New Turn of Events on Several Fronts

April 6, 2017

At an unscheduled Czech National Bank policy meeting, the 27 koruna per euro ceiling imposed since November 2013 was lifted, and the currency strengthened marginally over 1.0% in response. The backdrop for the change is near-target inflation and sustaining growth. A discretionary role for intervention on an as-needed basis has been retained.

Chinese President Xi Jinping and U.S. President Trump begin two days of wide-ranging discussions at the winter White House in Florida. Much is riding on this meeting.

Minutes from the last ECB Governing Council meeting on March 8-9 reveal an emerging predisposition to tweak forward guidance away from the current clear bias toward lower rates. But several high  ECB officials speaking today (Draghi, Constancio, and Praet) stressed that current policy remains correct.

Reducing the Fed’s balance sheet has emerged as a possible 2017 agenda item, according to FOMC minutes published yesterday afternoon. Markets had not anticipated such a step beginning before 2018.

In U.S. political news, Congressman Nunes recused himself from the investigation regarding Russia. A top adviser endorsed a separation of investment banking from commercial bank lending, as was the law of the land during the imposition of the Glass Steagall Act. And one of the leading House of Representatives conservatives believes tax reform will be approved by August.

The Bank of Israel kept its 0.1% interest rate level and released a dovish statement that tied recent appreciation of the shekel to a likely delayed attainment of the inflation target and to longer maintenance of the very low interest rate level.

There was also a central bank meeting in India. The previous meeting had shifted the policy bias from accommodation to neutrality. This meeting unanimously kept interest rate levels unchanged and the  newly adopted neutral forward bias.

Japanese consumer confidence rose 0.7 points in March to 43.9, the best level since September 2013.

In market action so far today,

  • The dollar is unchanged against the Swiss franc, Chinese yuan and loonie but up 0.3% against the yen and Aussie dollar, 0.2% relative to the euro, and 0.1% vis-a-vis sterling and the Mexican peso. The kiwi strengthened marginally.
  • Ten-year sovereign debt yields are unchanged in the U.S., Germany, U.K. and Japan.
  • Asian stocks closed mostly lower, led by a 264 drop (1.4%) in Japan’s Nikkei and 0.8% fall in Hong Kong’s Hang Seng index.
  • The British Ftse is down 0.3%, but stocks have risen 0.8% in Spain and 0.5% in France.
  • Commodity prices strengthened, including a 0.9% rise in WTI oil and a 0.5% uptick in gold.

German industrial orders, which had sunk 6.8% in January, rebounded 3.4% in February to leave the January-February mean level 2.1% below the fourth quarter 2016 average. February orders were 4.6% higher than a year earlier. Foreign orders lagged, with no change versus January after dropping 4.6% in that first month of 2017.

Euroland’s retail purchasing manager index fell 0.4 points to 49.5 in March, a 4-month low. Faster growth in Germany was more than countered by a deepening contraction in Italy and a switch in the French trend from expansion to contraction in the retail sector.

Germany’s construction PMI jumped 2.3 points to a 13-month high of 56.4 in March.

China’s services PMI according to Caixin fell 0.4 points to a 6-month low of 52.2. China’s 52.1 composite PMI score was also at a half-year low.

India’s services and composite PMI readings, in contrast, climbed to 5-month highs of 51.5 and 52.3.

Hong Kong’s private purchasing managers index printed below the 50 no change line for a third straight time in March but was just barely so at 49.9.

Japanese stock and bond transactions last week generated a tiny 39 billion yen net capital inflow. This was the final week of the fiscal year. In the prior week, a net 2.23 trillion yen outflow had transpired.

The global composite PMI, according to J.P. Morgan, rose to a 2-month high in March of 53.8, just 0.1 shy of January’s 22-month high.

Canadian building permits dropped back 2.5% in February, reversing about half of January’s increase.

Mexican consumer confidence rose 5.3 points to 81.0 in March.

Swiss CPI inflation of 0.6% in March exceeded market expectations by a tad. Dutch consumer prices were 1.1% greater than a year earlier in March. Cypriot CPI inflation accelerated to 1.9% in March.

Czech industrial output rose 0.7% on month and 2.7% on year in February.

Greek unemployment rose to 23.5% in January from 23.1% in December but stayed below 24.3% in January 2016.

New U.S. jobless insurance claims sank to a 5-week low last week of 234K. This followed yesterday’s higher-than-expected ADP estimate of private sector jobs growth in March.

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

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