Upbeat ECB Minutes Lift Euro
January 11, 2018
Minutes of the December ECB Governing Council meeting seem to proclaim the beginning of the end of the central bank’s ultra-easy stance. Quantitative settings were not changed, and a continuing determination to complete the current campaign of quantitative stimulus was projected. But the following paragraph initiates a coming shift in forward guidance.
It was argued that communication needed to evolve gradually in step with improving economic data and a further easing of financial conditions was not regarded as warranted. From this perspective, it was important for the forward guidance to be updated in line with evolving data, with a view to avoiding more abrupt or disorderly adjustments at a later stage. It should be highlighted that the stronger than expected expansion of the euro area economy had further reduced the likelihood of adverse economic outcomes and, hence, had bolstered the Governing Council’s confidence in the eventual attainment of its inflation aim.
The euro rose 0.4% against the U.S. currency overnight. So did the Australian dollar, while the kiwi and yuan moved 0.3% and 0.1% higher. In contrast, the U.S. dollar advanced 0.4% relative to the peso, 0.3% against the yen, 0.2% vis-a-vis sterling and the loonie. The Swiss has moved in lock-step with the dollar.
The other overnight theme has been investor caution regarding equities. Stocks fell 1.6% in New Zealand, 0.5% in Australia and South Korea, 0.3% in Japan, 0.2% in Taiwan, and 0.1% in Hong Kong. European share prices are only marginally up despite some strong regional data.
- Adjusted for variations in the number of working days, German real GDP expanded 2.5% in 2017, a 6-year high and up from 1.9% in 2016, 1.5% in 2015 and a ten-year average trend of 1.3% per annum. Growth was powered mostly by domestic demand, but net exports provided some marginal lift as well.
- Germany’s fiscal surplus increased to 1.2% of GDP in 2017 from 0.8% in 2016.
- Euroland industrial production jumped 1.0% in November, which was the strongest monthly increase in three months.
- Euroland’s seasonally adjusted current account surplus widened to 4.4% of GDP in the third quarter of 2017.
- Italian retail sales rebounded 0.8% in November following October’s drop.
- The Bank of France revised projected French real GDP growth in 4Q17 upwards by 0.1 percentage point to 0.6%. This revision came in response to the latest manufacturing sentiment reading, which at 110 was 4 points better in December than November and indeed the highest score since February 2011.
- Spanish industrial production growth accelerated to 1.0% in November. Output surpassed the year-earlier level by a robust 4.2%.
West Texas Intermediate crude oil climbed another 0.6% overnight to a 3-year high of 63.98 per barrel. Comex gold is unchanged in value. Bitcoin’s price retreated significantly further.
The 10-year German bund yield firmed a basis point, while comparable British and Japanese sovereign debt yields slipped one and two basis points.
Japanese international reserves totaled $1.264 trillion at the end of 2017, $47.3 billion more than the end-2016 level.
Japan’s customs trade deficit of JPY 400 billion in the first twenty days of December was nearly twice as wide as a year earlier, thanks to a 12.3% leap in imports.
Japan’s index of leading economic indicators printed at 108.6 in November, 2.1 points above the October reading and its best score in 46 months. The index of coincident economic indicators rose to a 121-month high, earning a trend designation of “improving” for a 14th straight month.
Australian retail sales grew 1.2% in November on top of a 0.5% increase the month before but were just 1.7% higher than the November 2016 level.
The National Bank of Serbia’s executive board left its policy rate unchanged at 3.5% as it had also decided at the prior meeting in early December. The rate had been cut by 50 basis points in October, which was the only change of 2017.
The results of a Peruvian monetary policy meeting will be announced later today.
Portuguese CPI inflation held steady at 1.5% last month.
Industrial production in Malaysia, Hungary, and South Africa between November 2016 and November 2017 increased by 5.0%, 6.4% and 2.1%, respectively.
U.S. data releases today showed that PPI inflation subsided more than expected to 2.6% in December from 3.1% in November. Core PPI of 2.3% was also less than imagined. U.S. jobless insurance claims rose 11K last week to 261K, perhaps distorted by harsh cold weather. The Philly Fed manufacturing index, in contrast to the lower New York regional NAPM index, improved 3.5 points to a reading of 26.2 for December.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: ECB Account, Euroland industrial production, German GDP