A Focus on Central Banks, Commodities and China

April 21, 2016

The ECB just announced  decisions from today’s third Governing Council meeting of the year.  No further rate changes were enacted.  At the prior meeting on March 10, the refinancing rate was sliced 5 basis points to 0.0%, the deposit rate was moved 10 basis points more deeply into the red to -0.40%, and the marginal facility rate was cut 5 bps to 0.25%.  Several non-standard actions were also unveiled at the March meeting, including a 33% (or EUR 20 billion) expansion of the monthly asset purchases to EUR 80 billion.  The focus now continues to be on the implementation of the March decisions.  A Draghi press conference will follow.

The Swedish krona was well bid today, climbing to a 13-month high against the euro, on news of no change in Riksbank monetary policy.  The central bank repo rate remains at -0.50%.  However, Swedish authorities added another 45 billion kronor to its quantitative easing.  By end-2016, such will reach SEK 245 billion.

Bank Indonesia, which had cut the BI rate by 25 basis points each in January, February, and March, left such unchanged at 6.75% after this month’s policy meeting.

The National Bank of Ukraine reduced its discount rate by three percentage points to 19%, citing lessening inflation risks.  Actions to streamline monetary policy operations were also unveiled.  The previous two key interest rate moves were reductions in August 2015 to 27% from 30% and by a further five percentage points to 22% in September 2015.

Gold jumped 1.2% to $1,259.35 per ounce.  Silver shot up twice that much.  Other commodities are firm too, like copper and soybeans.  West Texas Intermediate crude oil consolidated yesterday’s sharp jump, edging up 0.1% to $44.20 per barrel.  The backdrop to elevated commodities has been lessening concern about China’s economic outlook in the wake of the recent spate of better-than-expected economic data from that economy.  Commodity-market action in turn has buoyed stocks.

Japan’s Nikkei leaped 2.7% to 17,364.  Although the Shanghai composite index closed down 0.7% today, stocks elsewhere in the Pacific Rim rose 1.2% in Australian, 1.6% in Hong Kong, 0.8% in South Korea, 0.5% in Indonesia and 0.4% in Singapore.  But European equities have fallen 0.8% in Switzerland, 1.0% in Greece, 0.5% in the U.K., 0.4% in France, and 0.3% in Germany.  The Spanish and Italian bourses are up 0.2%.

The 10-year British gilt yield increased nine basis points to 1.57%.  Its Japanese and German counterparts are two basis points firmer, and so is the 10-year Treasury futures yield.

The dollar rose 0.4% against the kiwi and 0.2% relative to the loonie.  It’s unchanged against the yen but down 0.3% vis-a-vis sterling, 0.2% against the euro and Aussie dollar, and 0.1% relative to the Swiss franc.  The yuan slipped a bit.

French business sentiment rose two points to a 7-month high of 104 in April.  Such had printed at 103 in the first two months of 2016.

British retail sales volume dropped more than expected in March, declining 1.3% overall in volume terms on month and by 1.6% when excluding purchases of auto fuel.  In the first quarter of 2016, sales volume rose 0.8% from 4Q15 and 3.7% on year.  Volume excluding auto fuel was 0.9% higher on quarter and up 3.3% from the first quarter of 2015.

Britain’s public sector borrowing fell from GBP 83.2 billion in fiscal 2014/15 to GBP 66.7 billion in the fiscal year that ended last month.  Excluding public sector banks, the PSNB declined to GBP 74.0 billion from GBP 91.7 billion.  The public sector net cash requirement fell to GBP 50.3 billion from GBP 76.3 billion in the previous fiscal year.  Public sector debt in March equaled 90.7% of GDP.

Danish consumer confidence in April posted its first monthly improvement of 2016, rising to 5.5 from 3.6 in March and a reading of 4.0 in February.  Danish retail sales in April were 3.1% less than a year earlier, however.

The Dutch jobless rate of 6.4% in March was down from 7.0% a year earlier.

Swiss M3 money grew just 1.8% between March 2015 and last month.  The Swiss trade surplus narrowed 46% on month to CHF 2.16 billion in March.

Japanese supermarket sales in March were 0.3% less than a year earlier.  Japanese stock and bond transactions last week generated a net JPY 968 billion capital inflow, down from an inflow of JPY 2.345 trillion in the first week of Japan’s new fiscal year.

Australian business sentiment printed a point lower at +4 last quarter.  Consumer confidence in New Zealand rebounded 1.7% in April from a 1.4% drop in March.

Scheduled U.S. data releases down included weekly jobless insurance claims, the FHFA house price index, the Philly Fed manufacturing index, and the Conference Board’s index of leading economic indicators.

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

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