Investor Bottom-Fishing

May 13, 2022

Within bear markets, brief interruptions happen typically as investors pause to take in the carnage and test markets to see if perhaps enough has been lost to secure a trend reversal. Today’s been one such instance.

  • Share prices rose in Pacific Basin markets by 2.7% in Hong Kong, 2.6% in Japan, 2.1% in South Korea, 1.9% in Australia and 1.8% in Taiwan. Equity indices have recovered between 1.2% and 1.6% in the U.K., Germany, France, Spain and Itay, and U.S. futures are higher too.
  • Ten-year sovereign debt yields rose overnight by ten basis points in Italy and six bps in the United States, Germany, France and Great Britain.
  • The price of Bitcoin bounced up 5.3%, inching back above the $30,000 threshold.
  • Gold dipped 0.5%.
  • The dollar fell overnight by 0.9% vis-a-vis the Russian ruble, 0.5% against the Australian dollar, 0.3% relative to the Canadian dollar, 0.2% versus the Mexican peso, and 0.1% against the euro and kiwi. The dollar shows no net change against sterling and has risen 0.5% against the Japanese yen and 0.7% versus the Turkish lira.

Broad forces that have fed market anxiety this year remain in place, nonetheless. The war in Ukraine has settled into a long slog, with no diplomatic or military end in sight, and its feeding European fears. Sweden and Finland are now predisposed to applying for Nato membership. Covid data continue to show divergent trends with deaths holding low but cases and hospitalizations on the rise. Since the start, about 6.3 million people are known to have died from Covid, and the United States has contributed almost a sixth of that total. Global supply line disruptions aren’t getting fixed.

The price of WTI oil rose 1.8% overnight. Inflation has smashed through and far above targeted speed limits, and central banks are responding in kind. Three South American countries raised interest rates within the past 24 hours.

In Argentina, with it’s long history of episodic hyperinflation, consumer prices jumped at least 6.0% on month in both March and April, and their 12-month 58.0% rate of increase in April was up from 50.7% in the first month of 2022 and its largest since the start of 1992. The Central Bank of Argentina 7-day Leliq rate was raised in each month this year, including by 200 basis points to 49.0% today from 47% over the past month. Since end-2021, it has been hiked a total of 1100 basis points but remains well behind CPI inflation.

The Bank of Mexico‘s overnight interbank rate was increased for an eighth time since June, this time by 50 basis points late yesterday. Such has climbed 300 basis points in total to 7.0%. Inflation in Mexico likewise continues to exceed inflation, which is currently at 7.7% and its highest in over two decades.

Officials at the Central Reserve Bank of Peru have implemented ten straight interest rate hikes, the last nine of which have been by half a percentage points. The rate now becomes 5.0%, but CPI inflation of 8.0% remains considerably higher.

Price data reported today prior to the U.S. import/export price release revealed

  • A 1.4 percentage point acceleration of Polish CPI inflation to a 244-month high of 12.4% in April versus 4.3% one year earlier.
  • Finnish CPI inflation in April of 5.7%, marginally less than March’s 379-month high of 5.8% but up from 2.1% in April 2021.
  • French CPI inflation of 4.8% last month was four times greater than the April 2021 reading and the most in 438 months.
  • Spanish consumer prices fell 0.2% on month, enabling its 12-month increase to shrink back to a 2-month low of 8.3%  from 9.8%. That’s still well above 2.2% in April 2021.

U.S. import prices surprisingly posted no increase in April from March. That result was considerably more encouraging than analysts were expected and reflects a 2.4% drop in imported fuel costs neutralizing a collective 0.4% increase in all other items of the index. This was the smallest monthly rise since September in non-fuel import prices. In year-on-year terms, import price inflation remained in double digits at 12.0%, and that’s after a 10.9% during the prior 12 months ending April 2021. Export prices went up 0.6% on month and 18.0% on year in April 2022.

Reflecting a substantial drag from the war in Ukraine, Euroland industrial production fell 1.8% in March, its largest monthly slide in two years and resulting in a 0.9% first quarter-over-4Q 2021 decline. Industrial production was also 0.8% less in April than in the same month a year earlier.

China’s government-imposed lockdown to stamp out Covid represents another dark cloud in the global economic outlook. Even though efforts by the Peoples Bank of China to increase liquidity could be observed in a 17-month high 10.5% year-on-year rise of M2 money in April, that news was more than offset by a 52-month low of new yuan bank lending, which is a sign of weakening credit demand.

In Hong Kong, real GDP growth last quarter was revised to a slightly larger quarterly contraction of 3.0%. Year-on-year growth was positive for a fifth straight time but, at 4.0%, the smallest of that streak.

Turkish retail sales and industrial production in March rose 0.3% and fell 1.8%, respectively, resulting in year-on-year rises of 2.5% and 9.6%.

Malaysian GDP rose 3.9% on quarter and 5.0% on year in the first quarter of this year but was associated with the smallest current account surplus (MYR 2.98 billion) in 35 quarters.

Norwegian GDP contracted 1.0% on quarter in 1Q 2022, resulting in a  smaller on-year advance (4.8%) than in any of the previous three quarters.

New Zealand’s manufacturing purchasing managers index sank to an eight-month low of 51.2 in April.

Copyright 2o22, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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