Fresh Distractions

December 18, 2014

The Yellen press conference gave reassurance to a market unsure of the direction of Fed policy, and it triggered strong gains in stocks and the dollar plus a rebound in long-term interest rates.  But now the market has moved on to new distractions.

The Swiss National Bank at an unscheduled meeting and just a week after its quarterly policy review had left settings unchanged cut the 3-month Libor target to a range of -0.75% to 0.25% from 0-0.25%.  The sight deposit point rate is now negative 0.25% with an exemption threshold on individual accounts.  This change is meant to reinforce the 1.2000 franc per euro cap and, in turn, counter the threat of deflation.  Unlimited FX intervention will also continue.  These actions challenge the ECB to adopt quantitative easing or face undesirable consequences.  The Swiss government statistical agency meanwhile revised projected GDP growth and CPI inflation for next year down further.

A report out of China that the government is considering a more flexible exchange rate policy depressed the yuan at one point through the 6.22 per dollar threshold.  The Chinese currency is 0.3% softer than yesterday and has lost 1.2% so far this quarter.

Sterling rose 0.3% partly in response to much stronger-than-expected British retail sales growth in November.  Volume jumped 1.6% on month and 6.4% on year.  The rises excluding automotive fuel were 1.7% on month and 6.9% on year.

The dollar is down 0.7% against the Aussie dollar, 0.6% versus the kiwi and 0.3% vis-a-vis the loonie.  Commodities are up, with gold gaining 1% to $1,206.40 per ounce and WTI oil climbing 2.9% tp $58.08 per barrel.  The dollar has risen 0.7% against the Swissie, 0.4% versus the euro and 0.1% relative to the yen.

Share prices rose 2.3% in Japan, 1.1% in Hong Kong, 1.6% in India, 1.0% in Australia but fell 0.4% in China.  In Europe, stocks have climbed at least 2.0% in France, Germany, Italy, Spain and Switzerland.

The 10-year British gilt yield rose six basis point, but the 10-year German bund is 2 bps lower.  JGBs are steady.

Remarks by Russian President Putin overnight were totally unrepentant regarding recent Russian foreign policy.  With a we-against-the-world, he is prepared to hunker down, weathering western sanctions.

There was more evidence of a slowdown in China’s property market.  Home prices posted a 12-month drop of 3.7% in November, most in several years.  Prices fell on month by 0.5%, their seventh drop in a row.  Property prices were lower than a year earlier in 68 of 70 surveyed cities.

Taiwan’s central bank left its key interest rate unchanged at 1.875%.

The initial Greek presidential vote did not secure a win for the government.  Unless the prime minister’s favored candidate is accepted eventually, the government likely will topple and give way to a coalition much more opposed to EMU membership and imposed fiscal austerity.

The German business climate index compiled by the IFO Institute rose to a reading of 105.5 in December from 104.7 in November and 103.2 in October but below end-2013’s 109.5 score.  All of the improvement in December came from expectations amid lower oil prices and a more competitive euro, none from current conditions.  Retail activity continued to weaken.

Swedish consumer confidence rose 2.2 points to a reading of 99 this month.  Dutch consumer sentiment climbed a point to -7.

Construction output in the euro area advanced 1.3% in October, reversing September’s 1.0% slide, and was 1.4% greater than a year earlier.  Construction had slipped 0.1% on quarter and 0.2% on year in 3Q14.

Greek unemployment dropped 1.1 percentage points to 25.5% last quarter.  Dutch joblessness stayed at 8.0% in December, and the unemployment rate in Hong Kong was also unchanged in November at 3.3%.

The Swiss trade surplus widened 20% on month to CHF 3.87 billion in November.  Italy’s current account surplus grew 32% on year to EUR 5.46 billion in October.

Icelandic consumer prices posted drops of 1.1% on month and 0.6% on year in November, while Portuguese producer prices were 1.1% lower than in November 2013.  South Africa’s PPI was flat on month in November and showed a smaller 12-month rise of 6.5% after 6.7% in October.

U.S. new jobless insurance claims dipped 3K to 294K last week.  The four-week average of 299-1/4 was similar to the prior week’s indication.  Still to come on the U.S. data front:  the Philly Fed manufacturing index, the Conference Board’s index of leading economic indicators, and Markit Economics estimate of the December services purchasing managers index. 

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

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