A Focus on Central Banks

September 7, 2016

Money markets are discounting only a one in four likelihood that the fed funds rate gets hiked on September 21 despite hawkish remarks overnight from San Francisco Fed President John Williams, who voiced confidence in current U.S. economic conditions and opined that moving sooner is better than doing so later.

The Fed’s Beige Book of regional economic conditions will be published this afternoon.

The ECB Governing Council meets tomorrow. Opinion of analysts is split over the chance of further stimulus being announced, and the countries in Europe have taken varying positions on the matter. New forecasts will be unveiled.

The Swedish Riksbank did not cut its negative 0.50% repo rate any further, nor did officials there expand their asset buying program. The lack of augmented quantitative stimulus suggests that Riksbank officials do not anticipate any dramatic initiatives from the ECB.

The Bank of Canada held a policy meeting and will announce its decision in about an hour. The overnight rate target of 0.5% since July 2015 is unlikely to get cut.

Following up on a reduction of the Turkish overnight lending rate last month, officials at the Central Bank of the Republic of Turkey sliced 50 basis points off reserve requirement ratios to augment financial market liquidity.

Malaysia’s monetary authorities, who had cut their policy interest rate in July for the first time in seven years, left such at 3.0% as expected after the latest policy meeting. The July reduction was from 3.25%, which had prevailed for the preceding two years.

Polish monetary policymakers retained a policy reference interest rate of 1.5%. It’s been at that level since a cut of 50 basis points in March 2015.

The dollar rose 0.3% against sterling in response to disappointing British data. Industrial production edged up just 0.1% for a second straight month in July, and factory output, down 0.9% on month, posted the largest slide in 12 months. On-year British house price inflation, according to the Halifax index, slipped 1.5 percentage points to 6.9% in June-August, the lowest pace in at least a year.

The dollar otherwise is on its back foot as investors prepare for a longer wait before seeing a second Fed tightening. The U.S. currency particularly fell against emerging market currencies like the won. Other losses amount to 0.9% against the kiwi, 0.5% relative to the yen and 0.1% vis-a-vis the yuan and Swiss franc. The dollar firmed 0.1% against the euro and loonie.

In stock market action, Japan’s Nikkei dropped 0.4%, and the markets in Hong Kong, South Korea and India closed down 0.2%. Equities have climbed 1.1% in Italy and 0.9% in Spain but just 0.4% in Germany and 0.2% in France. The British Ftse is flat.

WTI oil is back below $45 after touching $45.25 earlier overnight. Gold has dipped 0.2%, but industrial metals continued to rally.

German industrial production sank 1.5% in July and was 1.0% lower than the 2Q average and 1.2% below its year-earlier level. Factory output slumped 2.3% on month, led by drops of 3.0% in capital goods and 2.6% in consumer goods.

Norwegian industrial production and factory output respectively rose 0.5% and fell 0.6% between July 2015 and July 2016.

The French current account deficit tripled in size to EUR 2.6 billion in July from EUR 0.8 billion in June.

Finnish exports plunged 13% in the year to July, causing the trade deficit to balloon to EUR 245 million that month from EUR 4 million in July 2015.  There was a EUR 1.3 billion January-July deficit versus a EUR 262 million surplus a year earlier.

Australian GDP slowed to a quarterly pace of 0.5% in 2Q, lowest in a year, from 1.1% in the first quarter and 0.7% in the final quarter of 2015. Investment was unchanged from the 1Q level, and the terms of trade was 5.4% below its year-earlier level.

New Zealand’s manufacturing activity index rebounded 2.8% last quarter from a 0.7% slide in 1Q.

Japan’s index of leading economic indicators fell 0.7% in July. Although the index of coincident economic indicators printed somewhat higher in July than June, its trend earned the designation by officials of “weakening” for the fifteenth straight time.

Japanese international reserves sank $8.7 billion in August to $1.256 trillion.

Brazil is closed, observing Independence Day.

The Labor Department’s Jolts index arrives today. U.S. mortgage applications rose 0.9% last week as the 30-year fixed mortgage rate dipped a basis point.

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

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