More Central Bank Rate Cuts, Mixed Global Economic Data and a Weaker Dollar
May 20, 2020
The dollar traded down overnight by 1.2% against the peso, 1.0% relative to the kiwi, 0.9% vis-a-vis the Australian dollar, 0.6% versus the Swiss franc, 0.4% against the euro, 0.3% relative to the loonie and 0.1% against sterling. Against the yen, the dollar inched 0.1% higher, but the U.S. currency in trade-weighted terms is close to three-week low.
Share prices in the Pacific Rim and Europe are mixed, with market declines of 0.8% in Singapore, 0.5% in China and 0.3% in France but gains of 2.1% in India, 0.8% in Japan, 0.5% in South Korea and 0.4% in Germany and Great Britain. U.S. stock futures are higher, too.
The ten-year British gilt yield slipped two basis points partly on news of a 44-month low in British CPI inflation.
The price of WTI oil increased over 2%, and that of gold is 0.5% higher.
The Bank of Thailand has implemented its third 25-basis point policy interest rate cut of 2020 and fifth such move since August 2019. The one-week repo rate now becomes 0.50%. There were three dissenters on the policy-deciding 7-person committee who didn’t want this change. A released statement sets the context for this additional easing: ” the Committee assessed that the Thai economy would contract in 2020 more than the previous assessment due to the more-than-expected contraction of the global economy along with the containment measures worldwide. Headline inflation would be more negative than previously assessed. Financial stability would be more vulnerable given the economic outlook.” Despite the split decision, “the Committee would stand ready to use additional appropriate monetary policy tools if necessary” in order to mute the economic drag from the global pandemic.
The Central Bank of Iceland’s 7-day term rate has been slashed to 1.0% from 1.75%, bringing this year’s total amount of decline to two percentage points. The intent of today’s action according to a released statement is to promote money velocity and to strengthen policy transmission, as officials also withdrew the offer of 30-day term deposits. Central bank officials project an 8% contraction of GDP in 2020, assert that the economic outlook has deteriorated, and note that expected inflation seems firmly anchored. Monetary stimulus is being used to complement fiscal stimulus.
The People’s Bank of China left its 1-year Loan Prime Rate at 3.85% and the 5-year LPR at 4.65%. The one year rate had been cut 10 basis points in February and another 20 bps in April.
A big upside data surprise today involves Japanese core domestic machinery orders in March, which instead of dropping 7%, only edged 0.4% lower after solid back-to-back increases in January and February.
British CPI inflation decelerated nearly in half to 0.8% last month. Core CPI inflation dropped 0.2 percentage points to 1.4%. With a drop of 0.7%, producer output prices were below their year earlier level for the first time since mid-2016, and producer input prices plunged 5.1% on month and 9.8% on year.
Consumer confidence in Turkey recovered from a record low in April of 54.9 to a 6-month high of 59.5 this month.
Belgian consumer sentiment bounced off April’s 26-year low of -26 to print at -23 in May.
Likewise, Danish consumer confidence rebounded 3.1 points to -11.9 in May but remained will below its January level of 4.5.
Dutch consumer confidence deteriorated further in April to a 79-month low of -31. Two months earlier such was -2 in February. Dutch unemployment in April increase a half percentage point to a 5-month high of 3.4%, but Dutch household consumer spending in March was 6.7% lower than a year earlier versus a 0.9% on-year increase the month before.
A 2.0% on-year rise in South African retail sales in February was almost twice what analysts were expecting.
Malaysian consumer prices dived by a record 2.7% in April to set a record greatest on-year decline of 2.9%.
CPI inflation in the euro area last month was revised 0.1 percentage point lower to 0.3%, a 44-month low. Core CPI of 0.9% was at an 8-month low, and the energy CPI component was 9.7% below its year-earlier level.
Canadian CPI inflation dropped 1.1 percentage points in April to record its first negative reading (-0.2%) in 127 months.
Euroland’s seasonally adjusted current account surplus in March was 31.8% narrower than February’s spiked high. The EUR 40.66 billion surplus compares to EUR 38.1 billion a year earlier, and the EUR 338 billion current account surplus over the past 12 reported months was equivalent to 2.8% of GDP.
Taiwan posted a $18.16 billion current account surplus in the first quarter of 2020 versus a surplus of EUR 17.11 billion a year earlier. Indonesia, in contrast, experienced a $3.924 billion current account deficit last quarter versus a much larger $6.6 billion deficit in the first quarter of 2019.
With just 4.3% of the world’s population, the United States accounts for 31.3% of the 5+ million globally reported Covid-19 infections and 28.7% of deaths attributed to the disease so far.
FOMC minutes from the last policy meeting will be published this afternoon.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Thailand, Canadian CPI, Central Bank of Iceland, Euroland current account and CPI