The Reaction to the Fed Statement

October 30, 2014

The FOMC communique was more hawkish than expected.  Weak growth in Europe and enhanced global market volatility since the prior policy meeting did not deter monetary officials from ending the third phase of quantitative easing  and declaring that U.S. deflationary risks had diminished.  There was also a shift in direction of dissenting votes on the committee.  The Fed is prepared to create a widening policy gap between it and the ECB and BOJ.

The dollar traded 0.3% higher overnight against the euro and Swissie and edged up 01% versus the yen, yuan and sterling.  The New Zealand, Canadian, and Australian dollars are unchanged.

The biggest overnight repercussion involves falling European equities.  Stocks dropped 2.2% in Spain, 1.9% in Italy, 1.7% in Germany, 1.1% in France and 1.0% in Britain.  Share prices had risen 0.7% in Japan and China as well as5 0.5% in Australia, but such lost 0.5% in Hong Kong, 0.9% in India and 0.3% in Singapore and Indonesia.

Ten-year sovereign debt yields fell four basis points in Britain, rose a basis point in Japan and stayed flat in Germany.

West Texas Intermediate oil depreciated 1.1% to $81.33 per barrel.  Comex gold slumped 1.6% to $1,205.00 per ounce.

Monetary officials in Brazil unexpectedly hike the Selic Rate by 25 basis points to 11.25%.

Officials at the Reserve Bank of New Zealand left the Official Cash Rate steady at 3.5% and called the kiwi unjustifiably and unsustainably high.

Austria’s manufacturing purchasing managers index fell a full point in October to 46.7, its lowest reading of 2014.

Euroland sentiment readings were stronger than anticipated in October.  The overall economic sentiment index rose 0.8 points to a 3-month high of 100.7, and the business climate index recovered 0.03 to a score of 0.05 but remained 0.11 points under the August reading.  Industrial confidence rose by 0.4.  Consumer confidence printed at -11.1, same as the preliminary indication and 0.3 points better than in September.  Confidence in services rose 1.2 points, while retail improved by 0.9 points.  Construction rose 3.2 points but remained very depressed at -24.6.

Reported price data accentuated disinflation or deflation.  Greek producer pries fell 0.3% in the year to September.  Belgian consumer prices rose just 0.1PPI inflation slowed to 4.4% from 5.6%.  In the year to 3Q14, Australian import and export prices  respectively dropped 0.8% and 3.9%.  South African PPI inflation slowed to 6.9% in September from 7.2% in August.  All five reporting German states posted month-on-month consumer price declines in October, pointing to a sub-1% on-year pace of price rise in Euroland’s leading economy.

Britain’s Nationwide house price index rose 0.5% in October but recorded a smaller 12-month 9.0% rate of increase.

Australian home sales stagnated in September.

Japanese motor vehicle output was 2.6% lower in September than a year before.

The Swiss index of leading economic indicators increased 0.5% this month.

South African unemployment edged down 0.1 percentage points to 25.4% in the third quarter.

German labor statistics were better than forecast.  22K fewer workers were unemployed in October than September, leaving the jobless rate at 6.7%.  There hadn’t been a drop since March.

Scheduled U.S. data today feature 3Q GDP and weekly jobless insurance claims.

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

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