Chinese Central Bank Reserve Requirement Cut on Leap Year Day

February 29, 2016

The People’s Bank of China lopped another 50 basis points off its deposit reserve requirement ratio to 17.0%.  Five reductions in 2015 had reduced such to 17.5% from 20.0%, but the fifth of these was done five months ago in late October.  This kind of stimulus risks exposing the yuan to greater selling pressure.

The dollar appreciated 0.2% overnight against China’s currency, and the Shanghai composite share price index slumped 2.9%.

The dollar otherwise rose 0.9% against the kiwi, 0.6% relative to the Swiss franc, 0.5% versus the euro and 0.3% vis-a-vis the loonie.  Sterling is unchanged against the dollar.

The strongest major currency has been the yen, up 0.8% relative to the dollar, and the Nikkei-225 has lost 1.0%.  Currency strength hurts exports and generates deflationary pressure.

Share prices closed down 1.6% in Hong Kong, 0.7% in India, 0.4% in New Zealand and 0.2% in South Korea.  In Europe, the German Dax is down 1.0%, but stocks are up 3.0% in Greece, 0.5% in Spain and 0.4% in Italy.

The ten-year British gilt yield is down 3 basis points.  Its Japanese countrpart is up a basis point.

Gold and oil are 0.4% and 0.5% firmer at $1,228.17 per ounce and $32.84 per barrel.

Japanese data released today showed

  • A 3.7% on-month increase in January industrial production following a 1.7% decline in December.  The monthly bounce was not as large as in January 2015, so the 12-month rate of decline widened sharply to 3.8%.  METI officials retained the view that production is moving indecisively sideways.
  • Total retail sales dropped 1.1% seasonally adjusted between December and January and posted a 12-month dip of 0.1%.  Large store sales were 1.0% higher than a year earlier.
  • Motor vehicle output recorded a 5.8% plunge between January 2015 and last month, which was more than twice the size of December’s on-year drop.
  • Housing starts were only 0.2% higher in January than a year earlier.
  • Following a 14.8% on-year advance in December, construction orders posted a 13.8% decline in January.

The flash consumer price release for Euroland showed a 0.5 percentage point drop to negative 0.2% in on-year inflation.  Such was negative for the first time since September.  Consumer prices had previously declined 0.3% between January 2014 and January 2015.  This report should cement the case for more stimulus getting announced at next month’s ECB press conference.

German retail sales volume advanced 0.7% in January, about twice as much as expected, but was 0.8% lower than a year earlier.  January sales were 1.2% above the 4Q15 mean, however.

German import prices sank 1.5% in January, widening the year-on-year drop to 3.8% from 3.1% in December.  Imported energy plunged 25.2% on year and 11.6% on month.  Export prices were 0.5% lower than in January 2015.

Greek GDP growth last quarter got revised from a 0.6% contraction to a 0.1% uptick.  GDP had dropped 1.2% in 3Q and still recorded an on-year slide in the final quarter of the year.  In the year to December, Greek retail sales edged 0.4% higher, but producer prices fell 7.3% in the year to January.

A bunch of Nordic country national income accounts were released.  Swedish GDP growth last quarter of 1.3% versus 3Q and 4.5% from a year earlier surpassed expectations.  Danish real GDP only rose 0.6% between the final quarters of 2014 and 2015.  Finnish GDP also went up 0.6% on year.

In the year to January, Icelandic producer prices dived 9.6%, Norwegian retail sales volume edged 0.5% higher, Hungary’s PPI fell 1.7%, and Irish retail sales leaped 10.3%.

Polish GDP grew 3.9% in the year between 4Q14 and 4Q15, while Portuguese real GDP increased 1.3%.

Italian consumer prices slipped 0.2% on month and 0.3% on year in February, undershooting analyst forecasts.

Switzerland’s index of leading economic indicators kept rising to a reading of 102.4 this month from 100.4 in January and 96.8 in December.

British M4 money grew 0.8% in the year to January. 

South Korean business sentiment fell 2 points to a reading of 65 for March, its most depressed level since May 2009.

Expected Australian inflation slipped 0.2 percentage points to 2.1% this month, which is close to the bottom of the central bank target range.  In the year to January, Australian M3 money and private sector credit posted gains of 6.5% each.

New Zealand building permits plunged 8.2% last month, and the NBNZ index of New Zealand business sentiment hit an air pocket, falling to 7.1 from 23.0.

Producer prices in Singapore posted their largest on-year drop in January (6.6%) in 20 months.

Thailand’s current account surplus narrowed to $4.066 billion in January from $4.879 billion the month before, and industrial output in that economy was 3.3% lower in January from a year earlier.  Producer prices in Malaysia dropped 4.4% on year in January. 

The Canadian current account deficit last quarter of C$ 15.379 billion was very similar to that of C$ 15.312 billion in the third quarter, but the 2015 deficit of C$ 65.714 billion 46.4% greater than 2014’s deficit, thanks to a C$ 28.4 billion deterioration in the trade balance of this commodity-intensive economy.

Canadian producer prices increased 0.5% on month in January and 1.7% on year, doubling December’s 12-month pace.

The Milwaukee ISM purchasing managers index continued impressive improvement, rising to 55.22 in February from 50.36 in January, 48.53 in December, 45.3 in November 46.7 in October and 39.44 in September.

U.S. data still to come:  the Chicago PMI, pending home sales, the Dallas Fed manufacturing index, and the NAPM index.  A slew of manufacturing purchasing managers surveys get reported tomorrow.

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

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