Intensifying Global Risk Aversion

May 12, 2022

Equities hit an air pocket on Thursday in the Pacific Rim and Europe, closing down 2.2% in Taiwan and Hong Kong, 3.2% lower in Indonesia, and off 1.8% in Japan and Australia, 2.1% in India, 1.6% in South Korea and 1.9% in Singapore. Share price declines of 2.0% or more have so far occurred in the U.K., Germany and France. The drop in U.S. stock futures has not been that steep, but the Nasdaq, DOW, and S&P 500 are 26.7%, 14.3% and 18.7% below their respective 52-week highs.

The rush for safe havens has seen the U.S. 10-year Treasury yield drop back nine basis points and its German and British counterparts fall by eleven basis points each.

The price of Bitcoin tumbled another 2.75% to 59% below its 52-week peak. WTI oil fell 1.2%.

Newly identified cases of U.S. Covid cases shot up Wednesday to 161,535, near twice the 7-day average, which in itself shows a 58% advance from two weeks ago. U.S. deaths yesterday from the disease of 565 were 73% above their 7-day average. The 7-day average of hospitalizations has neared the 20k level and risen by 20% over the past two weeks. U.S. deaths from Covid since the pandemic began are within 2,500 of the 1 million milestone.

The dollar is showing broad strength this Thursday, touching its highest weighted level since November 2002 and currently 0.6% above its Wednesday closing level on such a basis. Particularly noteworthy has been today’s 0.8% rise against the euro, which previously had been lagging other currencies in falling against the dollar. The dollar has also risen 0.8% on the day versus the kiwi, 0.9% relative to the Swiss franc, 0.5% vis-a-vis the Turkish lira, 0.3% against the Canadian dollar, and 0.4% relative to sterling and Mexican peso. Alternatively, the dollar has softened against the Russian ruble and Japanese yen.

Yesterday brought news the U.S. CPI inflation had not slowed as much as predicted even though the energy component fell 2.7% month-on-month. An 8.3% year-on-year CPI rise was powered by food, which accelerated to a 9.4% year-on-year jump. Now investors are bracing for the U.S. producer price report, due in less than 30 minutes.

Price data released today from other countries revealed

  • A 451-month high in Irish CPI inflation of 7.0% in April, up from 5.0% three months earlier and 1.1% in April 2021.
  • A 106-month high in Serbian CPI inflation of 9.6% versus 2.8% a year earlier.
  • A 364-month high in Swedish CPI inflation of 6.4% versus 2.2% in April of 2021.
  • A 486-month high in the combined Swiss PPI/import price index of 6.7% (versus 1.8% in April 2021). Import price inflation accelerated from 4.1% a year ago to 11.3% now, and domestic producer price inflation has climbed from 0.7% to 4.5%.

A slew of British data were reported today:

  • Real GDP grew 0.8% last quarter, down from quarterly gains of 5.6% in the second quarter of 2021, 0.9% in the following quarter and 1.3% in the last quarter of 2021, Compared to a year earlier, GDP rose 8.7%, somewhat less than had been predicted. Also monthly GDP unexpectedly dipped 0.1% in March after stagnating in February, showing downward momentum heading into the second quarter.
  • Industrial production also fell unexpectedly in March. The monthly 0.2% dip followed a drop of 0.3% in February and lefter production just 0.7% above its year-earlier level. That’s the slowest 12-month increase since November.
  • Net exports made a negative contribution to first-quarter British economic growth. The goods and services GBP 11.55 billion trade deficit in March was 25.6% wider than that in February as imports (+4.8%) outpaced a 1.3% rise in exports. Net trade in just goods generated a GBP 23.897 billion deficit.
  • Construction output rose 1.7% on month and 4.7% on year in March.

Chinese foreign direct investment, which had been 37.9% greater than a year earlier in the first two months of 2022, slowed to a 20.5% on-year increase in January-April. Most Chinese data have confirmed slowing demand and output lately under the impact of imposed lockdowns in key cities. The People’s Bank of China issued a statement today saying that growth is now the top priority.

Japan’s economy watchers index, a signal of service sector confidence, improved to a 4-month high in April. Japan’s seasonally adjusted current account surplus of 1.556 trillion yen in March was three times greater than the February surplus. The unadjusted JPY 2.549 trillion surplus was 2.75% wider than in the same month a year earlier.

GDP in The Philippines, where Marcos easily won the presidential election earlier this week, grew 1.9% last quarter, down from a 3.5% rise in the final quarter of 2021, and was 8.3% higher than in the first quarter of 2021. Average growth last year was 5.7%.

The National Bank of Serbia, which in April authorized its first interest rate hike in over ten years, just matched the 50-basis point size of that initial increase. A noted above, Serbian CPI inflation has accelerated more than threefold over the past year to 9.6% and is well above target. The new central bank interest rate level, 2.0%, is just 25 basis points below its pre-pandemic level. In 2020, such was cut from 2.25% to 1.0%. A statement released by the central bank’s executive board documents other actions taken since last October to make the monetary stance less accommodative and leaves its signal regarding possible future actions development-driven and therefore ambiguous.

Depending on geopolitical developments and the movement in key inflation factors from the domestic and international environment in the coming period, the NBS will estimate whether there is a need to tighten monetary conditions further or whether the effects of past tightening ensure a sustainable return of inflation within the target tolerance band over the projection horizon. Delivering price and financial stability in the medium term remains the NBS’s monetary policy priority, while supporting further economic growth and development, a further rise in employment and a favorable investment environment.

JUST IN: A 0.5% rise in U.S. producer prices last month following three consecutive monthly increases exceeding 1.0% was roughly in line with expectations, but the year-on-year advance of 11.0% was a bit more than forecast and the fourth straight double-digit outcome. Core PPI inflation slipped 0.4 percentage points to a still unacceptable 8.8%. Separately, 203k new jobless insurance claims were filed last week, the most in a dozen weeks but just 1k greater than in the final week of April.

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

 

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