Big Reaction in New Zealand Financial Markets to Downbeat Central Bank Statement

March 27, 2019

The kiwi dropped 1.4% overnight. New Zealand’s 10-year sovereign debt yield slumped 11 basis points, whole share prices in that market rose 1.6%. A statement released after a regular monetary policy review that left the Reserve Bank of New Zealand’s official cash rate unchanged at 1.75% paints a downbeat economic outlook not limited to the global slowdown that’s weighing on exports. Also, business investment is weak, New Zealand’s housing market is soft, and public psychology was just rocked by the mass shooting in Christchurch. Besides all that, the statement expresses concern that delayed interest rate normalization at the Fed, ECB and in other areas may expose the kiwi to undesirable upward pressure. Officials conclude that “the balance of risks to this outlook has shifted to the downside” and promises “to keep the OCR at an expansionary level for a considerable period to contribute to maximizing sustainable employment, and maintaining low and stable inflation.” Inflation remains below the 2% target but is expected to rise toward that level.

The U.S. dollar otherwise has risen 0.5% against the Australian dollar and 0.2% relative to the Canadian dollar but is down 0.2% versus the yen and Swiss franc and by 0.1% vis-a-vis the euro and sterling.

West Texas Intermediate crude oil slipped 0.8%, while Comex gold is 0.2% firmer.

Ten-year sovereign debt yields fell 5 basis points in Australia, 4 bps in the United States, 3 bps in Germany, and a basis point in Great Britain.

Share prices in Asia went up 0.9% in Hong Kong and China but fell 0.4% in Indonesia, 0.3% in India, and 0.2% in Japan, South Korea and Taiwan. Equity markets so far in Europe show losses on the day of 0.6% in Switzerland, 0.4% in the U.K. and France, 0.3% in Germany and 0.2% in Spain and Italy.

European Central Bank President Draghi said it’s quite possible that Euroland’s slowdown will prove shortlived, similar to such an event in 2016, but affirmed that monetary officials are prepared to ease further if necessary through a change in forward guidance and other available policy tools.

Italian manufacturing sector confidence and consumer sentiment recorded lower readings in March.

French consumer confidence, on the other hand, rose an index point to a 7-month high of 96 this month. Likewise, Finnish consumer sentiment advanced to 16.1 this month from 15.5 in February but remains well below the high of 24.8 last May.

Swedish consumer confidence rose to a 3-month high in March, and the Swedish trade surplus in February of SEK 5.0 billion was the largest surplus since June 2017. Sweden had posted a SEK 36.6 billion trade surplus in 2018, 3.4 times bigger than the 2017 deficit.

The British monthly distributive trades index compiled by the CBI slumped to a reading of negative 18, its worst level in 17 months. Such had printed at zero in both January and February, -13 in December, but +19 in November and +23 last September.

Icelandic consumer price inflation dipped 0.1 percentage point to 2.9% in March and was 0.8 percentage points below the end-2018 level. PPI inflation of 8.4% in January was down from 9.5% in December and 11.7% in November but matched October’s level.

The Swiss ZEW expectations index has been depressed by fading export momentum. It dropped to a reading of -26.9 this month from -16.6 in February and -4.4 in January.

French PPI inflation picked up to 2.1% in February from 1.7% in January and 1.3% at end-2018.

Austria’s manufacturing purchasing managers index sank 1.8 points to the neutral level of 50.0, signaling no growth for the first time in four years. The PMI a year earlier had printed at 57.3.

Chinese corporate profits in February were 14% below their year-earlier level, the biggest on-year decline since October 2011.

U.S. and Canadian monthly trade figures are due imminently. The U.S. fourth-quarter current account also arrives today.

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

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