Turkey Attempts to Stop Lira’s Rout… Other Geopolitical Strains Simmer

May 24, 2018

The Central Bank of the Republic of Turkey hiked the late liquidity window interest rate by three full percentage points to 16.5% after the Monetary Policy Committee held an unscheduled meeting. The lira had been plunging in one-sided market conditions but rebounded over 6% following the announcement.

Italian Prime Minister-Designate Conti met with party leaders, trying to form a government that will be more anti-euro than any Italy has had before. The European Monetary Union may be headed for a crisis just as data emerges that economic momentum there is starting to ebb.

FOMC minutes yesterday did nothing to quell speculation that the next rate hike will likely occur in June.

Invoking national security concerns, the Trump administration is considering augmenting tariffs on imported autos. These could hurt some of America’s traditional allies like Germany, Japan, and South Korea.

The dollar rose 0.4% against sterling and 0.3% vis-a-vis the loonie but has eased 0.5% relative to the Swiss franc, 0.4% versus the yen and 0.1% against the yuan and euro.

Share prices in the Pacific Rim fell 1.1% in Japan, 0.5% in China and 0.2% in South Korea but rose 0.9% in India, 0.5% in Taiwan and New Zealand, 0.9% in Singapore, and 2.7% in Indonesia. In European trading, stock markets are up 0.6% in Spain and 0.4% in Italy and France but down 0.4% in Greece and 0.1% in the U.K. and Germany.

Ten-year sovereign debt yields declined 14 basis points in Greece, 5 bps in Spain, and 0.3% in Japan but unchanged in Japan, the U.K., and Germany. In futures trading, the 10-year treasury yield is hugging to 3.0%.

West Texas Intermediate crude oil slumped 1.2% after weekly U.S. inventories revealed greater accumulation than expected. Gold rose back through the $1,300 per ounce level.

Revised German GDP data confirmed the flash growth estimates. GDP advanced 0.3% last quarter and posted lower on-year increases of 1.6% and 2.3% when adjusted for variations in the number of working days. GDP had climbed 2.5% in 2017 and 2.9% on a 4Q-over-4Q basis. In the first quarter of 2018, exports tumbled 1.0%, the most since 2012. Net foreign demand and inventories each depressed the growth rate by 0.1 percentage point, neutralizing a 0.2% positive contribution from personal consumption.

Consumer confidence in Germany fell for a second straight month to a 6-month low.

British retail sales volume, which had been slammed by snowy weather in March, rebounded by a much greater-than-expected 1.6% last month (1.3% excluding motor vehicle fuel).

Japan’s index of leading economic indicators for March was revised noticeably lower and at an 11-month low.

GDP in Singapore grew 1.7% on quarter in 1Q18 and was 4.4% higher than a year earlier.

New Zealand’s trade balance swung from a NZD 156 million deficit in March to a NZD 263 million surplus last month but recorded a cumulative NZD 3.48 billion deficit over the last twelve reported months.

Producer prices in the year to April climbed 3.3% in Finland and 4.9% in Sweden. Both on-year advances were bigger than those in March.

Danish retail sales growth slowed in April to a 0.2% uptick from March and a sub-1% on-year advance of 0.7%.

Aside from the unscheduled central bank meeting in Turkey, scheduled review were held today in Ukraine, South Korea, and South Africa.

  • The National Bank of Ukraine kept its policy rate unchanged at 17%. 450 basis points of tightening had been implemented between last October and March in hopes of reducing inflation to its medium-term target. officials expect that goal to be reached around the middle of next year.
  • Monetary officials at the Bank of Korea voted unanimously to keep a 1.50% policy interest rate. A 25-basis point hike, the first increase since 2011, had been implemented last November.
  • The South African policy decision hasn’t yet been announced.

Scheduled U.S. data releases today comprise existing home sales, the Kansas City Fed manufacturing index, the FHFA house price index and weekly jobless insurance claims.

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


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