Sovereign Debt Yields Climb Higher around the World After Powell Suggests Bigger Incremental Tightenings May Be Coming
March 22, 2022
Ten-year sovereign debt yields rose today by five basis points in the United States, four bps in Germany, and three bps in France and Italy. Chairman Powell sees a possible need for individual increases in the federal funds rate that exceed 25 basis points. Many other central banks have already been doing that, and speculation is rising that the European Central Bank, which had previously signaled a disinclination to raise interest rates during 2022, will be changing that view.
The biggest laggard in this change of heart about inflation being shortlived continues to be the Bank of Japan, which maintains a target of around zero percent on the Japanese ten-year JGB yield. Such rose just 1 basis point today to 0.2%, and dollar/yen crossed above 120 to a fresh six-year high of 121.02. The 120 yen per dollar level has great technical historical significance. In the post-Plaza Summit era of generalized dollar depreciation in 1985-1987, the yen’s rise ran out of steam at 120.4, and 120 per dollar proved a tough barrier to crack on several subsequent occasions.
The dollar on net appreciated 1.2% against the yen overnight and 0.1% relative to the euro and Swiss franc. The greenback has alternatively fallen 0.8% against the kiwi and 0.4% relative to the Australian dollar and sterling, but the sharp move against the yen has lifted the DXY weighted dollar index by 0.2%.
Equities fell yesterday on Powell’s remarks and concerns that Russia in frustration will resort to chemical, biological, or even nuclear weapons in its invasion of Ukraine. Today, however, has seen some bottom-fishing, with share prices closing up 3.2% in Hong Kong, 1.5% in Japan, 1.2% in India, and 0.9% in Australia and South Korea. Equity markets in Germany, France and Italy currently show daily advance of between 0.7% and 0.9%, but the rebound in U.S. futures is less than 0.5%.
West Texas Intermediate oil and gold are down 0.6% and 0.1%.
Reserve Bank of Australia Governor Phil Lowe warned that the failure of wages to match inflation is likely to dampen future growth.
Construction output in the euro area jumped by a 10-month high 3.9% on month during January, resulting in a 4.1% rise from January 2021, the biggest 12-month increase in seven months. Euroland’s unadjusted current account swung from a EUR 5.8 billion surplus in January 2021 to a 1.7 billion deficit in January 2022, but the EUR 22.6 billion seasonally adjusted surplus was unchanged from the size of December’s surplus. The cumulative surplus over the last twelve reported months equaled 2.4% of GDP.
The Swiss CHF 14.297 billion current account surplus last quarter was down from a 33-quarter high of CHF 24.3 billion in 3Q 2021. Switzerland experienced an alltime high deficit of CHF 14.6 billion in the final quarter of 2020.
Italy had a current account deficit in January (-EUR 5.907 billion) for the first time in 21 months, and its size was the largest shortfall in 128 months.
New Zealand consumer confidence weakened to a record low this quarter, printing 12.5% below its year-earlier level.
Belgian consumer sentiment weakened to a 17-month low in March, printing at -16 after a reading of +1 in February.
Irish wholesale price inflation slowed for a second straight month to a 3-month low of 2.8% in February from 3.5% in January and 4.5% in December.
Britain’s monthly industrial trends orders index improved unexpectedly in March and matched last November’s record high. A separate data release from the U.K. revealed a greater-than-forecast public sector fiscal deficit in February of GBP 13.1 billion. With only one month left in the fiscal year, the 11-month deficit totals EUR 138.4 billion.
The Richmond Fed monthly manufacturing survey will be reported later today.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland current account and construction output, Fed Chairman Powell