Lessening Risk Aversion
February 9, 2022
The recent sell-off in bonds has taken a step back, and that has encouraged bottom-feeding in equities. Nonetheless, markets have come a long way in the first five weeks of 2022. The 30 year U.S. fixed mortgage rate rose another five basis points last week and, at 3.83%, was 56 basis points above its end-2021 level.
Ten-year sovereign debt yields fell overnight by four basis points in Germany, Italy, France, Great Britain and the Netherlands. There was a drop of three basis points in the 10-year Treasury yield and of a single basis point in the 10-year Japanese JGB.
Share prices this Wednesday closed up by 1.1% in Australia and Japan, 2.1% in Hong Kong, and 0.8% in China. In Europe, the German, French, Italian, Swiss and Spanish stock markets are so far up at least 1.5%, and the British Ftse shows a 0.8% advance. That similar to the rise in the futures trading on the S&P 500 and less than the daily indicated rise of the Nasdaq.
The price of a bitcoin extended its recovery overnight and has recouped over 26% since January’s low. The cost of a barrel of West Texas Intermediate oil fell 0.3% overnight, while that of gold showed no net movement.
The verdicts on two central bank reviews are already in, while those at the Reserve Bank of India and National Bank of Romania are still awaited.
The Central Bank of Iceland’s policy interest rate has been lifted 75 basis points to a two-year high of 2.75. This was the fifth rate hike since its pandemic low of 0.75%, following increases of 25 basis points last May, August, and October as well as a 50-basis point incremental rise in November. CPI inflation in Iceland has climbed to 5.7% from 4.3% last August and 2.2% in April 2020. A released statement explaining today’s decision concedes that inflation is unlikely to fall all the way back to the 2.5% medium-term target within the current forecast horizon. In fact, projected average inflation this year was bumped higher and will remain above 5% well into the year. Core inflation exceeds 4%, and officials see signs of inflation expectations edging higher. Slack in Iceland’s output gap has closed, and house price inflation remains a particular problem. But significant uncertainty continues to surround the economy’s prognosis.
By a unanimous vote, the Bank of Thailand’s policy interest rate was left at a record low of 0.50%, its level since a trio of 25-basis point cuts in February, March and May of 2020. CPI inflation in Thailand leaped to a 9-month high in January of 3.2% from 2.2% at end-2021. It has been driven primarily by supply-side factors especially affecting the costs of energy and food, while pressure from the demand-side has stayed subdued. A released statement promises to “stand ready to use appropriate monetary policy tools if necessary,” but for now “the Committee viewed that the continued accommodative monetary policy would help support economic growth.”
Reported price data today showed a 0.3 percentage point acceleration of Brazilian consumer price inflation to a 2-month high of 10.38% in January, up from 4.56% a year earlier and a 21-year low of 1.88% touched in May of 2020. In Mexico, on the other hand, CPI inflation declined 0.3 percentage points to a 3-month low of 7.07%, which compares unfavorably with 3.5% in January 2021 and a 4-year low of 2.15% in April 2020.
Germany had its smallest monthly seasonally adjusted trade surplus in December (EUR 6.8 billion) since April 2020. Compared to levels in November, imports surged 4.7%, while exports rose just 0.9%. A 3% drop in export orders during December had been revealed earlier this week. Germany’s current account remains large, printing at EUR 23.9 billion in December (not seasonally adjusted) compared to EUR 26.2 billion in the final month of 2020. The full-2021 current account surplus of EUR 247.4 billion was actually EUR 13 billion greater than in 2020.
Italian industrial production fell 1.0% in December, depressing the 12-month rate of increase to a 2-month low of 4.4%.
Machine tool orders in Japan began 2022 on a very robust note with a 61.4% rise from the same month a year earlier.
Australian consumer confidence declined for a third straight month in February, according to Westpac’s index, falling 1.3%. Compared to its high in April 2021, confidence was down about 15%.
Brazilian retail sales fell 0.1% on month and 2.9% on year in December. Analysts had projected marginally bigger declines than those.
Just In: A 50-basis point increase in the National Bank of Romania’s key interest rate to 2.5% restores such to its pre-pandemic level. The rate had been cut by fll percentage point in 202o and by an additional 25 basis points in January 2021. The low of 1.25% had been maintained for nine months, and today’s action was preceded by three 25-basis point increases in October, November, and January. According to a statement, Romanian growth last momentum in the second half of 2021, but the rise of inflation commands more immediate attention. CPI inflation of 8.2% in December was almost four times higher than at the end of 2020. Romania has experienced “a considerable worsening of the short-term outlook for inflation, under the strong impact of supply-side shocks, mainly of energy prices, as the forecasted path of the annual CPI rate has been again revised markedly upwards over the short-term horizon…. The NBR Board decisions aim to anchor inflation expectations over the medium term, as well as to foster saving through higher bank rates, so as to bring back the annual inflation rate in line with the 2.5 percent ±1 percentage point flat target on a lasting basis.”
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Brazilian and Mexican CPI, Central Bank of Iceland, Central Bank of Thailand, German current account, National Bank of Romania