Three Central Bank Meetings, Weaker Oil, and Several Data Releases

April 27, 2017

The dollar is up 0.5% against the kiwi, 0.4% relative to the loonie, and 0.3% against the euru and Aussie dollar but flat against sterling and softer versus the peso.

Stocks are slightly lower in the U.S., Europe and Japan.

Ten-year sovereign bond yields fell six basis points in Germany, France and Italy and by two bps in the U.S. and Britain. The 10-year JGB is steady at 0.1%.

West Texas Intermediate crude oil plunged 2.5% to $48.38 per barrel on further signs of excess production relative to demand.

Comex gold edged 0.2% higher.

On the U.S. policy front, President Trump now prefers to work within U.S. inclusion in NAFTA and has presented a package of deep tax cut proposals that doesn’t deal with how such will be financed.

The Bank of Japan left policy settings unchanged. These include targets of -0.1% on short-term interest rates and 0.0% on the 10-year JGB yield, and heavy JGB purchases in the vicinity of JPY 80 trillion per year. Officials expect above-potential GDP growth in fiscal 2017, sub-1.0% growth by fiscal 2019, and more-or-less unchanged projected rates of increase in core CPI. Governor Kuroda doesn’t expect to be talking publicly about a quantitative stimulus exit strategy during his remaining stewardship.

The ECB left its policy settings unchanged as well, expressing greater confidence regarding future economic growth but not seeing any credible evidence to alter the prevailing view that inflation will remain too low for some time longer. Officials thus see a need for a continuing  very substantial degree of monetary accommodation, which is being provided via a negative 0.4% overnight deposit rate and the purchase of EUR 60 billion of assets through at least the end of 2017, if not beyond.

The Swedish Riksbank retained a negative 0.50% repo rate level, pushed the likely date for a first rate hike out even further to mid-2018, projected a flatter upturn of the repo rate thereafter, and augmented the government bond purchase program by another SEK 15 billion to be done in the second half of this year, bringing the program’s total by end-year to SEK 290 billion.

Although flat on month, German consumer price inflation accelerated to 2.0% in April from 1.6% in March according to preliminary data.

German consumer confidence rebounded more strongly than expected this month to 10.2, which matches previous highs in February and last September.

Economic sentiment in the euro area, which had plateaued at a 71-month high in the first quarter, jumped by a much larger-than-expected 1.6 points to a reading of 109.6 in April. All major sub-indices improved, and the parallel economic climate index posted its highest reading since April 2011.

Italian consumer confidence dipped 0.1 point to 107.5 in April after increasing 1.0 point in March but falling 2.0 points in February. Portuguese consumer confidence fell in April, but Finnish consumer sentiment strengthened in the same month.

The British distributive trade index compiled by the CBI leaped to a 19-month high of 38 in April from 9 in both February and March. That result was way better than assumed.

Spanish CPI inflation rose 0.3 percentage points (ppts) to 2.6% in April, but Swedish PPI inflation fell 1.0 ppt to 6.5% in March. Icelandic CPI inflation in April rose 0.3 ppts to 1.9%.

In Austria, which is always the first Euroland member to have its factory PMI reported, such rose to a 73-month high of 58.1 in April from 56.8 in March and 53.8 six months earlier.

Released U.S. data today showed

  • A 0.8% retreat in pending home sales during March after a 5.5% surge in February and a 2.8% drop in January.
  • New jobless insurance claims rose 14K to 257K last week, but the 4-week average of 242-1/2K was 12K less than the average in the previous 4-week period.
  • The Kansas City manufacturing index improved for a second straight month in March.

Chinese corporate earnings were 23.8% greater in March than a year earlier following a small on-year gain in February.

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

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