Dovish Remarks from a Federal Reserve President

February 17, 2016

Boston Fed President Eric Rosengren gave a speech overnight that warned of long-lasting effects on inflation from the plunge of energy prices and predicted that such could impeded efforts to raise U.S. interest rates.  Rosengren is one of the more dovish FOMC members.

ECB Governing Council member Nowotny of Austria struck a very different tone, calling the magnitude of stimulus that the market expects to be unveiled by the European Central Bank next month ludicrous and saying its far to soon to know the long-term effect of recent financial market turmoil and the slowdown in emerging markets.

The rally in European stocks was extended especially in the financial sector.  Currently stocks are up 4.1% in Greece, 2.2% in Italy, 2.1% in France, Germany and Spain, 1.7% in the U.K. and 1.3% in Switzerland.

Many articles in the press this week have declared the adoption of negative interest rates in Japan and Abenomics more generally to be a failure.  Since January 29 when the Bank of Japan Board made the historic decision, the Nikkei has declined 3.8%, and the yen has climbed 4.0% against the dollar.  And in the eleven calendar quarters following the myriad of policies under the Abenomics label were first launched, real GDP grew just 0.3% at an annualized rate, and nominal GDP went up 1.7% annualized.

The Chinese yuan’s sharp 1.2% appreciation on Monday, its biggest daily rise since July 2005, was trimmed on both Tuesday and today.  China’s currency fell 0.3% yesterday and another 0.2% today against the dollar.

The U.S. currency is otherwise down 0.6% against the loonie, 0.3% versus the Aussie dollar, 0.2% relative to the kiwi and euro and 0.1% vis-a-vis sterling, but it has risen 0.3% against the yen and Swiss franc.

In stock market action around the Pacific Rim, there were declines today of 1.4% in Japan, 1.1% in Hong Kong, 1.2% in Singapore and 0.6% in Australia but rises of 1.1% in China and 0.8% in India.

West Texas Intermediate oil has been slipping during U.S. trading hours but recovering in after hours.  Such is 2.4% higher than Tuesday’s close but still below $30 at $29.74 per barrel.  Comex gold edged up 0.3% to $1,204.27 per ounce.

Ten-year British gilt and Japanese JGB yields have firmed 3 basis points each, while the 10-year German bund slipped a basis point further to 0.25%.

The U.S. Treasury late Tuesday released its compilation of capital flows for December and full-2015.  Long-term net inflows last year amounted to $320.2 billion, up from $275.3 billion in 2014 and a huge swing from a net outflow in 2013 of $230.6 billion.  But a broader measure of net capital flows that includes short-term as well as long-term assets showed a net outflow of $86.3 billion last year including $114.0 billion in December alone.  On this basis, net capital inflows were posted of $247.4 billion in 2014 and $132.9 billion in 2013.

Core domestic private Japanese machinery orders rose 4.2% in December, close to expectations, and 4.3% last quarter, which beat expectations.  An 8.6% increase is expected by officials in the first quarter of 2016.  Foreign machinery orders last quarter climbed 8.0%, but public-sector orders dropped 11.2%.

Japanese machine tool orders fell 17.2% on year in January, matching the preliminary estimate.  An even greater 22.1% on-year decline occurred in 4Q15.

Construction output in the eurozone declined 0.6% in December, their first monthly decrease since September.  Construction output was also 0.4% smaller than its year-earlier level.

The latest batch of British labor statistics showed 1) a 14.8K January decline in jobless claims, which exceeded street expectations; 2) on-year growth in total average weekly earnings of 1.9% last quarter and 2.0% on regular pay, which excludes bonuses; and 3) an unchanged ILO jobless rate in 4Q of 5.1%.

The Swiss ZEW expectations index weakened 2.9 points to -5.9 in February from readings of -3.0 in January and +16.6 in December.

South African CPI inflation accelerated a percentage point to 6.2% in January.

Greek consumer prices in January were 0.7% lower than a year earlier.

Taiwanese GDP fell 0.5% between the final quarters of 2014 and 2015.

FOMC minutes from the Fed’s January policymaking meeting will be released at 14:00 EST (19:00 GMT).

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: , ,


Comments are closed.