Memorial Day Weekend Finds Spotlight on BOJ, China and Germany

May 22, 2015

U.S. markets will be closing early ahead of the Memorial Day Weekend.

The dollar strengthened overnight by 0.8% against the euro and Aussie dollar, 0.7% relative to the Swiss franc and loonie, and 0.2% vis-a-vis the yen and sterling.  The kiwi is unchanged.

West Texas Intermediate oil fell back under the $60 threshold to $59.82 per barrel, 1.5% lower on balance.  Comex gold is unchanged at $1,203.80 per troy ounce.

The ten-year U.S. Treasury yield is three basis points higher, but its British and German counterparts have slipped by 3 and 2 basis points, respectively.  The 0.41% JGB yield is up 1 bp.

Share prices rose 2.3% in China, 1.7% in Hong Kong but only 0.3% in Japan.  U.S. stocks are little changed.  Share prices have firmed 0.6% in the U.K. but are down 0.7% in Greece heading into another weekend.  Small losses have occurred in the German and Spanish markets.

The Bank of Japan left policy settings unchanged and issued rhetoric to discourage speculation it will be easing further.  The central bank upgraded its assessment of the economy.

Revised German GDP figures confirmed a 0.3% quarterly growth rate in 1Q.  GDP was 1.1% greater than a year earlier (+1.0% when adjusted for variations in the number of business days).  GDP had climbed by 2.4% during the previous four quarters to 1Q14.

The German IFO Institute’s business climate index edged down 0.1 point to 108.5 in May.  While current conditions rose another 0.3 points, the expectations sub-index fell back 0.4 points, widening the yawning gap between the two series.  The IFO climate index of services rose sharply to a reading of 25.8 in May from 22.9 in April.

Eurozone consumer confidence weakened to a 3-month low of -5.5 in May from -4.6 in April and -3.7 in March.

Belgian consumer confidence rose three points to -3 in May, a 4-year high.  Dutch consumer confidence climbed another 2 points to +2, near to a 7-year peak in May.

But New Zealand consumer sentiment softened in April.

The French and Spanish indices of leading economic indicators advanced in March by 0.4% and 0.3%, respectively, according to the Conference Board.  Their indices of coincident economic indicators were flat and up by 0.3%, respectively.

China’s index of coincident economic indicators stagnated in April.  A 1.1% advance in China’s index of leading economic indicators did not quell mounting speculation about increasing macroeconomic stimulus.  Such has underpinned a revival in the economy’s stock market.

French business sentiment improved to a reading of 103 in May, best since August 2011, from an upwardly revised score of 102 in April.  Italian industrial orders were 2.7% greater in March than a year earlier, but Italian retail sales in the same span of time fell by 0.2%.

ECB President Mario Draghi speaking at a conference in Portugal once again urged bolder steps on structural reform to boost regional potential growth and to enable monetary policy to normalize eventually.  At the same venue, Fed Vice Chairman Stanley Fisher presented a cup-half-full picture of Europe but opined that stronger economic growth in Europe is needed to ensure long-term survival of the common currency.

San Francisco Fed President John Williams made hawkish remarks, favoring early but gradual hikes in the federal funds target.

U.S. consumer prices edged up 0.1% last month, the least since January, and posted a bigger on-year decline of 0.2%.  Core inflation remained at 1.8%.  After rising 1.1% in March on month, energy prices fell 1.3% in April and by 19.4% from a year earlier.  Food costs were flat on month but 2.0% higher than a year earlier.

Canadian consumer prices dipped 0.1% in April on month following seasonally adjusted increases of 0.2% in February and 0.3% in March.  On-year inflation slowed to 0.8%, lowest since October 2013.  Core inflation eased to 2.3%.

Canadian retail sales posted a much greater-than-forecast 0.7% increase in March, boosting the 12-month rate of increase to 3.1%.  Auto sales were 7.8% higher than a year before, while other retail sales went up by 1.7%.

The South African Reserve Bank released a hawkish statement implying tighter policy before too much longer but kept its repo interest rate at 5.75%, the level since a 25-basis point hike last July.

Britain’s GBP 6.04 billion public-sector net government borrowing in April was very similar to the size in March.

Icelandic wage inflation slowed to 5.2% in April from 5.6% in March.  Dutch consumer spending rose 1.9% in March compared to a year earlier.

Malaysian CPI inflation doubled to 1.8% in April from 0.9% in March.

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

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