Broadly Based Improvement of Dollar and Intensifying Decline of Stock Markets Around the World

March 4, 2022

Shortly before today’s release of February U.S. labor statistics, the dollar was up 0.8% in weighted terms at the peak of its overnight movement and on at its most appreciated levels since May 2020. Individual dollar advances were by 3.5% against the Russian ruble, 1.2% versus the euro, 0.9% relative to the Turkish lira 0.6% against the Canadian dollar, 0.5% versus sterling but just 0.1% against the Swiss franc and 0.0% vis-a-vis the yen.

Stock markets fell 2.2% in Japan, 2.5% in Hong Kong, 1.1% in Taiwan, 1.2% in South Korea and 1.0% in China. It’s even worse in Europe, where Italy’s stock market has lost 4.6% and those in the U.K., Germany, France and Spain have fallen at least 3.0%. U.S. losses are less than 1.0% as investors expect a strong rise in jobs and a drop in the unemployment rate to be announced. Russia’s stock market remained closed.

Ten-year sovereign yields are down six basis points in the U.S., 5 bps in Germany, and 2 bps in Britain and Japan.

Energy prices got a new boost from news that Russia controls Ukraine’s biggest nuclear energy plant, which accounts for a huge share of the country’s energy supplies. There was initially fear of an environmental disaster but apparently that isn’t so.

The price of a Bitcoin dropped 2.4% overnight, while that of gold rose 0.7% and is in the mid $1900-$2000 range.

Just In: The U.S. labor market report was better than hoped in many respects. A 678k jump in employment in February was 70% greater than forecast and included manufacturing as well as services. The jobless rate, which had been projected to dip 0.1 percentage point, instead fell 0.2 percentage points to 3.8%, lowest since the onset of the pandemic in February 2020. Labor participation and the ratio of jobs to population improved. With inflation looming as America’s major economic problem, the zero percent month-on-month change in average hourly earnings — versus a half percent expected increase and gains of 0.6% in each of the prior two months — was arguably the most pleasant surprise in the labor situation report. The year-on-year increase in hourly wages slowed to 5.1% from 5.8%.

Japanese labor statistics were also reported today. The jobless rate continued its recent see-saw pattern, printing at 2.8% in September, November, and now January versus 2.7% in October and December, but the closely watched ratio of job offers to applicants rose by a greater-than-expected extent to a 21-month high of 1.20.

Euroland retail sales and German trade statistics proved disappointing:

  • The volume of euro area sales recovered just 0.2% in January from December’s Omicron-related 2.7% dive. Analysts had projected a rebound of more than 1.0%. Compared to January 2021, the rise of 7.8% was one and a half percentage points smaller than projected.
  • Germany posted its smallest unadjusted trade surplus in 253 months during January. The surplus of EUR 3.5 billion that month was down from EUR 14.2 billion a year earlier. The seasonally adjusted EUR 9.4 billion surplus was down from monthly averages of 10.6 billion euros in 4Q 2021 and EUR 17.9 billion in the first quarter of last year. Both exports and imports unexpected recorded month-on-month declines in January, and the 25.5% 12-month rise of imports was more than twice as fast as that of exports.

Brazil and several European countries released GDP figures today:

  • Brazilian GDP last quarter grew considerably faster than predicted: 0.5% versus 3Q and 1.6% on year. In 2021 as a while, real GDP advanced 4.6% after dropping 3.9% in 2020.
  • Greek GDP expanded 0.4% in the final quarter of last year, down from a 2.0% rise in 3Q. The slowdown trimmed the year-on-year growth rate to 7.7% from 11.4% in 3Q and 15.1% in 2Q. After contracting 8.2% in 2020, real GDP recovered 8.3% last year.
  • Italian growth of 0.6% on quarter matched a preliminary estimate, but the on-year growth rate for last quarter was revised downward by 0.2 percentage points to 6.2%. After plunging 9% in 2020, GDP rose 6.6% last year.
  • Austria’s contraction of GDP in 4Q was revised from -2.2% reported initially to -1.5%. Year-on-year GDP growth of 5.5% was midway between 5.4% in 3Q and 5.5% in the second quarter of 2021.

There were a couple of Asian CPI releases. South Korean consumer prices rose 0.6% on month and accelerated 0.1 percentage point to 3.7% in year-on-year comparisons. That almost twice the Bank of Korea’s 2% target and even further above the central bank’s 1.25% base rate. Filipino CPI inflation last month remained at a 14-month low of 3.0%. Finally,¬† Thai consumer prices showed a 1.1% monthly rise in February that lifted on-year inflation by two percentage points to a 161-month high of 5.28% from 3.23% in January and 2.17% in December.

French industrial production rebounded 1.6% in January, its biggest monthly advance in a year but not enough to prevent production from being below its year-earlier level by 1.5% and its pre-pandemic level by 3.9%. French retail sales fell 0.9% on month in January but were 3.7% above their year-earlier level.

India’s service sector and composite purchasing managers indices bounced marginally above 6- and 5-month lows touched in January to 2-month highs last month of 51.8 and 53.5.

Euroland’s construction purchasing managers index slipped 0.3 point to a still solid 56.3. Only a two-point slide of the French construction PMI to a 5-month low of 50.0 prevented Euroland’s overall index from climbing. Italy’s score of 68.5 set another record high, and Germany’s reading of 54.9 was its best in two years.

The British construction PMI climbed 2.8 points to an 8-month high of 59.1 in February.

The Central Bank of Sri Lanka has raised its Standing Deposit Facility Rate by a full percentage point to 6.5%. This was the second increase of 2022 and follows increases of 50 basis points in January and last August. The rate level is now just half a percentage point below its pre-pandemic level  of 7.0% but it remains far beneath current Sri Lankan CPI inflation, which has soared from 3.3% in February 2021 to a 13-year high of 15.1% by February 2022. More tightening is to be expected:

The Central Bank will continue to closely monitor the emerging macroeconomic and financial market
developments, both globally and domestically, and will stand ready to take further measures as
appropriate, with the aim of achieving stability in the fronts of inflation, the external sector and the
financial sector, thereby supporting real economic activity on a sustained basis.

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

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