ECB and Turkish Monetary Officials Send Dovish Signals

July 25, 2019

The European Central Bank Governing Council left policy settings unchanged but signaled likelihood of a multi-pronged stimulus after September’s fuller review. A zero percent refi rate has been flanked by a negative 0.40% deposit rate and a 0.25% marginal lending facility rate since cuts made in September 2016. The ECB leadership is in transition; IMF Director Christine Lagarde is now virtually assured to become the ECB’s fourth president on November 1, as the ECB Council announced its approval of her appointment. Two prior presidents were Duisenberg and Trichet, and the current one, Mario Draghi, completes his 8-year term in October.

Turkey’s Monetary Policy Committee slashed its one-week repo rate by 425 basis points to 19.75%. That’s a bigger cut than analysts were anticipating but does not completely reverse the final tightening move last September, which was an increase to 24.0% from 17.75%. A statement released by the Central Bank of the Republic of Turkey observes continuing improvement in Turkey’s inflation outlook, characterizes its stance even after today’s move as disinflationary, and warns about rising protectionism and uncertainty regarding global economic policies.

Overnight movements in the dollar were again only slight. The greenback dipped 0.1% versus sterling and 0.2% against the euro, loonie and peso, stayed steady vis-a-vis the yen and yuan, and rose 0.1% against the Australian dollar and 0.2% relative to the Swiss franc and kiwi.

WTI oil advanced 1.6%. Gold remains solidly above $1400 per troy ounce.

Ten-year sovereign debt yields climbed 3 basis points in the U.S. and U.K. and by 2 bps in Germany.

Share prices are broadly firmer with the notable exception of a 0.4-0.6% decline in key U.S. stock indices. Elsewhere, gains have occurred of 1.0% in New Zealand, 0.7% in Hong Kong, 0.6% in Australia, 0.5% in China and 0.2% in Japan. European markets are up 1.1% in Spain, 0.9% in France and Italy, 0.7% in Switzerland and 0.3% in Britain.

Today’s U.S. economic data reports featured a tiny narrowing of the trade deficit to $74.171 billionĀ  in June according to the advance estimate, a 2.0% recovery in durable goods orders in June after a 2.3% drop in May (leaving the first half total unchanged from a year earlier), and a 10K slide in new jobless insurance claims.

Germany‘s IFO Institute published findings from its July business climate survey that revealed a considerably bigger deterioration than anticipated to a 75-month low of 95.7. Perceived current conditions and business expectations each weakened.

Japanese corporate service price inflation weakened to a 15-month low of 0.7% in June. That’s down from 1.1% three months earlier.

The CBI’s monthly survey of British distributive trades produced a non-positive sales measure for the seventh time in the past eight months. The index in July of minus 16 was weaker than street expectations but above the levels in June and May.

Hong Kong’s trade deficit widened to a 3-month high in June of HKD 55.2 billion, and a 9% year-on-year slide in exports was the most in 40 months.

Spanish unemployment was high last quarter at 14.02%, albeit the lowest since the final quarter of 2008. Spain also experienced negative PPI inflation in June (an on-year drop of 0.6%) for the first time since September 2016.

Not all today’s economic news was adverse.

South Korean GDP growth last quarter of 1.1% compared to 1Q was the strongest since the summer of 2017 and produced a 0.4 percentage point acceleration in on-year growth to 2.1%.

Swedish consumer confidence improved 3.6 index points to 97.7 in July.

South African PPI inflation receded to a 4-month low in June of 5.8%.

The K.C. Fed monthly manufacturing index gets released later today.

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


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