Reacting to Diverse Monetary Stances, Newly Heightened Ukraine-Russian Tensions, and Possible Enhanced World Oil Supplies

February 17, 2022

The dollar fell overnight by 0.4% against the yen and kiwi, 0.3% relative to the yuan, and 0.1% versus the Swiss franc. The dollar also advanced 1.7% against the Turkish lira, 0.2% vis-a-vis the Mexican peso, and 0.1% against the euro and Canadian dollar.

U.S. equity futures point to a lower open. Equities closed 0.8% lower in Japan but 0.3% higher in Hong Kong. The British Ftse is down 0.5%, while markets in France and Germany are modestly higher.

The price of West Texas Intermediate oil is almost 2% lower on reported signs of progress in negotiations to contain Iran’s development of nuclear capability in exchange for reduced sanctions that would reopen that country’s oil export spigot.

The price of gold climbed as high as $1,893.2 per ounce (an 8-month peak) on a resurgence of tensions along the Russian-Ukrainian border. Nato is claiming that Russian troop levels are rising, not falling as the Kremlin had claimed earlier this week. And Russian sympathizers in Eastern Ukraine allege that Ukraine forces has fired on their area.

Ten-year sovereign debt yields are down four basis points in the U.S. and U.K. and by two basis points in Germany.

FOMC Minutes released yesterday afternoon only leave the size of an interest rate hike next month in doubt. Committee members have become increasingly worried about the damage that the continuing ultra-loose monetary policy may cause juxtaposed against relentless global inflation. Many are anxious to reverse gears aggressively.

The National Bank of Rwanda’s policy interest rate has been increased by half a percentage point to 5.0%. This decision reverses the only post-pandemic rate cut, which was done at the end of April 2020. Monetary officials acted even though their CPI inflation rate is presently only 1.3%. That pace compares with -2.0% at end-2021 and a streak during the second half of last year of consecutive months with negative on-year CPI inflation. Rwanda’s economy has been expanding, and global price risks are skewed to the upside.

At the other end of the monetary policy spectrum has been the Central Bank of Turkey. Under immense interference from Turkish President Erdogan, who believes higher interest rates are a cause rather than a remedy to high inflation, Turkey’s policy interest rate was slashed by a total of 500 basis points to 14% during the final four months of 2021. Meantime, CPI inflation surged in January to a 19-year high of 48.7% in January from 36.1% in December, and producer price inflation leaped 13.6 extra percentage points to 93.5%. Today’s statement from officials asserts that recent inflation is not supported by underlying fundamentals and predicts a “disinflation process on the back of measures taken and decisively pursued for sustainable price and financial stability along with the decline in inflation owing to the base effect.”

The Filipino Central Bank also held a scheduled review of monetary policy that concluded with a decision to retain the 2.0% record low interest rate, while also conceding that inflation risks tilt to the upside and revealing that officials “will continue to carefully develop its plans for theĀ  eventual normalization of its extraordinary liquidity measures when conditions warrant, in keeping with our price and financial stability mandates.” CPI inflation of 3.0% as of January was down from 3.2% in December and 3.9% on average last year, but officials note some upward creep in indicators of expected inflation. The inflation target is 2-4%. In November 2020, a 25-basis point rate cut culminated 200 basis points of reduction engineered during 2020.

New U.S. jobless insurance claims rose unexpectedly last week and to a 3-week high of 248 thousand.

The monthly Philly Fed manufacturing index slid more sharply than expected from a reading of 23.2 in January to one of 16 in February, which was only fractionally above December’s one-year low of 15.4.

U.S. housing starts in January dropped 4.1% on month to a fewer-than-forecast 3-month low of 1.638 million at an annual rate. That level was just 0.8% higher than in January 2021. Building permits, by contrast, rose 0.7% and was above expectations.

Australian unemployment remained unchanged at 4.2% in January, but a 12.9k rise in employment was considerably less than forecast.

January is the seasonally weakest month for the Japanese trade balance, but last month’s customs trade deficit of JPY 2.191 trillion was the most negative month in eight years. On-year export growth of 9.6% was dwarfed by a 39.6% rise of imports. The seasonally adjusted trade deficit of JPY 933 billion was 79% wider than the monthly average during the final quarter of 2021. Japan also reported declines of 3.5% and 1.2% in foreign orders for machinery in December and last quarter, respectively. Core domestic orders for machinery, in contrast, rose 3.6% and 6.5% in December and 4Q 2021, which defied expectations of a December slide.

Italy experienced a trade surplus of only EUR 1.103 billion in December versus EUR 4.18 billion in November and EUR 6.79 billion in December 2020.

Spain’s trade deficit widened to an 11-year high of EUR 5.3 billion in December.

The Swiss trade surplus of CHF 2.21 billion in January was a 23-year low and down from a record monthly high of CHF 4.6 billion experienced last August. Exports fell 1.5% on month.

Irish consumer prices fell 0.4% in January, trimming the 12-month rate of increase to 5.0% from 5.1% in December and a 21-year high in November of 5.3%.

Portuguese producer prices went up 0.3% in January, their smallest monthly rise since February 2021, and that resulted in a 3-month year-on-year low of 17.9% after December’s record advance of 20%.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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