Australian Interest Rate Cut and Greater-than-Forecast Inflation Retreat in the Euro Area

June 4, 2019

The dollar is unchanged against the yen, euro, sterling and yuan. The greenback edged marginally higher overnight against the Aussie dollar and kiwi.

In other financial market action earlier today, share prices fell almost 1% in China but closed flat in Japan. The German Dax is up 0.8%, while stocks in the U.K. and France have edged marginally higher. The 10-year Treasury yield rebounded 4 basis points. Gold is trading firmly at close to $1330 per ounce, while WTI oil has sunk another 0.8% and to below $53 per barrel.

The Reserve Bank of Australia’s Official Cash Rate was reduced 25 basis points to a record low 1.25%. This expected action is the first cut since a pair of 25-basis point cuts in May and August of 2016, and a released statement suggests it may not be the last one. Officials seek to reduce unemployment and lift inflation to the 2-3% medium-term target range.

After climbing 0.3 percentage points in April, consumer price inflation in the euro area slumped a half percentage point to a 13-month low of 1.2% in May. Core inflation also slowed a half percentage point to 0.8%, as the services component dropped to 1.1% from 1.9% the month before.

More evidence emerged today of the economic damage being done by Brexit uncertainty. The British construction PMI dropped 1.9 index points to a 14-month low of 48.6 in May. This was the third sub-50 reading in four months. Meanwhile, the Irish manufacturing purchasing managers index declined 2.1 index points to a 34-month low of 50.4 in May. Brexit threatens to reignite the Irish political troubles.

Euroland unemployment dipped another 0.1 percentage points to 7.6% in April from 7.8% in March and 8.4% a year earlier. However, Italy’s jobless rate did not contribute to this improvement, instead remaining at March’s 7-month low of 10.2%.

British same-store sales posted a 3.0% drop in the between May 2018 and last month.

Thailand’s manufacturing purchasing managers index slid to 50.7 in May, a 2-month low, from 51.0 in April.

Prior to the aforementioned central bank rate cut in Australia, two economic indicators in that economy were reported today. Retail sales in April proved very disappointing, dipping 0.1% on month versus increases of 0.9% in February and then 0.3% in March. But Australia’s current account deficit last quarter narrowed more than in half to just A$ 2.9 billion, its smallest level since the second quarter of 1997.

Japan’s monetary base was 3.6% greater than a year earlier in May. While up from the growth rate in April, the two-month on-year growth pace of 3.35% continues the decelerating trend from 4.4% in the first quarter of 2019, 5.6% in the final quarter of 2018, 7.3% in full-2018 and 17% in 2017.

South Korean GDP contracted 0.4% in the first quarter, depressing on-year growth to 1.7%, a 9-1/2 year low. South Korean CPI inflation in May also was very depressed at a mere 0.7% overall and 0.6% on an underlying core basis.

Indonesia’s market stayed closed today for a religious holiday.

Fed Chair Powell will be speaking publicly later today. U.S. factory orders  and the New York regional PMI data are being reported. So will Mexican consumer confidence.

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


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