Closing in on Midyear

June 27, 2022

Leaders of the Group of Seven (U.S., Japan, Canada, Germany, France, Italy, Great Britain and the EU) are holding their annual summit, hosted by Germany in the Bavarian Alps and focusing upon coordinating efforts to contain climate change and resist to Russian aggression. The Conference began yesterday and runs through tomorrow, and the top goal is cementing a plan to reduce Russian oil export revenues, which have been funding Putin’s war.

The first half of 2022 has been a difficult period socially and economically. Identified global Covid cases so far total around 550 million people, and deaths exceed 6.3 million. While deaths in the U.S. have slowed significantly, the fallout from the pandemic continues to ripple out and has been amplified by Russia’s unprovoked invasion of Ukraine, a major producer of food and energy. Industrial economies have been gripped by a full blown inflation, forcing central banks to scramble in reversing monetary accommodation and setting the stage for stagflation in the second half of the year. Difficult social and economic times have created fertile ground for authoritarian politics in both developed economies like the United States and developing ones.

One central bank out of tune with the others has been the Bank of Japan, which published a summary today of the Board meeting held June 15-17. Officials there have doubled down on the need to retain maximum monetary stimulus, which is considered essential to goose wage growth and achieve sustained core CPI inflation above 2%. They recognize that further downward pressure on the yen may be an unwelcome byproduct of their monetary stance.

The DXY weighted dollar index slipped 0.2% overnight. Sterling and the euro each rose 0.2% as well, whereas the yen and loonie recovered only 0.1%. The dollar dropped 1.9% against the Russian ruble, which has been fortified by capital controls and thus did not react to the recent default on its debt.

The dollar, by contrast, rose overnight by 1.0% against the beleaguered Turkish lira, 0.4% relative to the Australian dollar, 0.2% versus the kiwi and 0.1% against the Swiss franc.

With quarter-end fast approaching, equities and sovereign debt yields began the final week of this quarter on a rising note.

  • Stock markets in the Pacific Rim closed up 2.4% in Hong Kong, 1.9% in Australia, 1.7% in New Zealand, 1.6% in Taiwan, 1.5% in South Korea and 1.4% in Japan. The German Dax, British Ftse, and Paris Cac are 1.2%, 0.7% and 0.5% higher so far, and U.S. SPX, DJIA, and Nasdaq futures are up 0.5%, 0.4% and 0.7%.
  • 10-year sovereign debt yields climbed more sharply today in Europe (8 basis points in France and Spain, 9 bps in Italy, and 6 bps in Germany and the U.K.) than in the United States (3 bps) or Japan (one basis point).

Bitcoin’s price rallied 2% overnight, and gold is 0.6% firmer. But WTI oil dropped 0.5%.

Typical of most Monday’s, data flow has been light this June 27. What little there did little to inspire hope.

Japan’s index of leading and coincident economic indicators were left unrevised at 4- and 3-month highs for the month of April.

Chinese corporate earnings tumbled 6.5% on year in May following an 8.5% drop in April. This reduced the on-year increase for January-May to merely 1.0%, a stark contrast against a 34.3% average advance in 2021.

Taiwanese consumer confidence slumped six and two-thirds index points to a 164-month low in June.

Hong Kong’s HKD 36.68 billion trade deficit in May was above HKD 30 billion for a fourth straight month and was also 44% wider than a year earlier.

Norwegian retail sales (down 0.8%) posted a monthly drop for the third time in four months during May and was 8.8% fewer than in the same month a year earlier.

Producer prices in Finland and Spain recorded year-on-year rises in May of 31.7% and 43.6%. Finland’s mark set another record high, while Spain’s represents a 3-month low. Finland, which shares an 880-mile border with menacing Russia, also reported a deterioration in consumer confidence to its weakest point in 27 years.

Still to come: U.S. durable goods orders, pending home sales and the Dallas Fed monthly manufacturing index.

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

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