China’s Central Bank to the Rescue

February 4, 2020

Stock markets around the world rebounded sharply after the People’s Bank of China ease its monetary stance to counter the growth impact of the coronavirus epidemic, where cases now exceed 20k and include over 425 deaths. The PBOC on Monday reverse repo rates by 10 basis points and injected CNY 1.2 trillion of liquidity. That injection was followed by another CNY 0.5 trillion injection of money today.

India’s equity market shot up 2.3%, while share prices advanced between 1% and 2% in China, Hong Kong, South Korea, Taiwan, Singapore, as well as so far in Germany, France, Spain, Great Britain and the United States.

Ten-year sovereign debt yields are up by 7 basis points in the United States, 4 bps in the U.K., 3 bps in Germany and 1 basis point  in Japan. Comex gold slumped back 1.6%, but WTI oil is 0.4% firmer.

The dollar is mixed, with gains of 0.6% against the yen, 0.4% versus the Swiss franc and 0.2% relative to the euro, but declines of 0.8% against the peso, 0.6% versus the Aussie dollar, 0.3% relative to the yuan, and 0.2% vis-a-vis the loonie, kiwi and sterling.

The Iowa Democratic Party caucus proved a fiasco when an insufficiently tested mobile app’s usage produced in inconsistencies that prevented vote counters from announcing results Monday evening. With noontime in NY fast approaching, the outcome is still unknown and no doubt will be tainted with suspicion whenever something conclusive is reported.

The Reserve Bank of Australia’s first monetary policy review of 2020 left that central bank’s official cash rate unchanged at 0.75%. Such was last reduced in October and also had been cut by 25 basis points in both June and July of last year and by a total of 50 basis points each in 2013, 2015, and 2016. Governor Lowe’s released statement concludes,

With interest rates having already been reduced to a very low level and recognising the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting. Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments carefully, including in the labour market. It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

Great Britain’s construction purchasing managers survey for January went up 4 index points to 48.4, indicating the slowest rate of contraction since May and the strongest business optimism in 21 months in that sector.

The JPM-compiled global purchasing managers index printed at a 9-month high of 50.4 in January.

Non-oil PMI surveys in the Middle East were also released. Egypt’s 46.0 reading was at a 34-month low. The Saudi score of 54.9 was at a 13-month low, and a reading of 49.3 in the United Arab Emirates was below the 50 threshold between improvement and deterioration for the first time in this data series.

Mexico’s manufacturing PMI rose 1.9 points to a 3-month high of 49.0 in January. A separate measure of Mexican manufacturing confidence fell half an index point to a 32-month low of 48.8 that month.

U.S. factory orders bounced back 1.8% in December from a 1.2% decline in November. Nonetheless, orders recorded an average 2019 decline of 0.6% and were just 0.1% higher than a year earlier in December.  Other U.S. data released today showed

  1. A 2.4-point advance to 59.8 in the IBD/TIPP optimism index. Such is the strongest reading in sixteen years.
  2. Motor vehicle sales last month of 16.8 million at an annual rate, which was marginally higher than in December.
  3. A 2-month high of 45.8 in the so-called NAPM index, a regional New York PMI survey.

Producer prices in the euro area were unchanged on month in December and 0.7% lower than a year earlier in spite of a 3.1% on-year rise in Dutch producer prices. Energy fell 4.0% on year, while all other producer prices collectively increased by 0.5%.

Italian CPI inflation rose 0.1 percentage point to a 7-month high of 0.6% in January, having bottomed at 0.2% in October-November.

Irish unemployment rose 0.1 percentage point to a 4-month  high of 4.8% in January. Romanian PPI inflation accelerated to a 5-month high  of 3.9% last month.

Retail sales in strife-plagued Hong Kong recorded a year-on-year drop in retail sales of at least 20.0% for a fifth straight time in December. The latest 12-month rate of decline was 21.0%.

Brazilian industrial production dropped 0.7% on month and 1.2% on year in December.

Malaysia’s trade surplus of MYR 137.4 billion last year was 11.0% wider than the surplus in 2018.

Atlanta Fed President Bostic’s personal outlook on the U.S. economy hasn’t changed as a result of the coronavirus development. He said that Fed interest rate policy is currently in a wait-and-see mode.

Copyright 202o, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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