Mixed Messages Amid Cross-Currents

March 14, 2022

There hasn’t been a consistent theme this Monday tying together overnight financial market developments.

The biggest Covid threat in China since early 2020 has created heavy equity market selling in that country (-2.6%) and Hong Kong (-5.0%).

Sources are claiming progress in diplomatic attempts to end the military conflict between Russia and Ukraine, but Russian attacks on Ukraine’s cities continue to escalate. To be sure, there are other humanitarian disasters happening now elsewhere around the world, especially in Africa and the Middle East, but what sets the Russian invasion of Ukraine apart is that country’s massive arsenal of nuclear weapons and widespread concerns about President Putin’s mental state. That’s why that conflict among all the other hot spots has the world’s attention.

The suspension of equity market trading in Russia has been extended for another week. Further Russian ruble depreciation is being prevented by Russian capital controls and that country’s 20% central bank interest rate.

Perhaps the most telegraphed U.S. central bank interest rate hike ever will be the result of this week’s FOMC meeting tomorrow and Wednesday. This is a highly anticipated event, all the more so because of the relentless stream of very elevated price data being reported daily around the world including releases today of Indian and German wholesale prices and Finnish, Swedish and Romanian consumer prices.

Ten-year sovereign debt yields show sharp overnight increases of seven basis points in Italy, six basis points in Germany, Great Britain and The Netherlands, five basis points in the United States, France and Spain and one basis point in Japan.

Hopes of a cease-fire in Ukraine have encouraged bargain hunting in some European stock markets, which show gains thus far today of 1.7% in Germany, 1.3% in Spain and 1.2% in Italy. Likewise, share prices rose 1.2% in India and Australia, while futures trading overnight point to a 0.6-0.8% rise at the open in the U.S. S&P 500 and Dow but only a modest uptick in the interest rate-sensitive Nasdaq.

The price of West Texas Intermediate oil has dropped 3.2% today and almost 19% from last week’s peak but remains highly elevated at nearly $106 per barrel. The price of gold is down 0.5%.

The dollar is mixed, having risen 0.5% against the yen to a peak of 117.87, highest since February 4, 2016. But the dollar also fell 0.6% against the euro, 0.4% against the Aussie dollar, 0.3% versus the weighted DXY index, and 0.1% relative to sterling.

German wholesale price inflation accelerated 0.4 percentage points in February back to its record high hit of 16.6% touched last November. WPI inflation way back in February 2021 had been at zero percent.

Indian WPI inflation rebounded to a 2-month high in February of 13.11%, just 1.7 percentage points below the 278-month peak in November. In the early months of the pandemic, WPI inflation had been as low as negative 3.1%.

Finnish and Romanian consumer price inflation in February of 4.5% and 8.5% represent 161- and 163-month highs. Swedish CPI inflation last month was at a 161-month high of 4.3% versus 1.4% a year earlier.

The quarterly update of the Swiss government’s economic projections highlight a dampened pace of recovery due to higher inflation and the conflict in Ukraine but also embody an improved Covid situation. Projected GDP growth this year was bumped down 0.2 percentage points to 2.8%, while the forecast for CPI inflation has been raised from 1.1% to 1.9% for 2022 but kept unchanged at 0.7% for 2023.

Spanish retail sales fell 0.3% in January but but posted a 12-month 4.0% rate of increase.

Czech retail sales rose 1.6% on month and by a greater-than-expected 9.6% on year in January.

Malaysian retail sales rose 1.0% on month and 7.3% on year in January.

The French current account deficit of EUR 1.79 billion in January was the smallest in four months and also slightly less than the January 2021 deficit of EUR 2.0 billion.

Ireland’s construction purchasing managers index rebounded from an 8-month low of 53.7 in December through 56.1 in January to an 8-month high reading of 58.4 last month.

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

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