Few Rays of Hope

May 17, 2022

Euroland GDP growth last quarter was revised marginally higher. British labor market data showed greater resilience than imagined, and Chinese officials indicated progress against Covid and plans to reopen Shanghai. Recent U.S. earnings reports from retailers have exceeded expectations.

Share prices rallied Tuesday, closing up 3.3% in Hong Kong, 2.6% in India, 1.0% in Taiwan, 0.9% in South Korea, 0.7% in Indonesia and China and 0.4% in Japan. Main European stock market indices are showing gains of more than 1.0% so far in Germany, France, Italy and Spain and of 0.9% in the U.K. and Switzerland. All three highly watched U.S. indices also have gained more than 1.0% in futures trading.

U.S. industrial production and retail sales figures will be reported shortly.

Ten year sovereign debt yields are eight basis points higher in Germany, Italy, France and Spain. Their British and U.S. counterparts are up nine and four basis points respectively.

WTI oil and the price of gold have risen 1.0% and 0.8%. Bitcoin rebounded 1.7% and moved back above $30,000.

Lessening risk aversion has put downward pressure on the dollar, which dropped overnight by 0.9% on a weighted basis, 1.3% relative to sterling, 1.2% versus the Russian ruble, 1.0% vis-a-vis the euro, Swiss franc, and New Zealand dollar, and 0.9% against the Australian dollar. Alternatively, the dollar firmed 0.1% against the Japanese yen, dipped only 0.2% vis-a-vis the Canadian dollar and climbed 1.2% against the woeful Turkish lira.

Euroland GDP rose 0.3% in 1Q 2022, not 0.2% as estimated initially. The revision reflects the addition of more economies in the estimate, not changes in growth that had been reported earlier. GDP advanced 5.1% compared to the same quarter a year earlier. Employment in the euro area grew 0.5% on quarter and 2.6% on year.

British unemployment unexpectedly ticked downward to 3.7%, its lowest level since 1974. New jobless claims fell by 56.9k in April.  Labor productivity fell 0.7% but remained almost 2% above the pre-pandemic level of 1Q 2019.

Japan’s tertiary index of service sector activity jumped 1.3% in March after a 1.8% drop in February and a small downtick in January. The index in the first quarter recorded a 1.0% quarter-on-quarter slide and a 0.4% year-on-year advance.

French unemployment dropped to 7.3% in the first quarter, lowest in seven quarters and down from 8.1% a year earlier.

But not all Tuesday’s news has been upbeat.

India reported the highest rate of wholesale price inflation (15.1%) in 280 months.

British average hourly earnings growth accelerated to 7.0% on year, most in 7 months but still negative when adjusted for inflation.

CPI inflation in Bulgaria accelerated two percentage points in April to a 165-month high. Consumer prices there have posted back-to-back monthly increases of over 2.0%.

Released minutes of the Reserve Bank of Australia’s Board meeting earlier this month proved more hawkish than anticipated. While officials raised the policy interest rate by 25 bps, they considered doing a 40-bp move. Labor costs are rising, domestic demand is rising solidly, and the policy stance now is way too expansive. The smaller 25-bp increment was selected because it was consistent with market expectations, but more tightening will be forthcoming.

GDP in Thailand grew more slowly in the first quarter (1.1%) than in the final quarter of 2021, but the expansion rate beat expectations and enabled on-year growth to rise 0.4 percentage points to 2.2%.

Indonesia, an energy exporter, experienced a record monthly trade surplus of $7.56 billion last month, and the year-to-date surplus of $16.8 billion was nearly twice the size of the January-April 2021 surplus.

The U.S. Covid numbers are worrisome. Cases totaled 148k yesterday and their 7-day average is running about three times higher than at the end of the first quarter. Deaths since the start of the pandemic moved above 1 million people yesterday, according to the CDC.

Also disturbing is the EU’s inability so far to approve a full embargo against imports of Russian oil due to Hungary’s continuing opposition to the action. President Putin has been counting on western disunity.

As anticipated, American consumers continued to spend robustly last month in the face of soaring inflation, plunging consumer confidence, and falling stock market wealth. Retail sales rose 0.9% on month and March’s advance was revised to a higher 1.4%. Sales in April were 8.2% greater than a year earlier, and the year-on-year increase for the latest three-month period was 10.8%.

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


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