ECB Left Policy Unchanged, and Now Investors Await FOMC Minutes

April 10, 2019

At noontime in NY, the dollar was trading at Tuesday’s closing level against the euro and loonie but had drifted lower by 0.4% against the Australian dollar, 0.3% relative to sterling, and 0.2% vis-a-vis the yen and kiwi. The dollar is down more sharply against the peso but up 0.2% versus the Swiss franc and 0.1% against the yuan.

The DOW is flat as investors await FOMC minutes due at 14:00 EDT (18:00 GMT). Share prices closed down 0.9% in India, Indonesia and New Zealand, 0.5% in Japan, and 0.3% in Hong Kong. The German Dax and Paris Cac, by contrast, are up 0.5% and 0.3%.

10-year sovereign debt yields have declined 3 basis points in the U.S., 2 bps in Germany and a basis point in the U.K. and Japan. WTI oil and Comex gold have climbed 0.5% and 0.3%.

At the ECB Governing Council meeting, the structure of Euroland central bank interest rates since March 2016 (a zero percent refinancing rate flanked by an overnight deposit rate of -0.40% and a marginal lending facility rate of 0.25%), was again retained, and forward guidance reaffirmed that rates would stay at present levels or lower at least through yearend. As announced previously, the ECB is back in the business of doing targeted LTROs, and maturing principal on securities acquired under its now-ended asset purchase program will continue to be reinvested well beyond the start of interest rate normalization. In a released statement and ECB President Draghi’s press conference, several global growth headwinds were noted, but several positive factors were mentioned as well. While growth risks remain tilted to the downside, the baseline forecast doesn’t foresee the current slowdown giving way to outright recession, and Draghi attached low odds to that possibility. The statement projects lower headline inflation in coming months, but anticipates upward trajectories in labor costs and core inflation.

Today’s feature U.S. economic data release was consumer prices, which increased slightly more than had been forecast — 0.4% from February and by 0.4 percentage points to 1.9% in the year-on-year comparison. However, that acceleration reflected a 3.5% monthly jump in energy, and core CPI slipped unexpectedly by 0.1 percentage point to 2.0%. Moreover, real hourly earnings fell 0.3% on month and rose by a smaller 1.3% on year.

Several Japanese economic statistics were reported today. Core domestic machinery orders bounced back from a 5.4% dive in January with a 1.8% rise in February, and both export and government orders for machinery increased, too. Domestic producer prices went up 0.3% in March and by a 3-month high 1.3% from a year earlier. Export and import prices were 0.2% and 2.5% higher than in March 2018. On-year growth in bank lending last quarter of 2.3% was 0.1 percentage point greater than in the final quarter of 2018. Lastly, machine tool orders recorded a 28.5% on-year drop in March. That was the sixth year-on-year decline in a row.

Britain’s merchandise trade deficit topped GBP 14.0 billion for a second straight month in February, and the goods and services trade deficit averaged GBP 5.1 billion per month over the first two months of 2019. February month-on-month increases of 0.9% in factory output, 0.6% in industrial production, and 0.4% in construction output each surpassed analyst expectations, but the 0.1% on-year rise in British industrial production was only the first 12-month rise in a half year. Monthly British GDP growth is estimated to have been greater in March than February even as the Brexit talks fell further down the rabbit hole. At this writing, Prime Minister May is still pitching her case to EU leaders in Brussels for extending the Brexit deadline to midyear, but no decision from their summit has been announced.

In February, French industrial production went up 0.4% on month and 0.6% on year, while Italian industrial production climbed 0.8% on month and by a 4-month high of 0.9% on year. Like the British IP results, these exceeded market expectations.

The Westpac consumer confidence index for Australia printed at 100.7 in April, 1.9% higher than in March but well down from a 2018 high last July of 106.1.

South African business confidence sank to a 7-month low in March according to the SACCI-compiled index.

In other CPI news today, March-over-March price changes equaled 2.9% in Norway, 4.6% in Brazil, 4.0% in Romania, 1.2% in Denmark, 0.9% in Greece, 3.0% in the Czech Republic and 0.8% in Portugal.

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

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