Financial Market News Cycle Headed by FOMC, Brexit, and U.S./Sino Trade Talks

March 20, 2019

Today’s FOMC announcement at 14:00 EDT (18:00 GMT) will be accompanied by updated forecasts and followed at 14:30 by Chairman Powell’s press conference. Analysts look for scaled-back growth and inflation forecasts, fewer interest rate hikes this year than indicated earlier, and a stop in quantitative tightening.

British Prime Minister May is asking for a 3-month Brexit extension to June 30th while promising that the delay will not go beyond that date. EU leaders hold a summit tomorrow.

The dollar rose 0.8% overnight against the pound but is otherwise marking time ahead of the FOMC actions. The greenback has slipped 0.3% against the yuan and 0.1% versus the euro, Swiss franc and loonie but has also risen 0.1% relative to the yen.

Share prices rose 0.2% in Japan but fell 0.5% in Hong Kong and 0.4% in Singapore and Australia. Stocks ended flat in China amid continuing uncertainty generated by the Sino-U.S. trade talks that seem to be entering their late stage.

European equities are mostly lower. A 12% plunge in Bayer has dragged the German Dax down 1.3%, and markets in Spain and Switzerland are each off 0.5%.

West Texas Intermediate oil hit resistance as it approached $60 and fell 1.0% on balance overnight to %58.45 per barrel. Gold is flat.

Ten-year U.S. and British sovereign debt yields slipped two basis points. The German bund yield dipped a basis point, but the Japanese JGB yield edged a basis point higher.

Other central banks are also attracting attention today:

  • Minutes from the Bank of Japan’s last Board meeting reveal deepening disagreement between committee members who want an even more stimulative policy stance and those who are increasingly worried about the damage to the health of banks from prolonged negative short-term interest rates and the zero percent target on the 10-year JGB yield.
  • The Central Bank of Iceland kept its 7-day term deposit rate at 4.5%. Such had been raised by 25 basis points in November and cut four times between August 2016 and October 2017 by a total of 125 basis points. A released statement today observes that the slowdown of growth in the second half of 2018 has continued and notes that CPI inflation fell 0.7 percentage points to 3.0% last month. However, with a diminished output gap, officials predict that inflation will move higher later this year and have retained an upside policy rate bias: “The MPC reiterates that it has both the will and the tools necessary to
    keep inflation and inflation expectations at target over the long term. This could call for a tighter monetary stance in coming months.”
  • Like their Icelandic counterpart, officials at the Bank of Thailand kept their one-day repo rate unchanged at 1.75%. The current stance is considered appropriate for now, and projected GDP growth this year was nudged downward to 3.8% from 4.0%. Unlike December’s decision to lift the policy interest rate by 25 basis points or February’s no change vote that drew two dissents in favor of an additional increase, today’s action was decided unanimously, according to the released statement.
  • Brazilian monetary authorities are also reviewing policy today.

British consumer price inflation edged up 0.1 percentage point to 1.9% in February. But core CPI eased further to 1.8%, and the headline 1.9% inflation was still down considerably from 2.3% in November and 2.7% last August. Producer output price inflation of 2.2% last month was down from 3.0% in October. A 1.7% on-year increase in the U.K. government’s house price index was the smallest gain since mid-2017.

German producer prices dipped 0.1% in February, keeping the 12-month rate of increase at 2.6%. That’s down from 3.3% as recently as November and the lowest level since last May.

The monthly survey by the CBI of British industrial trends revealed an unexpectedly weak orders index whose reading of +1 was five index points lower than February and well down from +15 last June.

Japan’s index of leading economic indicators fell 1.3 index points to 95.9 in January. Machine tool orders in Japan were 29.3% fewer in February than a year earlier. Such orders in February of 2018 had been 38.5% larger than a year earlier.

New Zealand posted a NZD 3.26 billion current account deficit in the final quarter of 2018. The deficit for all of last year equaled 3.7% of GDP.

South Korean PPI inflation moved below zero to minus 0.2% in February. Such was +3.1% a half year earlier in August.

Polish producer price inflation, in contrast, accelerated during February to a 4-month high of 2.9%. More surprisingly, the on-year increase in Polish industrial production spiked to 6.9% in February from 6.1% in January and 2.8% in the final month of 2018.

South African consumer price inflation edged up 0.1 percentage point to 4.1% in February, but core CPI stayed at 4.4%. In the year between January 2018 and January 2019, South African retail sales went up 1.2%, while wholesale turnover advanced 3.7%.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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