More PMI Surveys Reported and a Second Indian Central Bank Rate Cut

March 4, 2015

The Reserve Bank of India sliced its repo, reverse repo and standing facility rates by 25 basis points to 7.5%, 6.5%, and 8.5%.  Like the prior change on January 15, this easing of monetary policy was taken between scheduled policy reviews, creating a big element of surprise.  The latest action was taken in conjunction with an overall of India’s monetary policy framework.  No longer will multiple policy goals be balanced.  Now there’s a single priority, price stability, anchored by the adoption of an inflation target of 4.0% plus or minus two percentage points.  The rate cut today was justified by a faster decline in inflation lately than had been anticipated and by the Modi’s government acceptance of the new policy framework and a need for fiscal consolidation.

In response the the RBI’s surprise easing, the rupee rose, and the Sensex equity index went above 30,000 for a first time, but it subsequently settled back to close 0.7% lower.

In other stock market action, share prices rose 0.7% in China but posted losses of 0.6% in Japan, 1.0% in Hong Kong, 0.5% in Indonesia and Australia and 0.3% in New Zealand.  In Europe, equities have fallen by 1.0% in Greece, 0.7% in Spain, 0.4% in Germany and Italy, 0.3% in Great Britain and 0.1% in France.

Gold is steady at $1,204.20 per ounce.  West Texas Intermediate oil is 0.4% firmer and trading above $50 at $50.74 per barrel.

The ten-year German bund yield firmed two basis points, and its British and Japanese counterparts are each a basis point higher.

The dollar is mixed, with gains of 0.4% against the euro, 0.3% versus the loonie , 0.2% vis-a-vis sterling and 0.1% against the yuan but losses of 0.5% to the kiwi, 0.2% against the Aussie dollar and 0.1% versus the yen.

The U.S. Department of Justice found evidence of systematic racial bias by the police of Ferguson, Missouri.  Today, ironically, is the 150th anniversary of President Lincoln’s famous second inaugural address, a comparatively brief speech that proclaimed a need for healing the nation.  The reprinted final sentence of that address never got a chance to be implemented in the president’s vision, as he was assassinated six weeks later.

With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations.

Australian real GDP advanced 0.5% last quarter, marginally less than forecast.  Consumption rose 0.8%, but the terms of trade contracted by 1.7%.  The year-on-year growth rate slid to 2.5% from 2.7% in the third quarter.  The GDP price deflator fell by 0.2%.

Retail sales volume in the eurozone posted a fourth straight increase and the highest of the streak, gaining 1.1% in January on month and 3.7% on year.  January’s sales level was 1.9% greater than the 4Q mean.

Australia’s service-sector purchasing managers index (PMI) rose 1.8 points last month, printing above the 50 no change line (at 51.7) for the first time in a year.

Japan’s services PMI sank 2.8 points to a lower-than-expected 48.5 reading, worst in four months following three scores above 50.  The composite Japanese PMI also touched a 4-month low, printing at 50.0 in February.

HSBC reported a 0.2-point rise of China’s services PMI to a two-month high of 52.0.  The composite PMI was a 5-month high of 51.8 after 51.0 in January.

The eurozone composite and services PMI readings for February were revised downward relative to their preliminary estimates but still constituted respective 7- and 8-month highs of 53.7 and 53.3.  The data for the first two months of 2015 suggest GDP growth in the first quarter of around 0.3%.

  • Ireland had the best scores in Euroland: a 2-month high of 60.7 in the composite PMI but a seven-month low in services of 61.4.  Ireland seems likely to post growth of 1% in the first quarter.
  • Next was Spain, whose services PMI reading of 56.2 was lower than forecast and down from 56.7 in January.  The composite Spanish PMI of 56.2 was also at a 2-month low.  Spain’s PMI data are consistent with first-quarter growth near 0.7%.
  • Germany’s service-sector PMI was revised downward to 54.7 from a flash estimate of 55.5 but was still the fastest rate of expansion since September’s 55.7 reading.  The German composite PMI was revised to 53.8 in February from 54.3 reported initially but exceeded January’s 53.5 score and was at a 4-month high.  German growth likely slowed to 0.3% in 1Q15.
  • France moved ahead of Italy in the pecking order and provided the most encouraging Ezone development.  Both the composite PMI of 52.2 versus 49.3 in January and the services PMI of 53.4 after 49.4 the month before were the best French performances in 42 months.  French growth in the current quarter is running around 0.2%.
  • Italy’s 50.0 reading on the services PMI was lower than forecast and down from 51.2 in January.  The composite PMI was at 51.0, also below the January reading.  Italian GDP may prove now higher this quarter than 0.1%.  However, for the first time in ten months, the four largest economies in the eurozone had PMI’s above the 50 no change level. 

The British services PMI of 56.7 was lower than forecast and a two-month low despite the second fastest growth in jobs in this data series’ whole history.  The Composite U.K. PMI was unchanged at 56.7 in February.

India’s services PMI hit an 8-month high of 53.9 in February after 52.4 in January and 51.1 in December.  The composite Indian PMI was at a 3-month high of 53.5.

Russia’s latest services PMI reading of 41.3 was down from 43.1 in January and constituted the greatest rate of contraction since March 2009.  The composite Russian PMI, 53.8, was a 69-month low.  The Putin Way is inflicting great harm on Russia’s economy even if it fortifies his popularity.

Hong Kong’s private purchasing managers index rose 1.1 points to a one-year high of 50.7.

South Africa’s PMI was right at the no change level of 50.0, 0.2 points above January’s reading but down from a 22-month high of 52.7 last October.

Sweden’s services purchasing managers index reflected weaker growth than assumed.  It was 56.7 versus 57.9 in January and 55.4 in December.

British shop prices recorded a greater-than-forecast 1.7% on-year decline in February after a 1.3% drop in the year to January.

U.S. motor vehicle sales last month were hampered by weather and averaged 16.23 million, 2.6% less than the month before.

Federal Reserve Chair Yellen gave a speech last night on banking regulation, which was highly critical of the arrogant culture of the biggest banks.

Norway’s current account surplus rose 47% between 3Q14 and the fourth quarter when such was at NOK 66 billion.

Retail sales in Hungary were 8.2% greater than a year before in January, 1.6 times greater than forecast.

The Sentix eurozone break-apart index increased last month by almost 14 point to a 23-month high of 38.

Brazilian industrial output rose 2.0% in January, which didn’t reverse all of December’s decline, and posted an on-year decrease of 5.2%.

On the central banking front in addition to the aforementioned Indian rate reduction of 25 basis points,

  • The Central Bank of Ukraine’s refinancing rate was jacked up to 30.0% from 19.5% to counter selling pressure on the hyvnia.
  • Central bank decisions are due later today from Poland, Canada, and Brazil.
  • The Fed Beige Book survey results of U.S. regional economic conditions will be published.

Investors also await the ADP estimate of U.S. private jobs growth in February and the U.S. service-sector purchasing managers index.  The presidents of the Chicago, Kansas City and Dallas Federal Reserve districts speak publicly.

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

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