Equity Markets Rise and Dollar Narrowly Mixed

February 12, 2020

Fed Chairman Powell will reprise yesterday’s upbeat Humphrey Hawkins testimony today before the Senate Banking Committee. He characterized the U.S. economy as “in a very good place” and said policy would react to the coronavirus impact only if such proves “persistent and material.” Recent remarks by other Fed officials such as Harker, Daly, and Bullard have been aligned with this view.

Vermont Senator Sanders won yesterday’s New Hampshire Democratic Party primary by a narrow margin with 26.7% of the vote to Buttigieg’s 24.4%, followed by Klobuchar’s rising star of 19.8%. The race now moves to South Carolina and Nevada. Biden needs a jump start to avoid falling hopelessly behind. The choice between the moderate and progressively radical wings of the party has not yet been decided, and Bloomberg lurks in the wings.

Aside from a 1.1% drop against the New Zealand dollar, overnight movements in the U.S. currency have been mixed and insignificant.

The kiwi advanced in response to the apparent abandonment by New Zealand monetary officials of an easing bias in their monetary policy. The Reserve Bank of New Zealand’s official cash rate was left at 1.0%, and the released statement deletes previous forward guidance that another rate cut would be done if needed. The OCR during 2019 was reduced twice — by 25 basis points in May and 50 bps in August. Officials expect the OCR to stay at 1.0% all this year but hint at a possible rise in the second quarter of 2021. Economic growth is currently sluggish but expected to strengthen in the second half of this year due to policy stimulus and a strong terms of trade. Governor Orr believes the impact of the coronavirus will prove short-lived.

A separate central bank meeting of the Swedish Riksbank Executive Board agreed to hold the repo rate at zero percent. Such has been at that level or lower since October 2014, bottoming at -0.50% from February 2016 until January 2019. There were two 25-basis point hikes during 2019, first in January and again in December. A statement from the central bank asserts that the outlooks for Swedish growth and inflation haven’t changed since the December meeting and predicts that the repo rate level will remain at 0% for most of its forecast period, not rising until 2022. Purchases of Swedish government bonds will continue through this year.

Euro area industrial production dived 2.1% in the final month of 2019, which more than doubled the 12-month rate of decline to 4.1%. That’s well over the average 1.7% drop of industrial production in all of 2019. Output fell 1.4% last quarter after a 0.8% quarterly decline in the third quarter of 2019.

Compared to December 2018 levels, industrial production dropped 7.2% in Germany, 4.3% in Italy, 3.2% in France and 1.7% in The Netherlands.  Separate industrial production releases in Romania and Hungary revealed year-on-year declines of 6.9% in January for Romania and 1.2% (a 6-month low) in Hungary for December.

The on-year change in Indian industrial production swung from +1.8% in November to -0.3% in December and shrunk from 4.7% in April-December 2018 to 0.5% in April-December 2019.

Retail sales in Brazil dipped 0.1% in December, their first decline since April and posted a 3-month low on-year increase of 2.6%. Retail sales in South Africa recorded their first year-on-year decline (0.4%) in December since a year earlier.

Malaysian GDP growth slowed to 0.6% last quarter, trimming the year-on-year pace to 3.6%, smallest since the third quarter of 2009. Malaysia’s current account surplus of MYR 49.7 billion in 2019 was its biggest since 2012.

South Korean unemployment increased 0.3 percentage points to a 6-month high of 4.0% in January.

The stock of Japanese M2 money rose 2.8% on year in January versus 2.6% last quarter and 2.4% in 2019 as a whole. Japanese machine tool orders recorded a 35.6% on-year plunge  in January, the eighth drop of over 30% in a row.

Dutch CPI inflation slowed to a 19-month low of 1.8% last month due largely to softer food price pressures. But Portuguese CPI inflation doubled to a 9-month high of 0.8%.

The Westpac index of Australian consumer sentiment rebounded 2.3% this month from a 1.8% drop in January.

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


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