A Market Pause While Waiting for Other Shoes to Drop

February 23, 2022

Continental European share prices are up 0.6-0.9% so far today in Germany, France, Italy, Spain and Switzerland. Futures trading in the S&P 500 and Nasdaq point to rebounds of 0.6% and 1.0%. In Pac Rim stock market trading, China and Indonesia closed up 0.9%, Hong Kong and Australian recovered 0.6%, and Japan didn’t trade due to the Emperor’s Birthday holiday.

The dollar is 1.4% stronger and at over a one-year high against the Russian ruble, which was depressed in response to Western economic sanctions, but fell against commodity-sensitive currencies like the Canadian dollar (0.6%), Aussie dollar (0.7%) and kiwi (0.8%), which benefited as well from another central bank rate hike and an upwardly revised path of future monetary tightening. Otherwise, the dollar remained unchanged on balance overnight against the euro and yen, dipped 0.2% vis-a-vis the Swiss franc, and edged down 0.1% against sterling and the DXY weighted dollar index.

Gold slipped marginally, and the price of WTI oil fell 0.5% overnight. The ten-year U.S. Treasury yield had swooned Tuesday during the equity market rout but shows a 3-basis point net overnight rise. Comparable German bund, British gilt and Japanese JGB yields are unchanged from Tuesday closing levels.

The 25-basis point hike in the Reserve Bank of New Zealand’s Official Cash Rate to 1.0% follows similar hikes last October and November and completes the reversal of the 75 basis points of pandemic easing engineered in mid-March 2020. A released statement leaves no doubt that considerable further monetary tightening will be necessary. By two years from now, the OCR is projected to be marginally above 2.5%. Consumer price inflation in New Zealand is targeted at 1-3% but soared from 1.4% in the final quarter of 2020 to a 30-year high of 5.9% one year later. The level of employment is now considered above a sustainable condition. Besides raising interest rates into restrictive territory, central bank officials are embarking on a gradual dumping of bonds acquired during the pandemic era.

A 0.7% rise of Australia’a quarterly wage cost index during 4Q 2021 resulted in a higher 2.3% year-on-year advance, the most in ten quarters and up from 1.4% a year earlier. Australian construction completions last quarter had been projected to climb 2-3% but instead fell 0.4%. Business investment last quarter fell 2.2% but was still 12.9% stronger than a year earlier.

South Korean business confidence recovered only one index point to a reading of 91 this month after dropping five points in January.

French business confidence bounced up dynamically in February to a 3-month high of 112.3 in February from 107.2 in January and 90.8 in February 2021. The services, retail, and construction improved, and so did the labor market. Manufacturing slipped a bit but, at 111.8, was considerably above its year-earlier reading of 78.2.

Financial market sentiment toward Switzerland retreated half an index point to a 2-month low in February but remained considerably above November’s reading.

German consumer confidence was hurt appreciably by the unexpected wave of inflationary pressure at the start of this year and slumped to a 10-month low and negative reading of -8.1 versus +1.0 as recently as November.

January CPI inflation in the euro area has been confirmed at the preliminary estimate of 5.1%, which represents a record high and compares with 0.9% in the first month of 2021. Energy (up 28.8%) and food, alcohol and tobacco (+3.5%) were major inflation drivers, and service sector price inflation of 2.3% indicates that inflation is becoming more broadly based. Core inflation dropped back to 2.3% from 2.6% in the prior two months, but that dip may get reversed.

In Taiwan, retail sales and industrial production were 6.4% and 10.0% greater last month than in January 2021. Taiwan’s current account surplus of $116 billion last year was 22% wider than the 2020 surplus.

Real GDP in Hong Kong recorded a diminished 0.2% quarterly rise in 4Q 2021, and the 2021 average growth of 6.4% merely offset GDP’s plunge of 6.5% in 2020.

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

 

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