Central Bank Policies in the Spotlight

October 26, 2017

The Governing Council of the European Central Bank left its interest rate structure including a negative 0.4% deposit rate as is. The current monthly purchases of securities at a pace of 60 billion euros will continue this quarter and be reduced by half to 30 billion euros per month as of January. Quantitative stimulus at that monthly pace will be maintained at least through September 2017 and longer if needed. LTRO operations will also be maintained at least to the end of 2019. Press conference to follow.

The committee of monetary policymakers in Brazil, known as Copom, reduced the Selic rate by 75 basis points to 7.5%. The rate has been lowered by 625 basis points thus far in 2017. Inflation developments were called favorable.

The Swedish Riksbank’s Executive Board retained a negative 0.50% repo rate. Asset purchases will continue this quarter, bringing that program of quantitative stimulus to SEK 290 billion by end-2017. The key interest rate is unlikely to be raised until the second half of 2018. Eventual rate normalization will proceed very gradually. Officials do not expect the repo rate to be higher than 0.25% even at the end of 2019.

The Bank of Norway’s policy interest rate was left at 0.50%, its level since a 25-basis point cut in March 2016. A released statement asserted that the outlook for inflation and balance of risks hadn’t changed substantially since the September policy review.

The National Bank of Ukraine key interest rate was increased at today’s policy review by a full percentage point to 13.5%. This decision represents a policy reversal and follows a run of nine cuts between August 2015 and May 2017 that had slashed the rate from 30% to 12.5%. Lately, both inflation and expected inflation have deteriorated. An upward rate bias is now in effect.

Turkish central bank rates were left unchanged. A one-week 8.0% repo rate, along with a 9.25% marginal funding rate and a 7.75% overnight borrowing rate collectively constitute a tight monetary policy stance, according to a statement released by the Central Bank of the Republic of Turkey. Such is needed to counter elevated inflation in Turkey until the outlook shows significant improvement and becomes consistent with target.

The dollar today is narrowly mixed, up 0.2% against sterling and 0.1% relative to the peso and Swiss franc but down 0.2% vis-a-vis the Australian dollar and 0.1% against the yen, euro, loonie and yuan.

Share prices in the Pacific Rim dropped 0.6% in Hong Kong and New Zealand, as well as 0.5% in South Korea and Indonesia. Stocks closed up 0.4% in Singapore, 0.3% in India and China, and 0.2% in Japan, and equities show gains thus far of 0.8% in Italy, 0.7% in Switzerland, 0.6% in France, 0.5% in the U.K., and 0.3% in Germany. Best of all is the Spanish IBEX, up 1.9% on lessening political strains in Catalonia.

Ten-year sovereign debt yields fell 2 basis points in Germany and a basis point each in the U.K. and United States.

Gold is unchanged, and WTI oil has dipped a mere 0.1%.

The German consumer confidence index slid 0.1 point to a 4-month low of 10.7. Still that’s a pretty optimistic level.

Italian consumer confidence rose 0.5 points to a 21-month high of 116.1. Business sentiment in Italy rose a whole point to 109.1.

British data released today accentuate post-Brexit difficulties. The CBI distributive trades index continued to swing wildly, printing at minus 36 in October after +42 in September, minus 10 in August, and +22 in July. Also, car sales were 4.1% lower in September than a year before, marking the fifth straight month with a negative on-year change.

Swedish producer price inflation accelerated to 4.3% in September from 3.8% in August. Sweden’s trade deficit over the first nine months of 2017 equaled SEK 3.0 billion, down from a deficit of SEK 7.7 billion a year earlier.

Spain’s 16.4% jobless rate last quarter was the lowest since 2008. Hungary recorded a 4.1% unemployment rate in the third quarter, down from 4.9% a year earlier, but Iceland’s 3.0% jobless rate in September was 0.4 percentage points higher than in August. Norwegian unemployment fell from 4.3% in 2Q17 to 4.1% last quarter.

M3 money in the euro area was 4.9% higher than a year earlier in the third quarter, matching its on-year growth in 2Q. For just September, M3 expanded 5.1% on year. The growth in adjusted private loans of 2.7% was the same as in August.

Japanese corporate service price inflation of 0.9% in September was a tenth of a percentage point greater than in August and the most elevated since March.

Last quarter saw Australian import and export prices respectively drop by 1.6% and 3.0% from 2Q levels.

The New Zealand trade deficit during the twelve months through September equaled NZD 2.9 billion.

South African producer prices increased 0.7% last month and were 5.2% higher than in September 2016.

Industrial output in Singapore surpassed its year-earlier level by 14.6% in September.

The preliminary estimate of the U.S. goods and services trade deficit last month shows a 1.3% widening to $64.1 billion. U.S. jobless insurance claims last week increased 10K to 233K. Still ahead: U.S. pending home sales and Kansas City Fed manufacturing index.

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

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