Russia Escalates Military Conflict.. Biden’s State of the Union Address Tonight

March 1, 2022

The fighting in Ukraine was even more intense on Tuesday, as Russian forces try for a quick knockout of that country. Meantime, Western sanctions are paralyzing the Russian economy and financial system.

As on Monday, equity markets attempted a rebound in the Pacific Rim, but stocks got clobbered in Europe. Markets closed up 1.2% in Japan, 1.4% in Taiwan, 0.8% in China and South Korea, and 0.7% in India and Australia but are down 2.8% in France, 2.6% in Germany, 2.4% in Italy and 1.0% in Britain. U.S. futures show a drop of almost 1%.

Ten-year sovereign debt yields remain in free fall, with overnight drops of 16 basis points in the U.K., 15 bps in Germany and nine basis points in U.S. futures.

West Texas Intermediate oil shot up 4.7%. Bitcoins cost 3.8% more than yesterday, and gold has risen 1.2%.

The National Bank of Kyrgyzstan increased its policy rate by 150 basis points to 10.0%, which is exactly double the level prior to February 2021 and at a six-year peak. The previous increase of 50 bps was done in January. A 10% the policy rate still remains a tad below on-year CPI inflation in that country, and officials expect inflation to go somewhat higher before they crest. More rate increases this year seem probable.

After its second scheduled policy review of 2022, the Reserve Bank of Australia Board left its Official Cash Rate unchanged at a record low of 0.1%, which has been the level since a 15-basis point cut in November 2020 capped 65 basis points of easing that year. Governor Lowe’s statement today concedes that the war between Russia and Ukraine injects a fresh uncertainty whose inflationary impact is tilted to the upside, but he also defends the patient posture of the current policy stance and defends not raising rates just yet.

While inflation has picked up, it is too early to conclude that it is sustainably within the target range. There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems. At the same time, wages growth remains modest and it is likely to be some time yet before growth in labor costs is at a rate consistent with inflation being sustainably at target. The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.

Today’s economic data menu is loaded with February manufacturing purchasing manager surveys that by and large show some improvement in growth by also persisting excessive inflation.

Euroland PMI 2-month high reading of 58.2 underscores resilient growth but was revised a bit under the preliminary estimate of 58.4. Aside from the Dutch 3-month high of 60.6, the other seven national PMIs of countries using the euro ranged narrowly between 56.9 in Spain and 58.4 in Germany.

The British manufacturing PMI rose 0.7 points to a 3-month high of 58.0.

The Swiss manufacturing PMI dropped to a one-year low but was still robust with a reading of 62.6.

The Swedish, Danish, and Norwegian PMI readings fell to their lowest scores in 17, 12, and 13 months.

Russia PMI reading in February of 48.6 was a 6-month low but is liable to tumble considerably further in light of Western sanctions.

Poland’s and Hungary’s PMIs moved up to 2-month highs, while the Czech reading fell to a 4-month low.

Turkey’s 50.4 reading conveys near stagnation and is the lowest in nine months.

Japan’s manufacturing PMI dropped to a 5-month low of 52.7.

Among other East Asian economies, PMI readings were at a 2-month high in Malaysia, a 38-month peak in the Philippines, and 18-month low in Taiwan, a record high in Thailand, a 10-month high in Vietnam, and a 2-month high in China. China’s NBS government-authorized PMI survey of manufacturers printed at 50.2, also a 2-month high, as was the non-manufacturing PMI score of 51.6.

There were also multiple Australian manufacturing PMIs reported. That compiled by AIG rose to a 2-month high of 53.2, while the IHS-compiled index lof 57.0 likewise represents a 2-month high.

The ABSA-compiled South African PMI climbed 1.5 points to a 179-month high of 58.6.

Among price data out today,

Italian CPI inflation accelerated from 4.8% in January to a 682-month high of 5.7% in February. It was only 0.6% in February 2021.

Indonesian CPI inflation had touched a 20-month high in January but dipped back to a 2-month low of 2.06% last month, even as the core rate of inflation climbed further to an 18-month high.

Pakistani CPI inflation slowed to a 3-month low in February but, at 12.2%, remained in double digits for a fourth straight month.

Australia’s current account surplus narrowed to a 5-quarter low of A$ 12.7 billion in 4Q 2021.

Italian GDP rebounded 6.6% last year after plunging 9.0% in 2020 and edging up just 0.9% in 2018 and 0.5% during 2019.

Fourth quarter GDP in Cyprus and the Czech Republic were 5.9% and 3.6% above their year-earlier levels.

Taiwanese consumer sentiment slid marginally in February.

Mexican business confidence bounced above January’s 8-month low to a 2-month high in February.

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



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