Eroded Confidence in Central Banks

June 16, 2016

The yen leaped as high as 103.55 per dollar from 105.95 at the Wednesday close following the Bank of Japan’s decision not to change policy settings at its June meeting.  The Nikkei tumbled 3.1% to 15,434, and the 10-year JGB yield is at -0.21%.

Investors were bummed out by Janet Yellen’s press conference yesterday.  While her remarks were dovish and taken on the whole to mean a July rate hike is doubtful, she suggested that factors behind sluggish growth and very low long-term interest rates may persist.

As a safe haven, the dollar rose 0.8% against the loonie, 0.7% reltive to the euro, Aussie dollar and sterling, and 0.6% versus the Swiss franc.

Stocks fell 1.3% in Taiwan, 2.2% in Hong Kong, 0.9% in South Korea, 0.8% in India and are down 0.7% in Germany and 0.6% in the U.K..

Among commodities, gold rose 1.5% to $1,307.50 per ounce, but oil dropped 1.4% to $47.33 per barrel.

The 10-year Treasury yield in futures is down to 1.56%.  The 10-year German bund is under zero at -0.02%.

The Swiss National Bank and Bank of England also held policy reviews today.

  • The SNB retained -1.25 to -0.25% target on 3-month Swiss Libor, a sight deposit target of negative 0.75%, and a threat to intervene as needed.
  • The BOE kept a 0.50% bank rate but warned that a vote to leave the EU could materially alter the appropriate monetary policy settings depending on the relative magnitude of the demand, supply and exchange rate effects.

Opinion polls suggest that British voters will choose to leave the EU in the June 23 referendum.

Bank Indonesia’s BI rate was sliced to 6.50% from 6.75%.  This follows 25-bp rate cuts in March, February, January, and February 2015.

Eurozone consumer prices rose 0.4% in May but fell 0.1% on year.  Core inflation edged up 0.1 percentage point to 0.8%, and energy costs leaped 1.7% on month.

British retail sales volume surpassed expectations in May, rising 0.9% on month and 6.0% on year.

Scheduled U.S. releases today include consumer prices, the NAHB housing index, the quarterly current account, the monthly Philly Fed manufacturing index, and weekly jobless insurance claims.

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

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