Holidays and Waiting for the FOMC Rate Announcement

May 1, 2019

Many centers are closed for May Day/Labour Day observances, including China, Hong Kong, Indonesia, Germany, France, Italy, Switzerland, Spain, Greece, South Africa, Mexico, Brazil, Norway, Taiwan, Malaysia, Vietnam, the Philippines, and Thailand. Japan’s Golden week continues with today’s accession of Naruhito as emperor, and India’s Maharashtra Day has been marred by vandalism in which fire was set to some three dozen vehicles.

The Federal Open Market Committee’s third scheduled review of U.S. monetary policy will conclude today with a published rate announcement at 14:00 EDT (18:00 GMT) followed 30 minutes later by the start of Chairman Powell’s press conference. President Trump again ramped up verbal pressure on the central bank to cut its interest rate, but that is not expected to happen. The federal funds target has been at 2-1/4 to 2-1/2% since a fourth hike in 2018 was implemented in December. The first increase of that tightening cycle was in December 2015, and the second followed a year later. Three increases were done in 2017. All of them were 25 basis points in size. Today’s rate announcement will not be accompanied by updated forecasts.

The dollar overnight eased 0.3% against the Swiss franc and sterling, 0.2% versus the euro, and 0.1% relative to the yen, Australian dollar and Mexican peso. The dollar rose 0.3% against the kiwi and is unchanged against the loonie and yuan.

The British Ftse is unchanged. Share prices rose 0.8% in Australia but fell 0.6% in New Zealand on weaker-than-forecast quarterly labor statistics. Labor market participation in the first quarter fell a half percentage point in New Zealand to 70.4%. Employment dropped 0.2%. Unemployment slid 0.1 percentage point to a 2-quarter low of 4.2%, but labor costs were only 2.0% higher than a year earlier. All in all, the labor market report reinforced expectations the the Reserve Bank of New Zealand’s official cash rate is likely to be cut after next week’s policy review.

The ten-year British gilt yield dipped a basis point, but the U.S. 10-year Treasury yield in futures trading remains unchanged at 2.50%.

The price of West Texas Intermediate crude oil has fallen 0.7%, and Comex gold is marginally softer.

Vice-President Guindos of the European Central Bank indicated that the central bank’s interest rates most stay low for quite a while longer, and he wouldn’t rule out modifying the inflation target.

Britain’s Nationwide house price index rose 0.4% on month in April, most since November, and by 0.9% on year, up from a 12-month increase in March of 0.7% and most since November as well. At the start of 2018, house price inflation according to the Nationwide index stood at 3.2%.

The British manufacturing purchasing managers index dropped 2.0 points to a 12-month low of 53.1 in April, as export orders contracted and inventory-building ahead of a possible Brexit deal continued.

Within the euro area, the Dutch and Irish manufacturing PMI readings also weakened last month. The Dutch PMI dropped another 0.5 to a 34-month low of 52.0, having been as high as 58.1 in the first month of 2019. The Irish PMI of 52.5 was down from 53.9 in March and 55.5 last November and represented the smallest expansion rate in 30 months.

Australian manufacturing PMIs from AIG and CBA sent mixed signals. The PMI compiled by AIG rebounded 3.8 points to a 6-month high of 54.8, but the CBA-compiled PMI fell 1.1 points to a 3-year and record low of 50.9.

South Korea’s trade surplus narrowed to a two-month low of $4.12 billion in April and was a third small than the April 2018 surplus. The surplus in January-April of $13.41 billion was down from $18.79 billion a year earlier.

British M4 money growth accelerated to 2.2% year-on-year in March, but underlying money growth slowed to less than 1.0% in the first quarter. Mortgage approvals according to Bank of England data proved fewer than expected at 62.341 thousand in March, and consumer credit slowed, too.

British shop price inflation declined to a 3-month low of only 0.4% on year in April.

In U.S. political news, the standoff between House Democrats and the White House deepened after the revelation that Robert Mueller was dissatisfied with Attorney General Barr’s 4-page apparently misleading summary of the findings of the investigation into Russian meddling into the U.S. 2016 election.

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

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