Financial Markets Relieved by Two Developments

February 3, 2015

The new Greek government retreated from talk of a debt write-off and is instead offering a plan to swap its existing debt with new securities.  The plan would give Greece more time to pay off its obligations.  Greek share prices shot up over 8% in response.  The 10-year Greek sovereign debt yields slid two basis points but still exceeds 10.60%.

Following interest rate cuts in January in fellow commodity-sensitive Canada and New Zealand, the Reserve Bank of Australia today surprised many analysts with a 25-basis point cut of the official cash rate to 2.25%.  The previous rate change was a cut of 25 bps in August 2013.  Officials projected below-trend economic growth in Australia and lowered projected core inflation in the coming year to an estimate of 2.25%.

The U.S. currency strengthened overnight by 1.8% against the Australian dollar and 1.4% versus the kiwi.  The greenback otherwise is steady against the Swissie and loonie, down 0.2% against sterling and off 0.1% relative to the yen and euro.

in the Pacific Rim, Japan’s Nikkei dropped 1.7%, but share prices are up 2.5% in China, where the central bank added liquidity, 1.5% in Australia, 0.7% in Taiwan, 0.4% in New Zealand and 0.3% in Indonesia and Hong Kong. 

European stock markets show gains of 2.2% in Spain, 2.1% in Italy, 1.3% in France, 1.2% in Germany and Britain, and even 1.7% in Russia.

The ten-year Japanese JGB and British gilt yields have risen eight and six basis points, respectively, while the German bund is unchanged.

West Texas Intermediate oil advanced 3.4% and is back above the $50 threshold at $51.23 per barrel.  Comex gold edged 0.3% to $1,280.80 per ounce.

The Reserve Bank of India, which authorized a 25-basis point interest rate cut at an unscheduled policy meeting in January, left the repo  and reverse repo rates unchanged at 7.75% and 6.75%.  Officials felt it prudent to wait and see how the government budget consolidation shapes up and observed that no substantial further information on the disinflationary process had emerged since the cut in January.

Producer prices in the euro area sank 1.0% in December, propelled by a 3.1% plunge in energy and accompanied by a collective 0.2% slide in all other producer prices.  On-year PPI deflation jumped to 2.7% in December from a 12-month 1.6% decline in November.

Britain’s construction purchasing managers index rebounded from December’s 17-month low of 57.6 to a 2-month high of 59.1 in January.

Egypt’s non-oil purchasing managers index (PMI) sank below the 50 no-change line for the first time in six months, printing at 49.3 in January versus 51.4 in the prior two months.

The Saudi non-oil PMI slid to a 2-month low of 57.8 from 57.9, but the UAE non-oil PMI improved to a 3-month high of 59.5 from 58.4.

Australia’s trade deficit narrowed 57% to a much smaller-than-forecast A$ 436 million in December.  Deficits have been posted since April.

The Swiss trade surplus also was more than halved, falling to CHF 1.52 billion in December from CHF 3.80 billion in November.

Building permits in Australia fell 3.3% in December.  Their 12-month rise slowed to 8.8% from 10.2% in November and 11.4% in October.

South Korean CPI inflation held steady at 0.8% in January, but core inflation was three times higher than that pace.

Turkish CPI inflation fell a percentage point to 7.2% in January.  PPI inflation was halved to 6.6%.

Italian consumer prices slid 0.6% between January 2014 and January 2015. 

Romanian producer prices fell 1.4% on year in December, while retail sales posted and end-December to end-December advance of 6.5%.

Scheduled North American data to be released today are U.S. factory orders, NAPM index, and IBD/TIPP optimism index and Canadian producer prices.  Weekly U.S. chain store sales arrive, too.

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

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