Weak Inflation & Lower Rates

Daily Analysis - 12/02/2016

Sweden Slashes Key Rate Further

The Swedish Riksbank opted to cut interest rates even further by an additional 15 basis points while stating that it is willing to cut more to meet the inflation target. The rate reduction is aimed at helping inflation rise towards the Central Bank’s goal of 2.00% after remaining near flat for several months.

Riksbank Provides More Stimulus

The Swedish Riksbank cut interest rates to -0.50% after having them left them at -0.35% since July of 2015. The Central Bank will continue its Government bond purchases over the first half as usual, reinvesting principal. Policy makers reiterated that the recent global turbulence, a continuing drop in energy prices and a relatively strong currency may push inflation into negative territory, fears also echoed by the President of the European Central Bank. The Swedish Central Bank Governor Stefan Ingves stated that the economy continues to grow, with annualized GDP expanding at 3.90% but inflation remains worrisome, stagnating at 0.10% after having risen back from deflationary levels. The Governor also expressed that the Central Bank is ready to use all means necessary in order to revive inflation. The Swedish Krona weakened against the US dollar, with USDSEK rallying to 8.4742 before pulling back.

Switzerland Continues to Swim in Deflation

The Swiss Federal Statistical Office reported that the nation’s headline consumer price index remains in deflationary territory despite all efforts undertaken by the Swiss National Bank. Monthly data for the month of January reported inflation at -0.40%, mirroring the same levels recorded during the previous month and meeting expectations, with annualized values also unchanged at -1.30%. The Statistical Office noted that this is the 15^th-consecutive month that inflation has printed in negative territory, hurt by oil prices at multi-year lows and a currency that continues to outperform. The SNB remarked that the Central Bank’s monetary policy will stay expansive and that interest rates could be pushed even further into negative territory. The Central Bank has been locked in an ongoing to fight to keep the Franc competitive in order to stoke inflation, raising expectations that the Central Bank is leaning to even further rate cuts at their next meeting.

Jobless Claims Slide

The United States Department of Labor reported a decline in Americans filing for unemployment for the first time in weeks for the period ending February 6^th. The value was reported to have dropped to 269,000, far from prior week’s 285,000 and beating estimates of 281,000. The 4-week average for jobless claims also declined to 281,250 from previous value of 284,750. According to the Labor Department, this is the 49^th-consecutive week that claims have stayed below the healthy labor market level of 300,000. The numbers reflect growing confidence that employers will hold onto their employees and hire further as they expect the economy to continue growing. This latest results have offset speculation that jobless claims will continue to rise amid a strong dollar, weakness in global financial markets and spending cuts in the energy sector.

South African Manufacturing Soars

South Africa's manufacturing production climbed in December, the first time in two months after falling into negative territory in earlier measuring periods. Statistics South Africa reported a monthly rise in December of 1.80%, well above the prior month’s -1.20% contraction and exceeding consensus estimates of -0.10%. Annualized manufacturing production also gained, increased by 0.40% and reversing from an earlier print of -1.20% recorded during the previous month. Contributions were mainly attributed to food and beverages, petroleum, chemical products and plastic products. A separate report on mining production, announced earlier, also showed a marked improvement in conditions. Although still in negative territory, shrinking by -0.30% in December after having dropped to -1.30% in November, the number is an upgrade compared to other recent figures. For the entirety of 2015, manufacturing reported no growth in comparison to 2014.