Anxious Start to a New Week

April 11, 2022

With central banks scrambling to counter inflation that has climbed far higher than anticipated, predictions are proliferating of a sharp economic slowdown or even a recession in the United States and many other economies.

U.S. consumer price inflation is expected to have accelerated a half percentage point or more in March from February’s 7.9%. The data will be reported at 12:30 GMT tomorrow.

The first quarter season for U.S. corporate earnings reports is close at hand. Because signs of robust profits could also have inflationary implications, financial market analysts are wondering if we’ve moved into a good-news-is-bad-news situation.

The 10-year Treasury yield advanced another 5 basis points overnight to 2.75%. Rising sovereign debt yields is not restricted to the United States. Among 10-year notes, yields are today up 10 basis points in Germany, eight bps in the U.K., six bps in Switzerand, 4 bps in Spain, Italy and Canada and 3 bps in France. China’s 10-year yield has crossed above the U.S. level for the first time since around mid-2010.

Chinese CPI inflation rebounded to a 3-month high of 1.5% in March versus forecasts of 1.2%, and producer  prices went up last month by 1.1% compared to February and 8.3% compared to a year earlier.

Danish CPI inflation of 5.4% in March was at a 442-month high and up from 1.0% a year earlier, while Czech consumer price inflation of 12.7% was the most since May 1998.

Norwegian CPI inflation had begun 2022 at a 6-month low of 3.2% but then resurged to a 3-month high of 4.5% by March, and was accompanied by news that Norwegian PPI inflation had leaped to a record high of 79.4% from 53.2% in the prior month of February. Energy producer prices were 162% higher than in March 2021.

One central bank that is not tightening has been the People’s Bank of China. Efforts to quell the country’s Omicron outbreak have darkened China’s economic growth prognosis in 2022. Chinese on-year growth in M2 money accelerated half a percentage point to 9.7% last month, and new yuan lending was 17% larger than forecast.

Geopolitical news has also been dismaying. French President Macron has his work cut out for him if he is to win reelection to a second term, as his plurality margin against his National Front opponent, Le Pen, was a smaller-than-expected 4.2 percentage points in yesterday’s first round of voting. The run-off second round of the election is scheduled for April 24. Victory by Le Pen would inflict a deep wound in the NATO coalition’s effort to stay united in sanctioning Russia for its invasion of Ukraine. Revelations of war crimes by Russian soldiers and authorized by the country’s military and political leadership are driving western governments to ramp up economic sanctions. The World Bank accordingly is now projecting over an 11% contraction of Russian GDP in 2022 followed by just a 0.6% rebound in 2023. And with Russian capital controls being lessened and with Standard & Poors downgrading Russia’s credit rating because of the risk it will default, the ruble has softened more than 2% today.

The DXY weighted dollar index touched an overnight high of 100.05, most since May 2020 and shows a 0.1% uptick on balance. Sterling broke below $1.3000 to touch $1.2989 lowest since September 2020, and the yen slipped 1.0% in the absence of any sign that the Bank of Japan is considering a less stimulative policy stance.

Equities have weakened across the board, with steep losses today of 3.0% in Hong Kong, 2.6% in China, and 1.4% in Taiwan. Equity indices lost 0.8% in India and 0.6% in Japan and currently show losses of 0.7% in Germany and 0.5% in Great Britain. Nasdaq futures are off more than 1.0%.

With several countries releasing strategic petroleum reserves, the price of WTI crude oil has slumped about 5%.

Bitcoin is down 2.6% today, while the price of gold shows a 1.0% rise.

Revelations among today’s other economic data highlights include

  • An unexpected 0.6% monthly drop of British industrial production in February, along with a 0.1% dip in construction output. Supply-side monthly GDP in the U.K. that month grew just 0.1% on month.
  • The British goods and services trade gap of GBP 9.26 billion in February remained huge, albeit not as much so as January’s record shortfall, and including a GBP 20.59 billion deficit from goods transactions.
  • Ireland’s construction purchasing managers index fell 4.5 index points to an 11-month low of 53.9 in March.
  • Turkey recorded a fourth straight current account deficit. At $5.154 billion, such was 2.11 times wider than a year earlier.
  • Industrial production sank 6.6% on month in Malaysia in February, the largest drop since April 2020, and a 0.4% dip of retail sales broke a string of seven consecutive monthly rises.
  • Mexican industrial production slumped 1.0% on month in February, which trimmed the 12-month increase to a 3-month low of 2.5%.
  • South African factory output dropped 1.1% on month in February, resulting in just a 0.2% rise compared to a year earlier.

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


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