Markets React to ECB Minutes

February 16, 2017

Published minutes from the last ECB meeting (known as the ECB Account) allayed concerns that the recent spike in inflation to around the central bank’s target would not lead to an abandonment of the current easy stance. The rise of headline inflation was caused by energy and shows no visible sign of indirect or second order effects on core inflation. Patience and a steady hand in monetary policy are prescribed.

Recent market trends suffered a setback as a result.

  • The dollar fell 0.4% against the yen and Swiss franc, 0.3% relative to the euro, loonie and sterling, and 0.2% versus the yuan but gained 0.3% on the peso and 0.1% on the Aussie dollar.
  • Ten-year sovereign debt yields are down 7 basis points in Spain, six bps in Italy, and by 2 bps in Franc and U.S. futures.
  • Gold and oil rose 0.6% and 0.5% to $1,240 per ounce and $53.39 per barrel.
  • Stocks are mostly down. Share prices fell 1.4% in New Zealand, 0.5% in Japan, 0.4% in France, Switzerland and Spain, 0.3% in Germany and Britain and 0.2% in Italy.

Group of Twenty foreign ministers are meeting today and tomorrow in Bonn, Germany. Rex Tillerson is representing the United States.

The U.S. Treasury late yesterday released capital flow data for December and full-2016. There was a net long-term inflow in 2016 of $255.5 billion compared to inflows of $317.5 billion in 2015 and $275.3 billion in 2014. The broadest measure, which also includes short-term capital, showed a net outflow last year of $42.6 billion compared to an outflow of $66.1 billion in 2015 and a net inflow of $276.5 billion in 2014.

Japanese stock and bond transactions last week generated a net capital inflow of JPY 470.5 billion versus a net outflow of JPY 210 billion in the prior week.

Australia’s jobless rate fell back unexpectedly by 0.1 percentage point to 5.7% in January. A 58.3K leap in part-time workers raised total employment by 13.5K in spite of a lower 64.6% labor participation rate.

Elsewhere on the central banking front,

  • Two Federal Reserve District presidents — Harker of Philadelphia and Rosengren of Boston — opined that they felt a total of three hikes in the federal funds target this year would probably be appropriate.
  • Bank Indonesia’s seven-day reverse repo rate was left steady at 4.75%. The rate was cut by 150 basis points last year in six equal increments, the last of which occurred in October. Bank officials are watching inflation and mindful that Fed tightening could affect capital flows adversely. Indonesian exports leaped 27.7% on year in January, most since September 2011.

Chinese foreign direct investment was 9.2% lower than a year earlier in January.

New car sales in the European Union were 10.2% higher than a year earlier also in January. That was a bigger increase than anticipated.

Italy posted a EUR 51.6 billion trade surplus in 2016.

Dutch and Swedish unemployment during January was at 5.3% and 6.8% last month. German jobs rose only 0.1% on quarter in 4Q16 and were just 0.6% greater than a year earlier. That was the smallest on-year rise in three years. The ILO-basis French jobless rate last quarter of 10.0% was higher than forecast.

Malaysian GDP grew 4.5% on a fourth quarter to fourth quarter basis in 2016, and its current account last quarter showed a doubling of the surplus from 3Q to MYR 12.2 billion.

U.S. housing starts, building permits, jobless insurance claims and the Philly Fed manufacturing index will be reported today.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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