Market Reaction to Chinese Monetary Easing

April 20, 2015

The People’s Bank of China slashed its reserve requirement to 18.5% from 19.5%.  The full-percentage point reduction was twice as great as a previous 50-bp cut announced on February 4 and came in reaction to weaker GDP and other data announced last week.  February’s cut had been the first since three 50-bp reductions engineered in the half year to May 2012.

Share prices in the Pacific Rim remained on the offer, with declines of 2.0% in Hong Kong and India, 1.6% in China, 0.8% in Australia, 0.6% in Singapore and New Zealand but just 0.1% in Japan. 

European equities, in contrast, have risen this morning by 1.7% in Germany, 0.8% in Greece and Italy, 0.7% in Great Britain and 0.6% in France.  Little progress in working out a debt deal for Greece was reported from the weekend’s IMF meetings.

The IMF released a new World Economic Outlook, projecting global growth of 3.5% this year followed by 3.8% in 2016.  Advanced economies are collectively projected to expand 2.4% in each year.  Growth forecasts for the United States was revised lower to 3.1% in each year.  Growth in the eurozone was revised upward to 1.5% this year and 1.6% in 2016, and growth in Japan also got revised upwardly to 1.0% followed by 1.2%.  Emerging and developing economies are seen expanding 4.3% in 2015 and 4.7% next year, estimates that match prior forecasts released in January.  However, most emerging markets have a dimmer outlook now than then, the notable exception being projections of 7.5% in India for both years.  This tops projected Chinese growth of 6.8% in 2015 and 6.3% in 2016.  Russian GDP is expected to plunge 3.8% this year, while Brazilian GDP is seen sliding by 1.0%.

Ten-year sovereign debt yields remained unchanged today in Japan, ticked up a basis point in the U.K. and edged a basis point lower in Germany to 0.07%.

West Texas Intermediate oil is 0.5% firmer at $56.00 per barrel.  Comex gold is 0.3% softer at $1,199.20 per troy ounce.

Consumer prices in New Zealand posted back-to-back quarter-on-quarter declines for the first time since 4Q98 and 1Q99.  New Zealand’s CPI slid 0.3% in the first quarter of 2015 and registered an on-year uptick of only 0.1%, least since 3Q99.  Gasoline plunged by 11%.  New Zealand’s March service sector purchasing manager survey results also got released today, showing a 1.6-point increase to 57.6, same as the level in January.

German producer prices rose 0.1% last month, same as the February-over-January result.  Producer prices were 1.7% lower than in March 2014 because of a 4.7% 12-month slide in energy.  All other producer prices were collectively 0.5% weaker than a year before.

The Rightmove index of British house prices went up 1.6% in April, but its 12-month rate of increase slowed further to 4.7% from 5.4% in March, 6.6% in February and 8.2% in January.

Euroland’s construction output fell 1.8% in February, reversing a 1.6% advance in January.  Such had contracted by 0.3% in the fourth quarter of 2015 after consecutive declines of 0.7% in the middle two quarters of the year.  Construction was 3.7% lower in February than a year earlier.

Japan’s tertiary index of service sector activity recorded positive growth in February (0.3%) for the seventh straight month, but was still 0.4% below the February 2014 level. 

South Korean producer prices declined by 3.7% between March 2014 and March 2015. 

Icelandic consumer prices jumped 1.1% in March, cutting the year-over-year rate of decline to 0.1% from 0.8% in the year to February.

Portuguese producer prices increased 0.8% last month, which scaled back the PPI’s 12-month decline to 2.4% from 3.4% in February.

Spain’s trade deficit narrowed 21.5% to EUR 2.04 billion in February, while Greece’s current account shortfall of EUR 929 million was 9.7% wider than in January.

The Chicago Fed National Activity Index arrives today.  After Friday’s dive in U.S. share prices and the mixed results so far today between Asian and European stocks, much attention will be directed upon the U.S. market action at the open.

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

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