicators edged 0.1% higher.  Portuguese consumer prices fell 0.9% on year in August, while Austrian consumer prices were 1.7% higher in the same span of time.

South African consumer price inflation ticked up to 6.4% in August from 6.3% in July.  Retail sales in that economy rose 2.4% in the year to July.  Singapore’s trade surplus widened 66% on month to SGD 6.8 billion in August.

The second quarter U.S. current account gets reported today, along with monthly consumer prices and the National Association of Home Builders index.

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

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