Much Riding on Fed Chairman’s Press Conference
June 19, 2019
The dollar is unchanged from Tuesday closing levels against the yen, yuan, kiwi, and Australian dollar. The greenback has slipped 0.4% against the Swiss franc, 0.3% relative to sterling but just just 0.1% vis-a-vis the loonie and euro. U.S. President opened a fresh topic in the 24-hour news cycle, accusing ECB President Draghi and that central bank of deliberately depreciating the euro to gain a price competitive advantage in trade.
Draghi quickly denied targeting the exchange rate, but this development raises the stakes, but Trump’s remarks raise the stakes for today’s FOMC policy announcement and subsequent press conference. For one thing, Trump has repeatedly hinted that he will try to force Fed Chairman Powell to step down early unless the Fed delivers a more growth-promoting policy stance. For another, Powell is likely to be quizzed about the dollar, a topic that officially falls under the jurisdiction of the Treasury Department and that Fed officials historically avoid speaking about except in very rare circumstances.
Investors do not expect the Federal funds rate to be cut today — in large part because such timing would hurt the central bank’s credibility for maintaining independence from political pressure — but a run-up this week in share prices and drop in sovereign debt yields was triggered by speculation that Powell will strike a more dovish tone that suggests rates could be reduced soon if inflation and jobs growth stay low.
In the Pacific Rim earlier today, share prices took a cue from yesterday’s action in North America and closed up 2.6% in Hong Kong, 1.7% in Japan, 1.3% in China and 1.2% in Australia. The upward momentum did not carry into Europe, however, where equities are down 0.3% in Spain and the U.K. and just 0.1% firmer in Germany and France.
Moreover, 10-year sovereign debt yields backed up higher by 4 basis points in the U.K., 3 bps in Germany and 2 bps in the United States. The 10-year Japanese JGB yield did dip another basis point to mark an exception.
Commodity prices are marginally lower.
There’s been more disinflationary evidence in Europe.
- German producer price inflation dropped 0.6 percentage points overall to a 14-month low in May of 1.9% and by 0.2 percentage points to 1.1% excluding energy.
- Overall and core British CPI inflation slid 0.1 percentage point in May to 2.0% and 1.7%, respectively. British producer output price inflation fell 0.3 percentage points to 1.8%, while producer input price inflation was slashed to 1.3% in May from 4.5% in April.
- The British ONS statistical agency reported that house prices in April were only 1.4% higher than a year earlier. While the same on-year increased occurred in March, the pace is down from 3.2% last September.
- Portuguese producer price inflation was more than halved in May to 0.9%.
- Icelandic CPI inflation slipped to 2.9% in May from 3.2% in April.
The slowdown in global growth this year can be largely traced back to Tariff Man’s multilateral attack on trade and globalization. This is reflected in Japanese trade and euro area current account data reported today.
- Japan’s seasonally adjusted customs trade deficit of JPY 609 billion was 3.6 times greater in May than April’s deficit. The unadjusted JPY 967 billion deficit was considerably wider than its May 2018 size of JPY 577 billion in spite of a 1.5% shrinkage in imports. Exports dived 7.8% compared to a year earlier.
- Euroland’s seasonally adjusted current account surplus fell in April to EUR 20.9 billion from EUR 24.7 billion in March, EUR 27.9 billion in February, and EUR 37.6 billion in January. The unadjusted surplus over the last twelve reported months of EUR 310.8 billion (equal to 2.7% of GDP) was down from EUR 389.4 billion (3.4% of GDP) accrued during the previous year through April 2018.
In Europe’s trade-dependent economy, weakening trade flows infect domestic economy. Construction output in the euro area, for instance, recorded a second successive monthly decline in April (0.8% after sliding 0.4% in March), and the year-on-year change in construction of 3.9% was down from 7.4% two months earlier.
In Britain, the CBI monthly survey of industrial trends this month produced a 32-month low in the orders component, down from a reading of -10 in May and of +8 six months earlier.
Swedish consumer confidence bounced up to 93.8 in June from a 77-month low of 90.7 in May, and the overall business sentiment index for that economy known as the economic tendency index dropped 1.3 points to a 4+ year low of 98.1.
New Zealand current account deficit from April 2018 through March 2019 averaged 3.6% of GDP, compared to deficit-to-GDP ratios of 3.8% in calendar 2018 and 3.0% in the 12 months ending March 2018.
Canadian CPI inflation of 2.4% in May surpassed street expectations and was up from 2.0% in April. Consumer prices rose 0.3% on month, the same as in April.
Released minutes from the meeting on June 12th of Turkey’s Monetary Policy Committee, which then chose to retain the elevated 24% one-week repo rate, project that ” if uncertainties stemming from geopolitical factors are eased, in response to the tight monetary policy stance and the inflation-focused macro-policy mix, the country risk premium would continue to decline, which would support the recovery of the economy.”
South African consumer price inflation ticked up to 4.5% in May and average of 4.3% over the five previous months.
Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI and PPI, Canadian CPI, Euroland current account, Japanese customs trade, Trump and Draghi
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