Investor Sentiment Spooked by Fed Official Rhetoric

March 24, 2016

Led by oil, commodity prices have dropped.  West Texas Intermediate crude oil dropped 2.5% to $38.81 per barrel after indications of rising U.S. inventories.  Comex gold edged 0.1% lower to $1,218.83 per ounce.

The Shanghai Composite index of Chinese share prices fell 1.6%, most in two weeks.  Equities closed down 1.3% in Hong Kong, 1.1% in Australia, 1.2% in Singapore and 0.6% in Japan and Indonesia.  In European bourse trading, stocks show losses today of more than 1.0% in the U.K., France, Germany, Switzerland and Italy.

The suggestion by Fed officials such as Chicago Fed President Evans that the federal funds rate might be hiked as early as next month buoyed the dollar by 0.5% versus the Australian dollar,  0.4% against the yen, 0.3% relative to the euro, yen and kiwi, and 0.1% vis-a-vis the yuan and Swiss franc.  Emerging market currencies have been depressed even more sharply, with several key ones off around 1.0% compared to the U.S. dollar.

The 10-year British gilt yield is two basis points lower, while the 10-year Japanese JGB rebounded three basis points to -0.09%.

The Central Bank of the Republic of China followed up interest rate cuts last September and December with a third straight 12.5-basis point cut of the Taiwanese discount rate to 1.50%.  The move in part is meant to counter upward pressure on the local currency from capital inflows.

Turkey’s central bank officials sliced 25 basis points off the overnight lending rate to 10.5%, but kept the overnight borrowing rate at 7.25% and the one-week repo rate unchanged at 7.5%.  A lessening need was seen for a wide interest rate corridor.

The monthly ECB Bulletin played down the policy influence of core inflation.  Total consumer prices, which fell 0.2% in the year to February and 0.3% in the previous 12 months to February 2015, continues to be the main guide to monetary policy decisions.

The Confederation of British Industries released its monthly distributive trade survey, showing a March reading of +7, which matches the low in November.  That in turn had been the weakest outcome since mid-2014. U.K. retail sales volume fell 0.4% on month in February (-0.2% excluding auto fuel), cutting the 12-month increase by 1.6 percentage points to 3.8%. BBA data showed a 2.2% monthly decline in British mortgage approvals to 45,892 in February.

German consumer confidence fell back 0.1 point to 9.4 in April.  That’s been its value in four of the past six months.

German import prices sank 0.6% on month, led by a 3.8% slump in energy.  An on-year 5.7% plunge in import prices was the most since October 2009.  Export prices slipped 0.5% on month and 1.2% on year. 

French business sentiment slipped a point to a 100 reading in March.  The manufacturing sentiment index fell two points to 101, and services dropped a point to 99.

Retail sales in Italy were unchanged in January and 0.8% below their year-earlier level.  Italian industrial orders and sales were 0.1% above and 0.3% below their January 2015 levels.

Dutch on-year consumer spending slowed for a fourth straight month to a mere 0.3% in January.

Swedish producer prices fell 4.2% in the year to February, their biggest on-year decline in 33 months.  Finnish producer prices dropped 4.1% in the same span, led by an 8.5% drop in import prices.

Czech economic climate index fell 0.4 points to 11.9 in March on top of a 1.5-point slide posted in February.  Business and consumer confidence both fell.

The New Zealand trade surplus widened to NZD 339 million last month from NZD 13 million in January, but the past dozen months experienced a NZD 3.32 billion trade deficit.

Scheduled U.S. data today are monthly durable goods orders, the K.C. Fed manufacturing index, and weekly jobless insurance claims.

Some markets will close early for the long Good Friday/Easter holiday.

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

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