Softer Bond and Stock Values Ahead of Powell Testimony

February 27, 2018

Monday saw a big U.S. stock market rally, but equities overnight fell in contrast by 1.1% in China, 1.3% in Hong Kong, 0.3% in India, 0.2% in Taiwan and 0.1% in South Korea. In Europe, stocks so far have declined 1.0% in Greece, 0.5% in Switzerland, and 0.3% in Germany. A notable exception to the softer tone was Japan, where the Nikkei 225 closed up 236 points or 1.1%.

Just as Monday’s U.S. rally had been propelled by lower sovereign debt yields, a setback in bond prices weighed on stock markets this morning. The 10-year German bund and British gilt yields rose 2 basis points apiece.

The new Fed Chair, Jay Powell, testifies at 15:00 GMT (10:00 EST) this morning before the House Financial Services in what used to be known as the semi-annual Humphrey Hawkins hearings. Investors are anxious to learn more clarity about where his stewardship will mark a continuity of Yellen’s and where he means to chart a somewhat different approach. The second part of his testimony before the Senate Banking Committee is set for Thursday.

The dollar strengthened overnight by 0.5% against the kiwi, 0.3% relative to the loonie, 0.2% versus sterling and 0.1% against the yen and peso. The euro is unchanged, and the dollar has dipped 0.1% versus the Swissie and yuan.

The Bank of Israel retained a 0.1% interest rate, the level since a 15-basis point cut in February 2015. Inflation is still below target, but amid signs of firming expected inflation.

The Bank of Korea left its Bank Rate at 1.5%, the level since a 25-basis point hike last November, which had been the first increase since 2011.

Monetary officials in Hungary left the Base Rate at 0.90%, its level since May 2016. Likewise, the overnight deposit rate will stay at negative 0.15%, its level since a 10-basis point reduction last September.

Euroland’s economic sentiment index fell 0.8 points to a 3-month low of 114.1 in February. Sentiment weakened among consumers and in the retail, industrial and construction sectors but rose to a 2-month high in the services sector. The business climate index dropped 0.12 points to a 4-month low of 148.

Euroland M3 money posted the same 4.6% on-year advance in January as in December. The 12-month rate of increase quickened a bit in loans to firms but remained at 2.9% in the case of loans to households.

French consumer confidence dropped rather significantly in February, printing at a 4-month low of 100 after back-to-back readings of 104 in December and January.

Italian consumer confidence, in contrast, edged up 0.1 point to a 2-month high of 115.6 in February and was accompanied by a 4-month high of 110.6 in business sentiment among manufacturers.

Portuguese consumer confidence in February matched January’s 8-month low of 1.3. Business sentiment in Portugal had a third straight reading of 1.9, which in December had been the lowest since May 2017.

Finnish consumer confidence rose 1.6 points to 25.8, the best reading of this data series which began to be collected in 1995.

Swedish consumer sentiment fell 2.0 points to a 5-month low in February of 104.7, having been as high as 108.1 back in November. Sweden recorded a SEK 1.8 billion trade deficit in January versus surpluses of SEK 0.9 billion a year before and SEK 0.7 billion in January 2016. The deficit narrowed to SEK 6.2 billion in 2017 from SEK 14.7 billion in full-2016.

Spanish business sentiment rose 0.2 points to a 4-month high of 3.9 in February.

South Korean consumer confidence dropped to a 5-month low of 108.2 in February from a 110.0 reading the month before.

CPI inflation slowed during February in all six individually reporting German states: Bavaria, North Rhine Westphalia, Brandenburg, Baden-Wuerttemberg, Saxony and Hesse.  Bundesbank President Weidmann, who is a leading candidate to follow Draghi as ECB President, nonetheless reaffirmed his desire to see monetary accommodation gradually and dependably get reduced this year.

Spanish consumer prices this month were 1.1% higher than in February 2017. In the same period, Icelandic consumer prices climbed 2.3%.

New Zealand posted a NZD 566 million trade deficit in January and had a trade deficit of NZD 3.218 billion over the past dozen reported months.

Just In:

  • The preliminary German CPI inflation estimate for February fell to 1.4% from 1.6% in January. On a harmonized basis, CPI inflation in the latest month was 1.2% versus analyst expectations of a 1.3% on-year advance.
  • U.S. durable goods orders retreated 3.7% in January, more than twice the projected drop, but were 8.9% higher than in January 2017. However, core durables (non-defense and excluding aircraft too) slipped 0.2% on month after a 0.6% drop in December and only a 0.1% uptick in November.

U.S. Events Still to Come: The Powell testimony and the release of the Case Shiller house price index, the FHFA house price index, the Conference Board’s consumer confidence index, and the Richmond Fed manufacturing index.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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