A Day of Bottom-Fishing

March 9, 2022

It’s been a rough period for financial market participants since Russia invaded Ukraine on February 24. After large rises in sovereign debt yields, commodity prices, and the dollar juxtaposed against steep drops in equities, investors this Wednesday have taken their cue from the price of oil and pulled back from recent extremes.

  • At $120.80 per barrel, the price of West Texas Intermediate crude oil fell back 7.4% from its 14-year high of $130.50.
  • Gold has slipped 2.2% from its recent year and a half high point of $2,068.5 touched yesterday.
  • European stock markets so far today have risen over 4.0% in Germany, France, and Italy but only around 1.5% in Great Britain.  Pacific Rim share prices closed mixed, with Australia, Singapore and Thailand each climbing at least 1.0%, but stocks losing ground in China, South Korea, Hong Kong, and Japan.
  • U.S. futures point to advances of at least 1% in the S&P, DOW, and Nasdaq. Like yesterday, however, great volatility is to be expected, and how the day’s trading starts may not be representative of how it will end.
  • The dollar overnight has dropped back 1.2% against the Mexican peso, 0.8% versus the Australian dollar, 0.6% versus the euro, 0.5% relative to the kiwi, 0.4% against the Canadian dollar and sterling and 0.2% vis-a-vis the Japanese yen. One of the bigger swings was an 8.1% slide against the ruble, but at 117.4 per dollar, Russian currency is still around 16% weaker than a week ago. The DXY weighted dollar index fell 0.5% overnight.
  • An exception to today’s bottom-fishing theme involves ten-year sovereign debt yields, which climbed by six additional basis points in the United States and Germany, five basis points in France, Great Britain and the Netherlands, four basis points in Spain, and three basis points in Italy.

Today’s inflation data released around the world revealed

  • China’s 12-month rise in consumer prices last month of 0.9% was unchanged from January’s four-month low despite a higher 0.6% month-on-month advance, the most since October.
  • Chinese producer price inflation retreated to an 8-month low of 8.8% last month from 9.1% in January and a 26-plus year high of 13.5% hit last October.
  • CPI inflation in Hungary accelerated more than forecast to a 174-month high of 8.3% in February versus 3.1% a year earlier.
  • Mexican CPI inflation rebounded 0.2 percentage points to 7.28% in February, just a tad shy of the 250-month high of 7.37% touched in November.

In central bank action, the National Bank of Poland’s policy interest rate was lifted 75 basis points to 3.5%, its most elevated level in nine years. This was the sixth consecutive meeting to see policy tightening, but with CPI inflation in Poland now at 9.2%, more aggressive inflation-containment appears unavoidable.

Officials at the National Bank of Kazakhstan, a country which like Ukraine had been once part of the Soviet empire, had in emergency session raised their policy interest rate by 325 basis points on February 24, the day Russia invaded Ukraine. Consequently, at today’s scheduled policy review, officials did not move the interest further. Earlier rate increases between July 2021 and January had totaled 125 basis points, and the rate level is its highest since mid-2016 and above February’s 8.7% on-year rate of CPI inflation. Officials left the dollar open to a possible additional interest rate hike down the road, especially if the country’s currency weakens.

Italian industrial production had been expected to have been flat in January but instead tumbled 3.4%, the biggest monthly slide in 15 months. Industrial production also fell 2.6% relative to the same month a year earlier, which was the largest 12-month decline in 14 months.

Swedish industrial production, by contrast, rebounded from a 1.2% drop in December with a 1.1% rise in January and was also 3.9% above its year-earlier level. That news was accompanied by an even better performance by industrial orders that rose 9.9% on month and 3.6% on year. Swedish household consumption, however, stagnated in January and recorded the smallest 12-month rate of rise (5.1%) in four months.

Brazilian industrial production sank 2.4% in January, the most in ten months, and by 7.2% from a year earlier, its largest such drop in 19 months.

Consumer confidence in Australia tumbled 4.2% this month to an 18-month low.

Indonesian consumer confidence last month fell 5.4% below January’s 2-year high to a 6-month low.

Business confidence in South Africa strengthened slightly in 1Q 2022 to a 3-quarter high, but the improvement is bound to be shortlived in light of tense global geopolitics and soaring inflation.

Thailand consumer confidence in February dropped to a 5-month low.

Last, but not least, Japanese GDP growth last quarter was revised downward by 0.2 percentage points to 1.1%. The quarter-on-quarter drop expressed as an annualized rate fell to 4.6% from last month’s estimate of 5.4%. All of the growth of GDP in 4Q was attributable to personal consumption. Residential and non-residential investment moved inconsequentially. Inventories more than neutralized some modest support from net exports, and government spending exerted a 1.1 percentage point drag on GDP growth. Japan’s GDP price deflator was 1.3% lower than in 4Q 2020 and contracted 0.9% on average in 2021.

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

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