Yellen Put to the Rescue

March 30, 2016

Markets continued to react Wednesday to Fed Chair Yellen’s speech and Q&A yesterday, which stressed continuing external downside risks to future U.S. growth and the need therefore for a very cautious approach to interest rate tightening.  Her comments counterbalance a slew of remarks by other Fed officials in recent weeks that suggested the risks were diminishing and that market may not be pricing in enough rate normalization this year.  Every voting FOMC official has an equal vote in policy decisions, but not all committee members exert similar influence.  It’s very rare when a policy vote is not consistent with the chair-person’s predisposition.

Share prices today in the Pacific Rim rose 2.8% in China, 1.9% in Singapore, 1.8% in India, 2.3% in Hong Kong and 1.4% in Taiwan.  In Japan where the largest on-month decline in industrial production over 59 months was reported, the Nikkei bucked the trend and fell by 1.3%.  European stocks show gains of 2.8% in Greece, 1.9% in France, 1.6% in Germany and Britain, 1.5% in Italy and 1.2% in Spain.  U.S. equities opened sharply higher.

The dollar lost more ground, falling 1.2% against the kiwi to a 9-month low, 0.6% versus the loonie and Aussie dollar, 0.5% relative to the yuan, 0.3% vis-a-vis the Swiss franc, 0.2% against the euro, and 0.1% relative to the yen and sterling.  Emerging market currencies experienced plenty of relief.  The Turkish lira touched a 4-month high, the ringgit and won advanced over 1.0% and the ruble and rand were well-bid.

The U.S. 10-year Treasury and British gilt yields rose 3 and 1 basis points.  The 10-year German bund is a basis point lower at 0.13%, and the 10-year Japanese JGB is unchanged at minus 0.10%.

West Texas Intermediate oil has risen 1.8% to $38.95, breaking a multi-session string of sharp declines.  Comex gold is 0.6% lower at $1,234.22 per troy ounce.

ADP 200K estimate of U.S. private jobs growth in March turned out marginally above street expectations.

German CPI inflation, which had dropped 0.5 percentage points to zero in February, rose more sharply than expected in March to 0.3%, matching the end-2015 figure.  Energy deflation increased to an on-year drop of 8.9% from 8.5%, but service sector consumer price inflation climbed 0.7 percentage points to 1.6%.  The harmonized CPI rate, which conforms to measurement standards of other EU economies, rose 0.3 percentage points but was still very low at +0.1%.  The German data suggest that the ECB might not have to be quite so aggressive in its coming stimulus.

Eurozone economic sentiment fell 0.9 points to a reading in March of 103.0, lowest since February 2015 and down from 106.6 in December.  Consumer confidence and industrial confidence also dropped to 13-month lows, while the services sector sentiment and construction posted 8- and 6-month lows.  Retail sector sentiment edged up 0.4 points, however, to a 2-month high.

The Asian Development Bank downgraded projected GDP growth in developing Asia by 0.3 percentage points to 5.7% this year and predict a similar pace in 2017.  By 2017, the ADP expects growth in India to be 1.5 percentage points greater than that in China.

Japanese industrial production plunged 6.2% in February and was 0.9% lower on average in January-February than last quarter’s mean level.  Industrial shipments fell 4.6%, and the ratio of inventories to shipments increased by 0.5%.  The data were worse than expected.

Japanese motor vehicle production recorded a third straight on-year drop in February, dropping by 6.9% after declines of 5.8% in January and 2.3% in December.

Building permits in New Zealand jumped 10.8% last month, the biggest February advance in a dozen years

The Chinese consumer confidence index calculated by Westpac and the government jumped 6.1% in March.  That was a 6-month high and the second best advance in 22 months.

The UBS Swiss consumption indicator increased 0.08 points to 1.53 in February, but the KOF index of Swiss economic indicators dipped 0.1% in March.

Portuguese consumer confidence printed at -11.3 for a second straight month in March.  That’s up from 014.1 in December.  Portuguese business sentiment improved 0.3 points to a reading of 1.0%.  Between February 2015 and February 2016, Portuguese retail sales and industrial output went up 3.5% and 1.1%. 

Irish retail sales leaped 11.0% in the same 12-month interval.  Icelandic CPI inflation slowed to 1.5% in March from 2.2% in February.

In the year to February, Greek producer price deflation deepened to -11.4% from -7.3%, but Austria’s PPI drop of 2.1% was less than posted in January.

Austria’s purchasing managers survey of manufacturers rose 0.9 points to a 5-month high of 52.8 in March.

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


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