Report of Weak German Orders and a Difficult Day for the Kiwi

March 5, 2015

The New Zealand dollar sank 1.0% against the dollar and fell to a one-month low against the Australian dollar on the possibility that the Reserve Bank of New Zealand might resort to property market-specific regulatory changes instead of and delaying a near-term interest rate hike.

German industrial orders slumped 3.9% in January, reversing nearly all of December’s 4.4% advance.  Both moves exceeded expectations, as investors were looking for orders to only fall by 1-1.5% in the latter month.  The biggest swing occurred in foreign orders for capital goods, down 6.6% in January after rising 6.5% in December.  The level of orders in January was 0.1% lower than a year earlier and 1.8% below the fourth-quarter mean.

As expected, the Bank of England kept its policy settings — a Bank Rate of 0.5% and a GBP 375 billion limit on the size of asset purchases — unchanged at this month’s Monetary Policy Committee meeting.  Minutes of the meeting will be published on March 18.

Bank Negara Malaysia retained a 3.25% key interest rate as was expected.  Its last change, a hike of 25 basis points, was made last July.

The Central Bank of Brazil as expected lifted its Selic interest rate by another 50 basis points to 12.75%, highest since early March 2009 and up from 11.0% last September and 7.25% prior to April 2013.

Markets now await the ECB statement and subsequent press conference by President Draghi.  ECB quantitative easing starts this month at an asset purchase rate of 60 billion euros to run for 20 consecutive months through September 2016.

The U.S. ambassador to South Korea got attacked by a knife-wheeling assailant while giving a speech and required 80 stitches.  The U.S. Northeast is again experiencing snow in the early commuter hours.

Aside from the sharp overnight advance against the kiwi, the U.S. dollar has risen 0.5% relative to the Swiss franc, 0.4% against the yen, 0.3% vis-a-vis the euro, and 0.2% versus the Australian dollar and sterling.  The greenback is steady against the loonie and off 0.1% relative to the Chinese yuan.  A Deputy Governor of the Reserve Bank of Australia said the Aussie dollar is now closer to an appropriate level but still not quite there.

Beijing officials announced their 2015 economic targets (predictions?), which are growth of “around 7%,” inflation of “about 3%” and a 12% rise in M2 money.  All of those advances would be lower than experienced in 2014.

Share prices fell 1.0% in China, partly in reaction to the dimmer economic outlook, 1.1% in Hong Kong, 0.6% in Singapore and 0.3% in Taiwan and New Zealand.  The Japanese Nikkei rose 0.3%, and stocks are so far up by 0.6% in France, 0.5% in Germany and Italy, 0.3% in Spain and the U.K., and 0.2% in Switzerland.

Greek markets are still marching to a different drum.  Stocks are off 0.1%, and the 10-year Greek bond yield rose another seven basis points while its German, British and Japanese counterparts held unchanged.

Gold dipped 0.1% and just under the $1,200 threshold to $1,199.70 per ounce.  WTI oil jumped 1.4% to $52.25 per barrel.  That’s above the $40-50 per barrel corridor that the so-called experts have been touting as the new trading range.  Next to currencies, forecasting doesn’t get harder than pinpointing the twists and turns of oil.

The dissenting member of the Bank of Japan’s Policy Board, Takahide Kiuchi, explained his objection to last October’s expansion of quantitative easing, asserting that its potential costs exceed any benefits but more importantly revealing a belief that the 2% core inflation target is too high for Japan’s economy.

The German construction purchasing managers index (PMI) climbed 3.6 points to a 3-month high of 53.1 in February.

Retail PMI readings last month for the eurozone are disappointing.  For the whole euro area, such fell 0.2 points to a 5-month low of 46.4.  The French retail PMI printed 0.4 points lower at 43.6, indicating the fastest contraction since September, and Germany’s retail PMI of 51.5 was down from 52.3, showing the slowest expansion pace since October.  Italy’s index recovered 1.1 points to a two-month high but at 42.3 represents a pretty fast contraction rate.

Italian real GDP growth last quarter was unchanged sequentially, same as the preliminary estimate, but revised to a bigger on-year drop of 0.5%.

French unemployment ticked upward to 10.4% last quarter from 10.3% in 3Q.  Greek unemployment of 26.0% in December versus 25.9% in November and 27.3% at end-2013 exceeded analyst expectations.

Dutch CPI inflation inched from zero in January up to 0.1% last month.  Swedish industrial production rose 0.4% in January and 0.8% from a year earlier, beating forecasts.

Japanese stock and bond transactions last week generated a JPY 480 billion net capital outflow, almost four times bigger than the prior week’s outflow.

Filipino CPI inflation edged up to 2.5% in February from 2.4% in January.  Filipino producer prices fell by a greater 4.1% in the year to January.

Australian retail sales grew 0.4% in January, matching expectations, and were 3.1% above a year earlier.  The on-year gain had been 3.3% in December, 4.5% in November and 5.0% in October.  Australia’s trade deficit nearly doubled on month to A$ 980 million in January, as imports revived.

This just in:  The ECB left its interest rate structure unchanged.  Draghi’s press conference starts at 13:30 GMT.  This was one of the out-of-Frankfurt meetings.  The Council met in Nicosia.

U.S. data arriving today include quarterly productivity and unit labor costs, monthly factory orders, and weekly jobless insurance claims. 

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

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