Many Central Bank Decisions and Released Data for Markets to Digest

December 14, 2017

The People’s Bank of China raised short-term interest rates by 5 basis points. The modest tightening was the first in nine months and painted as a response to the Fed’s rate hike on Wednesday.

The ECB Governing Council left its interest rate structure unchanged. This includes a negative 0.40% overnight deposit rate. Officials reiterated that asset buying at a rate of 30 billion euros per month would be done from January through at least September 2018, and longer if needed. New macro-economic forecasts unveiled at President Draghi’s press conference revised up projected growth in 2018 by 0.5 percentage points to 2.3% and projected growth in 2019 by 0.2 percentage points to 1.9% but did not changed the 2019 inflation forecast of 1.5%. Markets took that inflation forecast as a dovish sign, and the Governing Council did not dispel the notion that an initial interest rate hike likely will not occur until 2019.

The Bank of England, which had raised its key interest rate in November for the first time in over a decade, left such at 0.5% as expected this month. The decision was unanimous and accompanied by unchanged quantitative asset purchase guidelines. Further hikes in interest rates will be administered very gradually with a second move possibly not before 2019. A released statement approved of the recent fiscal stimulus and of progress in the Brexit talks.

The Filipino central bank retained a 3.0% key interest rate, claiming a broadly unchanged inflation environment. The last rate change was a 25-basis point cut in September 2014.

Bank Indonesia’s 7-day reverse repo rate of 4.25%, deposit facility rate of 3.5% and overnight lending facility rate of 5.0% were each kept at those levels. The 7-day reverse repo had been cut in August and September by a combined 50 bps.

The Bank of Norway’s Executive Board kept its key rate at 0.5%, the level since a 25-basis point cut in March 2016, and declared a continuing need for expansionary monetary policy in light of low inflation.

The Swiss National Bank left its policy rate unchanged, too. A negative 0.75% sight deposit rate within a -1.25% to 0.25% 3-month Libor rate corridor will be maintained, and forex intervention will be employed as needed in view of the still-fragile environment for the franc. Swiss central bank officials revised projected inflation in 2018 upward but projected inflation in 2019 downward and do not see the on-year rise of consumer prices reaching 2% before the third quarter of 2020.

Turkish monetary policy was tightened somewhat. While leaving the one-week repo rate and  overnight lending and borrowing rates as is, Turkish monetary officials implemented a 50-basis point increase in the late liquidity window rate to 12.75%. CPI inflation has accelerated to almost three times its target, and the risk is mounting that expected inflation will keep climbing.

Chinese retail sales growth accelerated to a 2-month high of 10.2%, which was still less than forecast. Industrial production growth slowed to a 3-month low of 6.1% in November, and fixed asset investment in the first 11 months of 2017 was just 7.2% higher than a year earlier.

Japan’s manufacturing purchasing managers index rose 0.6 points to a 46-month high in December of 54.2. Industrial production growth in October was left unchanged at 0.5% on month and 5.9% on year. Capacity use increased 0.2% from September and by 5.0% from a year earlier.

Euroland’s composite PMI in December beat expectations according to its preliminary estimate and at 58.0 was at the highest level in 82 months. Euroland’s and Germany’s manufacturing PMI scores were at a record high for this data series. The data suggest that German GDP may have expanded as much as 1.0% (not annualized) this quarter, and French GDP seems to have risen 0.7-0.8%.

Australian labor statistics for November were very strong. The jobless rate stayed at 5.4%. Employment jumped 61.6K, including 41.9 full-time workers. Labor participation increased to 65.5% from 65.2%.

British retail sales were surprisingly buoyant in November, climbing 1.1% on month in volume terms overall and 1.2% excluding automotive. But there was more evidence of a sagging housing market: The Royal Institute of Chartered Surveyors’ monthly house price balance index slid to zero percent last month, the weakest reading of 2017. Finally, Britain’s index of leading economic indicators dropped 0.9% last week.

In the year to November, Spanish consumer prices rose 1.7%. Indian wholesale prices accelerated to 3.93%. And U.S. import price accelerated to a 3.1% 12-month increase versus only 0.2% in the year to November 2016. Fuel soared 22.2% on year and 7.6% between October and November.

U.S. retail sales in November were much more robust than anticipated, climbing 0.8% from October, whose monthly gain was revised 0.3 percentage points upward to o.5%. The year-over-year pace in November was 5.8%.

U.S. jobless insurance claims fell even further last week to just 225K and averaged 234-3/4 thousand over the past four weeks.

The dollar is marginally stronger against the euro and yen. Stocks are not vastly changed. The ten-year Treasury yield has risen 4 basis point in contrast to a 4-basis point drop in its British counterpart. Oil is flat, but gold has firmed.

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


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