Significant Further Drop in Sovereign Debt Yields
February 8, 2017
Ten-year sovereign debt yields are down five basis points in Germany, Spain, Italy and the U.K. and by 3 bps in U.S. Treasury futures.
The dollar firmed 0.1% against the euro overnight but is otherwise slightly lower, having slipped 0.4% against the yen, 0.3% relative to the Canadian currency and Mexican peso, 0.2% against the yuan and Aussie dollar and 0.1% vis-a-vis the Swiss franc. Sterling is steady.
In the Pacific Rim, equities rose 1.0% in Hong Kong, 0.5% in Japan and Australia and 0.4% in China but fell 0.5% in South Korea and 0.4% in Indonesia. European stocks have thus far dropped 1.8% in Grece, 0.6% in Italy, and 0.2% in the U.K., Germany and Switzerland.
West Texas Intermediate crude oil declined another 0.7% to $51.79 per barrel and is $2 lower than a week ago. Comex gold climbed 0.4% to $1,241.60 per ounce, almost $92 higher than at the end of 2016.
A member of the Bank of England monetary policy committee, Kristen Forbes, suggested that an interest rate hike may become necessary if growth and inflation continue to outstrip the central bank’s baseline forecast. The rate was halved and quantitative stimulus injected last summer in the wake of the Brexit referendum.
ECB President Draghi yesterday defended the continuing need for monetary policy stimulus.
The Bank of Japan “summary” of its January 30-31 meeting projected faster-than-potential growth but said inflation is not responding to such immediately because of the “adaptive” nature of inflation expectations.
The Reserve Bank of India did not cut its 6.25% repo rate or its 5.75% reverse repo rate further as many analysts were anticipating and released a less dovish statement than its previous one.
Iceland’s central bank kept its 7-day repo rate at 5.0% as expected. There had been a quarter percentage point reduction in December. Officials project solid growth and strengthening demand-pull inflation that warrants a somewhat tight stance.
The Bank of Thailand retained a 1.5% key interest rate, the prevailing level for the past 22 months. The vote, as in the case of the Reserve Bank of India, was unanimous. Inflation has bottomed, is now back in target and will likely firm further.
The National Bank of Poland also kept its reference rate at 1.5% as was expected.
An federal appeals court heard arguments yesterday to reinstate President Trump’s selective immigration ban covering seven Islamic countries but notably not Saudi Arabia. A ruling as soon as today is generally not expected. Meantime, the president is winning most skirmishes with his political opponents especially anything decided in the Congress. That’s likely to continue.
Several Japanese economic indicators were reported:
- The JPY 1.112 trillion current account surplus in December was 18.3% wider than a year earlier. Exports climbed 6.6%, while imports fell 3.3%.
- December’s seasonally adjusted current account surplus was JPY 1.67 trillion, a little less than the JPY 1.73 trillion monthly average in September-November. Exports and imports rose 4.4% and 6.6% on month.
- The current account in 2016 equaled JPY 20.65 trillion, 26% greater than in 2015, with imports (-16.6%) contracting twice as fast as exports.
- The customs clearance trade balance posted a JPY 1.11 trillion deficit in in the first twenty days of January, which is the seasonally weakest month of the year.
- Stock and bond transactions generated a net JPY 2.67 trillion net capital outflow in January.
- Bankruptcies in January were 10.37% fewer than a year earlier versus an on-year increase of 1.57% in December and a 2.53% drop in November.
- The economy watchers index, a gauge of activity perceived by service sector workers like cab drivers, relapsed to a 3-month low of 49.8 in January after above-50 readings in the final two months of 2016.
- On-year growth in bank loans of 2.5% in January was similar to increases of 2.4% in 4Q16 and 2.1% in the third quarter of last year.
U.S. December trade data reported yesterday showed a similar deficit in full-2016 to that of 2015. Bilateral merchadise trade deficits against China and Euroland narrowed by 5.5% and 4.6% to $347 billion and $126 billion. That with other nations of North America (mainly Mexico and Canada and what’s affected by NAFTA) shrunk 2.4% to $74 billion. The $69 billion deficit with Japan was virtually unchanged.
The Bank of France’s monthly manufacturing sentiment index slipped a point unexpectedly to a score of 101 in January, while sentiment in the service and construction sectors was steady. Officials at the BoF expect GDP to expand 0.3% this quarter.
Business insolvencies in Germany were 10.8% smaller in November than a year before.
Canadian housing starts in January, 207.4K annualized, beat market expectations and signify a strong pace of growth in early 2017.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.