More Monetary Policy Changes

January 22, 2015

Yesterday it was the Bank of Canada.  Today, the ECB Governing Council announced plans to begin buying EMU member sovereign debt bonds and private sector bonds in March.  EUR 60 billion of assets will be bought each month in this quantitative policy initiative and continue through September of 2016.  In any case, the program will not stop until officials detect a path of inflation consistent with the target of below but close to 2% over the medium term.  A second policy change is that the interest rate on longer term MROs, ie lending to banks, was cut by 10 basis points.  However, the three main European Central bank interest rates – a deposit rate of –0.20%, a refinancing rate of 0.05%, and a marginal lending rate of 0.30% – were left as is. 

The Bank of Brazil’s Selic interest rate was raised by another 50 basis points to 12.25%.  The move was expected by analysts and is intended to promote a decline of inflation toward the bank’s 4.5% target by next year.

The dollar rose 0.9% against the euro and shows lesser appreciation of 0.1% relative to the loonie, Swiss franc and kiwi.  The dollar has eased 0.4% versus the yen, 0.3% relative to the Australian dollar, and 0.1% vis-a-vis sterling.

Share prices are up so far by 1.9% in Italy, 1.6% in Spain, 1.8% in Canada, and 1.0% in France.  The DOW is marginally firmer.  The Dax has climbed 0.6%, and the Nikkei closed 0.3% higher.  Elsewhere in the Pacific Rim, equities closed up 0.7% in Hong Kong and Indonesia, 0.5% in China, Taiwan, Singapore and Australia, and 0.4% in India.

Comex gold ($1,297.60 per ounce) is 0.3% firmer, while the West Texas Intermediate oil price edged 0.3% lower to $47.62 per barrel.

The ten-year Japanese JGB yield rose seven basis points.  The comparable German bund is a basis point firmer, and the 10-year British gilt dipped by two bps.

The Confederation of British Industries published its January industrial trends survey, whose overall index slid a point to a two-month low of +4.  The average reading in the second half of 2014 was +2.

British public sector borrowing in December of GBP 12.5 billion exceeded November’s GBP 11.7 billion total and street estimates by even more.

Japanese stock and bond transactions generated a net JPY 1.866 trillion outflow in the week of January 16, 34% greater than in the previous week.

New Zealand’s manufacturing purchasing managers index improved 2.1 points to a reading of 57.7 last month, and New Zealand consumer confidence rose 1.9% this month on top of a 3.9% increase in December.

Strong demand for multi-housing units lifted Australian new home sales by 2.2% in November.  Expected Australian consumer price inflation receded 0.2 percentage points to 3.2% this month.

Italian industrial orders were very disappointing. Instead of the expected small rise, such fell 1.1% in November, widening the 12-month rate of decline to 4.1% from 0.2% in October.  Italian retail sales dropped 1.2% between November 2013 and November 2014.

Dutch consumer sentiment improved a point to negative six in January, but consumer spending in November was only 0.6% greater than a year earlier.

Spanish unemployment last quarter of 23.70% was virtually unchanged from the third-quarter pace.  Irish producer prices dropped 0.4% last month, reversing a 0.3% uptick in November. 

Swedish unemployment eased to 7.8% in December from 7.9% in November on a seasonally adjusted basis.  Danish retail sales fell on month but rose 2.3% in the year between end-2013 and end-2014.  Icelandic wage inflation stayed at 6.6% in December.

CPI inflation in Hong Kong eased 0.2 percentage points to 4.9% last month, and Turkish consumer confidence edged down 0.1% in January.

U.S. jobless insurance claims remained above 300K at 307K last week.  The improvement of this labor market indicator seems to have plateaued, averaging 306.5K over the past four weeks compared to 290.25K in the four weeks to December 20, 294K in the four weeks to November 22, 281K in the four weeks to October 25, 294.75K in the four weeks through September 27, and 302.75K in the four weeks to August 30.

The FHFA index of U.S. home prices rose 0.8% in November and accelerated to a 5.3% on-year pace from 4.5% in October.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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