A Quartet of Central Bank Rate Cuts and Netflix Stock Takes a Large Hit

July 18, 2019

Central bank rates were cut today in South Korea, Indonesia, South Africa, and Ukraine. The likelihood that the Fed will ease at the end of this month played a role in each of these actions. All of the reductions were 25-basis point moves.

The share price of Netflix has tumbled 10.75% in response to an earnings report that revealed slower-than-expected world customer growth.

The dollar continued to erode gradually, falling overnight by 0.4% against the aussie dollar and sterling, 0.3% relative to the kiwi, 0.2% vis-a-vis the peso, and 0.1% against the yen and euro. The euro moved down in tandem with the dollar, which also gained 0.2% against the loonie and 0.1% versus the yuan.

West Texas Intermediate crude oil sank 1.7%, slipping under $56/barrel. Gold edged 0.1% softer.

The ten-year Treasury yield rose two basis points in contrast to dips of 2 basis points in its German counterpart and one basis point in the 10-year British gilt yield.

Stock markets closed down 2.0% in Japan, 1.0% in China, 0.8% in Indonesia, 0.3% in South Korea, and 0.4% in Australia. There have been declines in Europe of 0.4% in Spain and Britain and 0.5% in Germany.

Released U.S. data today features a much greater rebound in the Philly Fed manufacturing index to a 21-month high of 21.8 in July from 0.3 in June. May’s reading had been 16.6. New jobless insurance claims averaged 218.75k over the last four weeks, same as in the prior four weeks through June 15. Finally, the Conference Board’s index of leading economic indicators fell 0.3% in June after being unchanged in May and up just 0.1% in April.

British retail sales rebounded more than anticipated in June, rising in volume terms by 1.0% overall and 0.9% excluding automotive fuel.

Although Japan’s customs trade surplus of JPY 589 billion in June exceeded street expectations, such was 19% smaller than the June 2018 surplus, and the first half combined trade balance showed a deficit of JPY 889 billion. June exports and imports were respectfully 6.7% and 5.2% lower than a year earlier. The seasonally adjusted deficit in June was only JPY 14 billion, down from JPY 621 billion in May.

Australian unemployment held at 5.2% for a third straight month in June. Following strong gains in both April and May, employment leveled off with a rise of just 0.5k, and the labor participation rate was unchanged at 66.0%. The quarterly measures compiled by NAB of business confidence and business conditions respectively rose 7 points and fell 3 points in 2Q19 to readings of +6 and +1.

As it has been for the past year, unemployment remained at 2.8% in Hong Kong last month.

Dutch unemployment ticked up 0.1 percentage point in June to 3.4%. That was the first rise since December.

The Bank of Korea’s 7-day repo rate was sliced to 1.50% from 1.75% in a move that surprised some analysts and which was ascribed to mounting trade tensions, easing monetary policies in other economies, and geopolitical risks. In taking this step, monetary authorities revised projected GDP growth this year slightly downward from 2.5% to something closer to 2.0% and also cut projected CPI inflation  in South Korea. Such is expected to stay under 1% for some time. All in all according to a released statement, officials said that “as it is expected that domestic economic growth will be moderate and it is forecast that inflationary pressures on the demand side will remain at a low level, the Board will maintain its accommodative monetary policy stance. In this process it will carefully monitor developments such as the US-China trade dispute, Japan’s export restrictions, any changes in the economies and monetary policies of major countries, the trend of increase in household debt, and geopolitical risks, while examining their effects
on domestic growth and inflation.”

Bank Indonesia’s key 7-day reverse repo rate was reduced to 5.75% from 6.0%. It’s the first cut since September 2017. The previous changes were a pair of hikes in September and November of 2018. Today’s easing was justified by in-target inflation, lessening pressure on Indonesia’s balance of payments, and the expectation of easier Fed policy ahead. Officials seem inclined to ease further in the future: “Bank Indonesia perceives adequate space for accommodative monetary policy in line with low inflation expectations and the need to further stimulate economic growth.”

The National Bank of Ukraine implemented the second move of an easing cycle, cutting its discount rate to 17.0% from 17.5%. A half percentage point cut had been also done in April. A released statement asserts that inflation of 9% is on track to keep falling toward the 5% target and should reach that goal by end-2020. Also, the current account deficit is expected to stay manageable. The released statement includes forward guidance that envisages the benchmark interest rate dropping progressively to 8% in coming years.

The South African Reserve Bank by unanimous vote has implemented its first interest rate cut in 16 months, a 25-basis point cut of the repo rate to 6.5%. A released statement observes moderating inflation expectations, signaled policy easing by advanced economy central banks, weaker-than-anticipated global economic activity, and “escalating trade and geo-political tensions.” Officials expected a lull in growth during the first quarter not to have extended into the following period. “The implied path of policy rates generated by the Quarterly Projection Model was for one cut of 25 basis points to the repo rate by the end of fourth quarter of 2019.”

Chilean monetary policy is also being reviewed today.

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

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