Stronger Dollar, Weaker Stocks, and Four Central Bank Meetings

April 25, 2019

The dollar advanced overnight by 0.4% against the yuan and peso, 0.3% relative to the euro, 0.2% versus the Swiss franc, sterling and Australian dollar, and 0.1% vis-a-vis the loonie. One currency against which the dollar fell was the yen, which climbed 0.3%.

Share prices dived 2.4% in China to a 3-week low on continuing concerns of lessening government stimulus. In other bourses around the Pacific Rim, stocks fell 1.6% in Hong Kong, 1.2% in Indonesia, 0.4% in Singapore, 0.7% in India, but Japan again bucked the tide with a rise of 0.5%. Stock markets in Germany, France and the U.K. show small losses so far.

Ten-year sovereign debt yields rose a basis point in the United States and Japan but fell 2 basis points in Great Britain. WTI oil has firmed 0.4%, whereas Comex gold is 0.1% softer.

The short- and long-term interest rate targets of the Bank of Japan — respectively -0.1% and “around zero percent” were not changed at the latest Policy Board meeting. However, projected growth and inflation were revised lower, growth and price risks were said to be downwardly skewed, and forward guidance of an extended additional period without policy tightening was express more emphatically in a released statement that ruled out any hike “at least until spring 2020.” This policy, known as qualitative and quantitative easing with yield curve control, is being enforced by an asset purchase program of around 80 trillion yen per year. The statement, in addition, enumerates modifications to several measures to promote credit expansion such as relaxed collateral requirements. Today’s meeting coincided with the release of a quarterly Outlook for Economic Activity and Prices. As has been the case at other recent monetary board reviews, two of the nine committee members (Harada and Kataoka) advocated for even more forceful monetary stimulus.

The Swedish Riksbank’s Executive Board decided to leave its repo rate unchanged at -0.25%. In December, such had been raised by 25 basis points, marking the first hike since July 2011. The rate had been -0.50% since a 15-basis point cut in February 2016 and at zero percent or lower since October 2014. Forward guidance in a released statement, however, moved out the likely timing of the next rate increase from the second half of 2019 to the very end of this year, if not the beginning of 2020. The statement argues for a very cautious approach to tightening in light of unexpectedly low inflation lately, continuing low interest rates abroad, and ongoing global uncertainties. Projected inflation in 2019, 2020, and 2021 was reduced, and the board agreed to “purchase government bonds for a nominal value of SEK 45 billion from July 2019 to December 2020.” Two committee members objected to that injection, claiming such would not foster achievement of the monetary policy target.

At Bank Indonesia, officials as expected left the seven-day reverse repo rate, the 6.75% overnight lending rate, and the 5.25% deposit facility rate unchanged as expected. In seven increments, the reverse repo rate had been increased by two percentage points during 2018, most recently in November. But a statement released today expresses satisfaction with the current rate structure and observes low inflation that’s under control, a lessening current account deficit, and a firm rupiah. There is a 2-4% inflation target.

The Central Bank of the Republic of Turkey kept its one-week repo rate at the strataspheric 24.0% level such attained after increases totaling 275 basis points in 2017 and 1125 basis points over the first nine months of last year. CPI inflation has subsided to just below 20%, but a released statement argues that expected inflation remains too elevated and anticipated high import price and food price pressures ahead. “The Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement and will continue to use all available instruments in pursuit of the price stability objective.”

Britain’s Confederation of British Industries published results of both its industrial trends and distributive trades surveys today. The orders component of the industrial trends index dropped back five index points to a 2-month low of +1 in April. In contrast, the distributive trades index climbed 31 index points to a 5-month high of +13.

U.S. durable goods orders had a breakout month in March, increasing 2.7% on month and resulting in a 3.0% on-year increase for the first quarter. A 37K rise in new U.S. jobless insurance claims last month lifted the 4-week average to a still low 206K.

Producer price inflation in March rose 1.5 percentage points to a 4-month high of 6.2% in South Africa and 0.7 percentage points to a 4-month high of 2.4% in Spain. Spain’s jobless rate of 14.7% last quarter was up from 14.45% in the final quarter of 2018 but down from 16.74% in the first quarter of last year.

South Korean real GDP contracted for the first time in five quarters, dropping 0.3% in 1Q19. This resulted in the lowest on-year growth (1.8%) since the summer of 2009.

Swedish consumer confidence improved to a 4-month high in April, but the reading of 95.8 was still considerably below that of 104.1 last September. Danish retail sales growth remained pretty meager last month, and the level was only 0.5% greater than in March 2018.

Still ahead: the Kansas City Fed manufacturing index and Mexican retail sales.

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

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