Equities in Fresh Selling Wave… And Dollar Less Sturdy

May 24, 2022

Stock markets in the Pacific Rim tumbled Tuesday by 2.4% in China, 1.8% in Hong Kong, 1.6% in South Korea, 1.2% in Taiwan, and 0.9% in Japan. The German Dax and Paris Cac have lost 0.7% and 0.8%, and the tech sector is leading a similar drop of key U.S. equity futures. Snap Inc plunged 30% in after-hour trading after identifying a significant slide in U.S. economic conditions this months.

At its overnight low of 101.74 versus this month’s multi-year high, the drop in the weighted DXY dollar index had fallen over 3.0%. Net overnight dollar losses include declines of 3.5% against the Russian ruble, 0.7% relative to sterling, 0.3% relative to the yen, and 0.2% against the euro and peso. Currencies against which the dollar advanced overnight include the Australian, New Zealand, and Canadian dollars and the Turkish lira.

The move out of stocks depressed 10-year sovereign debt yields by seven basis points in the U.K., four bps in the United States, and two basis points in Germany.  Prices for gold and WTI oil are 0.4% firmer.

Headlines from the ongoing World Economic Forum in Davos included hawkish remarks from ECB President Lagarde suggesting a rise of interest rates next quarter. She also expressed concern about the unregulated state of crypto currencies. Bitcoin rose 0.5% overnight.

Today’s data highlight has been preliminary findings from May purchasing manager surveys.

Britain produced the biggest PMI deviation from market expectations. The U.K. composite purchasing managers index slumped 6.4 points to a 15-month low of 51.8. The report showed business confidence falling to a 2-year low amid labor market shortages, soaring inflation, and other supply-side bottlenecks. Weakening growth was found in both manufacturing and services, and the data all in all depicted a rising danger of recession ahead.

The Japanese PMI results produced five-month highs of 51.4 and 51.7 in the composite private and service sector readings that offset a 3-month low of 53.2 in manufacturing.  But the one-year business outlook slid to a 9-month low.

Euroland’s composite PMI score of 54.9 gave back all of the 0.9-point improvement experienced in April. Cost pressures lessened for a second straight month but remains historically very high. The surveys contrast buoyant conditions in the service sector as covid restrictions got eased against increasingly difficult conditions in manufacturing, which a trying to cope with persistent supply delays and the fresh drag of the Ukraine war. The German and French composite PMI readings were at a respective 2-month high and 2-month low in May.

Australia’s composite PMI fell 3.4 points to a 4-month low of 52.5. The manufacturing and service sector PMI readings also each fell to their lowest scores since January.

Among other data reported today, retail sales in New Zealand slid 0.5% last quarter and were 2.3% above the level experienced in the first quarter of 2021.

Great Britain’s monthly distributive trades survey, which had printed below zero in April (-35 to be precise) for the first time in a year, rebounded to a reading of minus 1 in May. A larger-than-anticipated GBP 18.56 billion fiscal deficit was experienced during April, and the debt/GDP ratio equaled 95.7%.

Finnish producer price inflation rose to yet another record high in April of 29.2% versus 11.0% a year earlier.

French business sentiment slipped to a 2-month low in May. Manufacturing, construction and the services sector posted 4-, 3- and 3-month lows. Labor market conditions were at a 5-month low, while the retail sectors index recovered to a 2-month high.

Consumer confidence in Norway tumbled this quarter to a 24-quarter low of -11.7 from +0.2 in the first quarter and +11.0 in the final quarter of 2021. Consumer confidence in South Korea softened to a 9-month low in May.

As central bank watchers were anticipating, the latest monetary policy review at Bank Indonesia resulted in no changed in its policy interest rate of 3.5%. That’s been the level since a 25-basis point cut in February 2021 that had followed five similar reductions spread between February and November of 2020. Indonesia hasn’t been immune from the elevated global inflation, although its current 12-month rate of increase (3.74%) is comparatively tame and still barely within target. Officials expect the target to be exceeded soon and do not expect inflation to fall back below 4% until next year. To promote that process, an increase of the required reserves ratio from 5% currently to 6% next month and 9% by September was announced after the meeting.

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

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