An Informing Day with Some Surprises

November 5, 2015

U.S. labor productivity unexpectedly rose last quarter and substantially so at that.  A gain of 1.6% on top of a 3.5% second-quarter increase resulted in a significantly smaller quarter-over-quarter 1.4% climb in unit labor costs.  Nonetheless, the big productivity picture remains soft, with a rise of just 0.4% between 3Q14 and 3Q15 versus 0.8% in the year to 2Q, 0.7% in full calendar year 2014 and no change in 2013.  Unit labor costs increased 2.0% in the year between 3Q14 and 3Q15.

U.S. jobless insurance claims last week exceeded expectations.  New claims rose 16K to 276K, a 5-week high.

Fed Vice Chairman Stanley Fisher said overnight that the U.S. may be near to attaining its 2.0% inflation target than generally realized.  He sees rising inflation once oil and the dollar stabilize.

On this super Thursday for the Bank of England, a flood of information releases had a dovish tone

  • No other policymakers joined hawk Ian McCafferty in favoring an interest rate hike.
  • The quarterly Inflation Report revised near-term growth and inflation downward and laid out a conditional path for the 0.50% Bank Rate that’s about 40 basis points lower than August’s review.
  • CPI inflation is not seen rising above 1.0% versus a 2% medium-term target before the second half of 2016.  2% isn’t reached until 2H17.
  • External factors dampening inflation including a firm pound are persisting.
  • Press conference remarks by Governor Carney expressed no urgency about starting to raise interest rates.

Evidence emerged that the retail sector in the eurozone is softening.

  • Euroland’s retail purchasing managers index dropped 0.6 points to a 4-month low of 51.3.  Germany’s retail PMI of 52.4 in October represented an 8-month low, and Italy’s index slipped below the 50 no change threshold.
  • Eurozone retail sales dipped 0.1% in September after stagnating in August.  France, Belgium, Portugal and Finland each saw sales drop in the month, and German sales were flat.

German industrial orders sank 1.7% in September on top of an even bigger 1.8% monthly drop in August.  Foreign demand plunged 2.4% in the latest reported month, and domestic orders for capital goods, a leading gauge of future business investment, fell 0.5% after plunging 5.9% in August.  Overall orders in September were 1.0% lower than a year earlier.

The German construction PMI swung from a 6-month high of 52.4 in September to a 2-month low of 51.8 last month.

Brazil’s purchasing manager indices exhibit continuing substantial contraction.  The composite PMI stayed unchanged at 42.7, well under the 50 no change threshold.  The services PMI, although firming to a 2-month high, was also quite low at 43.0. 

Russia’s composite PMI (49.0) and service-sector PMI (47.8) in October were both at 7-month lows.

The dollar climbed 1.0% against sterling overnight, reflecting the aforementioned Bank of England revelations.  The dollar otherwise slipped 0.6% against the kiwi and 0.2% versus the euro and Aussie dollar but is up 0.2% vis-a-vis the yuan Swiss franc and 0.1% relative to the loonie.

In stock market action, share prices closed 2.1% higher in China and up 1.0% in Japan as the Nikkei-225 move above 19K.  Stocks fell 0.9% in Australia, 0.8% in Indonesia, and 0.6% in Singapore.  European markets are showing gains of 0.9% in Switzerland, 0.8% in Germany, 1.1% in France but just 0.1% in Britain.

The 10-year British gilt yield fell 3 basis points, while the 10-year Japanese JGB edged up a basis point.  Gold and oil prices are barely changed.

In other central banking news,

  • Romania’s record low 1.75% monetary policy rate was retained.  There were sic cuts totaling 150 bps between September 2014 and May 2015.
  • The Czech National Bank retained a 0.05% 2-week repo rate, its level since a reduction in November 2012.  A year after that, monetary officials imposed an intervention-enforced cap on the koruna at 27 per euro, which today’s policy meeting reaffirmed.
  • The Bank of Norway’s Executive Board kept its record low interest rate of 0.75%.  Reductions of 25 basis points earlier this year were implemented in June and September.
  • Bank Negara Malaysia stuck with a 3.25% overnight policy interest rate, the level since the last of several 25-basis point hikes in July 2014.
  • Reserve Bank of Australia Governor Stevens predicted that an accommodative stance would continue to be pursued for some time.

Euroland’s statistics-gathering agency, Eurostat, published the EU Autumn Economic Forecast, which predicts healthier economic growth of 1.6% in 2015, 1.8% in 2016, and 1.9% in 2018.  The 2015 estimate is a shade higher, but the 2016 forecast is 0.1 percentage point less than forecast last spring.

The Halifax index of British home prices went up 1.1% on month in October, lifting the 12-month increase to 9.7% in August-October versus 7.9% in May-July.

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

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