Coronavirus Spreading and Three Central Banks Review Monetary Policy

January 23, 2020

Share prices slumped another 2.8% in China, 1.5% in Hong Kong, 1.0% in Japan, 0.9% in South Korea, and 0.6% in Australia and Singapore as the deadly pneumonia-like disease centered in Asia claimed more victims. Share prices in Europe are so far today down 0.4% in Germany and 0.3% in the U.K. and Switzerland but up 0.6% in Italy.

The ECB Governing Council’s first policy meeting of 2020 ended as expected with no change in its interest rate structure, including a negative 0.5% deposit rate since a 10-basis point cut last September. The Bank will continue quantitative stimulus of EUR 20 billion per month and, as previously announced by President Lagarde, is beginning a long broad review of monetary policy strategy that will occupy much of this year. Forward guidance on interest rates affirmed that they will “remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.” Regarding the program of asset purchases, officials expect such to “run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”

The dollar is unchanged from Wednesday closing levels against the euro and Swiss franc. The greenback has risen 0.4% against the Chinese renminbi. An important element of the recent Phase I trade agreement between the U.S. and China that China’s currency should not depreciate has been overwhelmed by pandemic fears. The currency had recovered some 3% from 7.0612 per dollar in early December to about 6.86 last week, but half of that advance has now been wiped out.

Other dollar movements today are rises of 0.2% versus the loonie and peso and a 0.1% uptick relative to sterling but drops of 0.3% against the yen and 0.1% vis-a-vis the kiwi.

Ten-year sovereign debt yields softened further today by 2 basis points in the United States and Japan and by a basis point in Germany and Great Britain. The 10-year Treasury yield is 13 basis points lower than its end-2019 level.

West Texas Intermediate crude oil slipped 1.5% so far today, and the price of gold is 0.2% softer.

Interest rates were left unchanged at two other central banks that held reviews today.

Norway’s central bank policy rate stays at 1.50% as analysts were expecting. The rate had been hiked 25 basis points on four occasions from September 2018 to September 2019, which reversed all by 75 basis points of the prior tightening engineered from February 2011 through March 2016. A statement released by the Bank of Norway observes that economic trends since last month have evolved pretty much as expected. This includes slower growth in late 2019 but a lessening of global risks and core inflation close to target. Officials do not anticipated a near-term need to change the policy rate.

Bank Indonesia’s 7-day reverse repo rate has been at 5.0% since the last of four 25-basis point cuts last year, which occurred in October. According to a released statement, inflation remains low and stable, domestic demand is resilient, the current account deficit is manageable, the rupiah has risen, and global financial market uncertainty seems to be lessening. Officials believe an accommodative monetary policy complemented by macro-prudential support is appropriate.

Japan reported December and 2019 trade figures and November’s all-industry index, which is a monthly proxy for GDP.

  • The seasonally adjusted trade deficit was JPY 102 billion in December, a 4-month high. Exports and imports rose 0.5% and 0.6% on month. The unadjusted JPY 153 billion deficit was almost three times larger than the December 2018 shortfall, and the full-2019 deficit of 1.644 trillion yen exceeded the 2018 customs trade deficit by 13.4% and saw exports decline by 5.6%.
  • The all industry index in November rebounded from a 4.8% plunge in October by only 0.9%. The swing reflects the tax hike shock in October.
  • Japanese machine tool orders in December were revised to show a year-on-year decline of 33.5% from 33.6% reported initially. That’s the smallest on-year drop in 7 months.
  • Japan’s November index of leading economic indicators was revised lower to a 10-year low, and the index of coincident economic indicators also was below initial reports at an 81-month low.

Australia’s monthly labor market statistics for December beat expectations. For a second month in a row the jobless rate fell by 0.1 percentage point and is now 5.1%. Employment rose almost twice analyst forecasts, but most of the 28.9k increase involved part-time workers, perhaps those fighting the huge fires.

Danish consumer confidence improved in January to a 5-month high.

Turkish consumer confidence remained unchanged with a reading of 58.8, which is closer to November’s 7-month high of 59.9 than October’s 57.0 score.

CPI inflation in Singapore rose 0.2 percentage points to a 7-month high of 0.8% in December.

Norwegian unemployment rose to a 15-month high of 4.0% in September-November, while Sweden’s jobless rate ended 2019 at 6.0%, little changed from 6.1% a year earlier.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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