Hawkish Central Bank Actions, Released Factory Surveys, and U.S. Politics in Turmoil

May 2, 2019

The Bank of England Monetary Policy Committee voted unanimously to leave its Base Rate at 0.75% but indicated that markets aren’t discounting enough future rate increases. The MPC’s statement affirms

An ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.

The Bank of England also published its quarterly Inflation Report, revising projected GDP growth higher by 0.3 percentage points to 1.5% this year, staying at 1.5% in 2020 but then climbing to 2.1% in 2021 and 2.2% in 2022. If there were to be just one more rate hike as markets are discounting, inflation is seen accelerating above target in the outer two years.

At the time of the Bank of England announcements, the dollar was showing scant overnight net movement against sterling or the yen, euro, Swiss franc, and Canadian, Australian and New Zealand dollars for that matter.

The Chinese and Japanese markets remained closed for holiday.

Share prices rose 1.2% in New Zealand but were down 1.3% in Indonesia, 0.8% in Spain, and 0.5% in France.

The ten-year British gilt yield had risen a basis point, while the prices of WTI oil and gold had declined 0.8% and 0.9%.

Officials at the Czech National Bank as expected engineered an eighth hike of their two-week repo rate, which now rises to 2.0%. This cycle of tightening began with a 20-basis point increase to 0.25% in February 2017. Prior to today’s increase, the most recent increase was a 25-basis point hike in November to 1.75%. Officials are normalizing monetary policy to counter inflation and lend support to the kurona.

Many manufacturing purchasing managers surveys, whose release had been delayed by holidays on Wednesday, were released today.

  • Euroland’s factory PMI recovered from a 71-month low of 47.5 in March to a 2-month high of 47.9 in April, but Germany, Italy and Austria continued to experience contraction and French manufacturing did no better than stagnation. Among eight euro area-reported national PMIs, Greece topped the leader board with a reading of 56.6, indicating the fastest factory growth since June 2001.
  • The Swiss and Swedish manufacturing PMI scores of 48.5 and 50.9 represented 47- and 31-month lows.
  • Poland’s PMI rose 0.3 points to a 5-month high but was below the 50 no change level for a sixth consecutive month in April. The Czech PMI score, 46.6, fell to a 76-month low and was under the “50” level for a tenth straight month.
  • Norway’s PMI dropped 2.5 points to a 9-month low of 53.8, while Denmark’s PMI rose to a 2-month high of 59.3.
  • Turning to Asia, India’s manufacturing PMI fell 0.8 points to an 8-month low and beneath its long-term average level.
  • Turkish manufacturing continues to be battered by the vicious cycle of inflation and currency depreciation. Its PMI score of 46.8 was a 2-month low and below 50 for a 13th straight time.
  • The Thai, Taiwanese, and Indonesian PMIs of 50.1, 48.2, and 50.4 each represented 2-month lows. The Filipino PMI fell 0.6 index points to a 9-month low of 50.9. But Malaysia’s reading of 49.4 was at a 7-month high, Vietnam’s of 52.5 was a 4-month high, and the South Korean factory PMI rose 1.4 points to a 6-month high of 50.2.
  • South Africa’s ABSA-compiled PMI rose from March’s 5-month low of 45.0 to a 3-month high in April of 47.2.
  • Lastly, the British construction sector purchasing managers index rose 0.8 points to a modestly higher-than-forecast 3-month high of 50.5.

Attorney General William Barr’s Senate testimony yesterday provided a deja vu moment.  Like Acting Attorney General Robert Bork’s role in the Saturday Night Massacre of October 20, 1973 when he fired Special Counsel Cox after Richardson and Ruckelshaus had declined that order, Barr’s stonewalling did the president’s bidding to perfection. Who knew that the U.S. Constitution contains a backdoor entrance to restore monarchical rule any time the commander in chief chooses? All one needs to do is appoint a four-letter AG whose name begins with the letter B.

In other economic news today, German retail sales fell 0.2% on month in March and 2.1% on year, that latter being the largest 12-month rate of decline since a drop of 2.9% last September.

Swiss retail sales also slid 0.2% on month in March, resulting in the largest on-year decline (0.7%) since last September.

Real GDP in Hong Kong grew 1.2% last quarter, but on-year growth was only 0.5%, smallest since the third quarter of 2009.

South Korean CPI inflation of 0.6% last month was below 1.0% for a fourth straight time and down from 2.0% as recently as November.

Indonesian CPI inflation accelerated in April to a 4-month high of 2.83%.

New U.S. jobless insurance claims remained at 230K for a second straight week. That high by recent standards but still low historically. A 3.6% seasonally adjusted jump at an annual rate in U.S. nonfarm labor productivity was the largest increase in 4-1/2 years and resulted in a robust 2.4% rise between the first quarters of 2018 and 2019. Unit labor costs, in contrast, dropped 0.9% last quarter and was a tiny 0.1% above the year-earlier level.

Still ahead: U.S. factory orders and the New York regional PMI known as the NAPM index.

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

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