Point of No Greek Return Moved to Friday

February 17, 2015

Neither Greek officials nor their creditors have budged.  The creditors want an extension of the bailout under existing terms, while Greece wants a bridge loan with new terms.  The Greek side walked out of today’s discussions, calling the other side’s proposal unacceptable and absurd.  The creditors are giving Greece until Friday to reconsider.  Otherwise, Greece will lose financial support at the end of the month.  Default and/or leaving the eurozone could follow.

Minutes from the Reserve Bank of Australia’s Board meeting earlier this month at which the official cash rate got reduced by 25 basis points to 2.25% show that the decision to ease was finely balanced.  officials continue to be concerned about a possible housing bubble and are watching that market very closely.  A wait-and-see stance for the next three months or so seems likely.

Bank Indonesia surprised analysts with its first rate cut since February 2012.  The BI rate was reduced to 7.5% from 7.75%.  The last cut three years ago put the rate at 5.75%, and officials had increased such by 25 bps as recently as this past November.  At that time, they acted to counter the effect of reduced energy subsidies, but the subsequent plunge in world oil prices enabled the move three months ago to be reversed.  Officials are dissatisfied with prospects for growth and seem willing to risk intensifying downward pressure on the rupiah.

The Bank of Korea left the 7-day South Korean repo rate unchanged at 2.0%.  Such had been cut previously by 25 basis points each in November 2012, May 2013, August 2014 and, most recently, October 2014.  CPI inflation is running at 0.8% and not seen rising until the second half of this year.  There are downside growth risks, but the baseline outlook foresees modest recovery.  Monetary officials resisted another easing now, preferring more time to assess their situation.

The dollar fell overnight by 0.8% against the loonie, 0.7% relative to the Aussie dollar, 0.6% versus the kiwi and euro but just 0.2% and 0.1% against sterling and the Swiss franc.  The dollar rose 0.4% vis-a-vis the yen and 0.1% against the yuan.

Share prices in the Pacific Rim rose 0.7% in China, 0.4% in Taiwan and 0.2% in India and South Korea, but there were declines of 0.5% in Australia, 0.3% in Singapore, and 0.1% in Japan, and New Zealand.  Greek share prices tumbled another 2.5%, and the German Dax (-0.3%) and Paris Cac (-0.1%) are also lower.  But stocks have risen 0.7% in Milan, 0.2% in Madrid, and 0.4% in London.

Ten-year sovereign debt yields fell four basis points in Japan but rose two bps in the U.K. and a basis point in Germany.  U.S. markets reopen today after the President’s holiday weekend.

West Texas Intermediate oil climbed 0.8% to $53.20 per barrel.  Comex gold is 0.5% softer at $1,221.40 per troy ounce.

British inflation decelerated marginally further last month than anticipated.  On-year consumer price inflation dropped to 0.3% from 0.5% in spite of a 0.1 percentage point uptick in core CPI to 1.4%.  RPI and RPIX inflation, the former targeted inflation gauge, slipped by 0.5 percentage points to 1.1% and 1.2%.  Producer output prices declined 0.5% from December and by a greater-than-forecast 1.8% from January 2014, and producer input prices plunged 3.7% on month and 14.2% on year. 

British house price inflation, according to the ONS measure, eased less than assumed in December to 9.8%, even thought a month-on-month increase of 0.7% was the most since August 2011.

The German ZEW Institute’s gauge of investor expectations toward Germany advanced to a 12-month high of 53.0 in February from 48.4 in January and negative 3.6 as recently as October.  The reading for current conditions doubled to +45.5, best since last July.  The ZEW expectations index for the eurozone rose to 52.7 in February from 45.2 in January, while current conditions there was less deeply in the red at minus 48.4 after -57.1 the month before.

In January, property prices registered a ninth consecutive monthly decline in China, down 0.4%, and fell by a larger 5.1% from a year before.  64 of 70 cities saw on-month declines, and the year-over-year change was a drop in all by one of the cities.  Business sentiment in China fell to a reading of 52.8 this month from 53.7 in January and 56.2 in November.

Despite a solid 4.9% quarterly advance, on-year GDP growth in Singapore slowed to 2.1% in 4Q14.

Producer prices in South Korea fell 3.6% on year and 1.2% on month in January.  Hong Kong’s jobless rate stayed level at 3.3% in November-January.

January’s drop of 1.1% on month in Swedish consumer prices was not quite as great as anticipated, and the 12-month rate of decline narrowed to 0.2% from 0.3% in December.  Core inflation ticked up 0.1 percentage point to 0.6%.  The Swedish Riksbank adopted a negative repo rate earlier this month to counter disinflationary forces.  Greek consumer prices plunged 2.8% between January 2014 and January 2015.  Officials there are understandably saying no to continuing austere demand management.

Italy recorded a EUR 13.03 billion trade surplus last quarter versus EUR 10.26 billion in 3Q and EUR 9.8 billion per quarter in the first half of the year.

Factory jobs in Germany rose 1.0% in 2014.

The United States releases the NAHB housing market index, the Empire State manufacturing index, and monthly capital flows today.

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

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