Softer Pound

May 11, 2017

Sterling fell 0.4% against the dollar overnight. The ten-year British gilt yield has firmed two basis points, and the Ftse is little changed. The Bank of England left policy unchanged but suggesting greater monetary policy tightening during the forecast period than is implied in market interest rates. Several British economic statistics were reported.

  • Similar to the previous monetary review in mid-March, Kristen Forbes dissented with the decision to leave the Bank Rate unchanged at 0.25%, instead favoring a 25-basis point rate hike. This meeting coincides with the released of a new quarterly Inflation Report.
  • British industrial production posted a third consecutive month-on-month decline in March, falling by 0.5%. Output was 1.4% greater than a year earlier, down from a 12-month 2.5% rise in February.
  • British factory output dropped 0.6% on month and rose 2.3% on year. Like industrial production, the results undershot expectations.
  • Construction output sank 0.7% in March, and a 2.4% on-year rise was less than forecast.
  • The Royal Institute of Chartered Surveyors’ house price balance index stayed at 22% for a third straight time in April, down from 25% in the first month of 2017.
  • The total British trade deficit ballooned to GBP 4.90 billion in March from GBP 2.65 billion in February. The merchandise trade deficit rose to GBP 13.44 billion from GBP 11.45 billion. The first-quarter total trade gap of GBP 10.5 billion was more than double the size of the deficit in the final quarter of 2016.

The dollar otherwise has slipped 0.2% against the yen and Australian dollar, and gold, up 0.3%, rose for the first time in several sessions. The dollar is unchanged versus the euro and yuan but down 0.3% against the Mexican peso. President Trump is getting hammered in the press for his abrupt firing of the FBI director. In a mindset of where-there’s smoke-there’s fire, the succession of firings of people investigating what Russia did to disrupt the U.S. election and whether the Trump campaign was complicit in that effort is arousing enormous distrust. The market’s concern is that Trump will not be able to get his agenda passed into law.

Share prices in the Pacific Rim rose 1.2% in South Korea, 0.9% in New Zealand, 0.7% in Singapore, and 0.3% in Japan, Taiwan, Hong Kong and China. Stocks in Europe fell 1.2% in Spain and are little changed otherwise.

After advancing strongly on Wednesday, West Texas Intermediate crude oil jumped by a further 1.3% so far today.

Today is an active day on the central banking watch. Besides the Bank of England, monetary authorities in The Philippines and New Zealand have also announced the results of their latest policy reviews, and a Peruvian policy announcement will be made later.

  • The Reserve Bank of New Zealand’s official cash rate was kept at 1.75%. A 5% depreciation of the kiwi since February was applauded as a constructive development, and officials are not concerned about an uptick of inflation last quarter partly related to the kiwi’s movement.
  • The Filipion key central bank interest rate was also not changed. It is 3.0%. Inflation forecasts were not changed, but price risks are tilted to the upside.

Japanese data released Thursday show the following:

  • A seasonally adjusted current account surplus of JPY 1.73 billion in March (JPY 2.91 trillion unadjusted) and JPY 20.2 trillion in fiscal 2016 after JPY 17.86 billion in fiscal 2015. In March on-year comparisons, merchandise exports and imports were 13.1% and 15.4% higher. Between February and March, exports fell 3.0%, while imports climbed 5.2%.
  • Stock and bond transactions in April generated a net 6.22 trillion yen capital inflow.
  • The economy watchers index recovered to 48.1 in April from 47.4 in March. This gauge of service-sector worker observations remained below the 50 level for a fourth straight month and was also below February’s reading.
  • Bankruptcies, which in March were 5.4% higher than a year earlier, recorded a 2.2% on-year decline in April.
  • Bank lending posted the same 3.0% on-year growth in April as in March.

German wholesale price inflation of 4.7% in April matched March’s pace. The WPI, by contrast, had posted calendar year declines averaging 1.1% in the last three calendar years.

Swiss CPI inflation of 0.4% in April was down from 0.6% in March and below street forecasts. Swedish CPI inflation accelerated to 1.9% in April from 1.3% in March. Romanian consumer prices were 0.6% higher than a year earlier in April.

New Zealand food prices fell 0.8% on month in April, depressing their 12-month rate of increase to 0.2% from 1.3% in March and 2.2% in February.

Still to come: U.S. producer prices and weekly jobless claims data will be reported today. The New York and Chicago Fed presidents speak publicly.

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

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