Dollar Up on Fresh Concerns Out of China and Russia and Continuing Worries that Fight to Constrain Inflation Will Cause a Global Recession
July 11, 2022
The highly contagious BA.5 subvariant of Omicron has emerged in China, prompting officials there to reimpose Covid restrictions that previously slowed that economy significantly.
Russian President Putin warned that western sanctions will lead to an intensifying energy crisis.
Higher inflation has been reported in several countries.
Factors like these would make this a very challenging environment in the best of circumstances. The embrace of extreme right-wing political populism around the world diminishes the prospect that governments will meet its tasks successfully.
- Former Japanese Prime Minister Abe was assassinated at an election rally just before the weekend. That shock produced an emotional response in Sunday’s upper-house parliamentary elections that gave the LDP/Komeito ruling coalition a large majority and thus reduces the probability of a less stimulative monetary policy in the foreseeable future. The dollar touched a 2-year high of 137.27 yen earlier today.
- In the wake of British Prime Minister Boris Johnson’s resignation, no fewer than nine Tory politicians are vying for his job. Sterling weakened 0.6% today.
The weighted DXY dollar index is trading near its strongest level since the summer of 2002. Against specific other currencies, the greenback shows overnight gains of 1.3% against the Australian dollar, 0.7% relative to the euro, kiwi, and yen, 0.6% vis-a-vis the Turkish lira and pound, 0.4% versus the loonie and Mexican peso and 0.3% against the Swiss franc.
Prices for Bitcoin, WTI oil and gold are down 1.6%, 2.4% and 0.5%.
The approaching release of quarterly U.S. corporate earnings has equity investors on edge. U.S. stock futures are down about half a percent today. In the Pacific Rim, stock markets lost 2.8% in Hong Kong, 1.3% in China, 1.1% in Australia, 0.9% in Taiwan, 0.5% in New Zealand, and 0.4% in South Korea. The Japanese Nikkei index was an outlier with a 1.1% advance. European equity markets so far are down 0.8%, 0.7% and 0.4% in Germany, France, and Great Britain.
Reflecting the move into safer financial investments, 10-year sovereign debt yields have dropped five basis points in Germany and Italy, four bps in Spain, three bps in the U.K., two bps in the United States and a basis point in France.
Danish consumer price inflation accelerated 0.8 more percentage points to a 460-month high of 8.2% in June. That’s also up from 1.7% in June 2021.
Norwegian CPI inflation of 6.3% last month was the most in 404 months and up from 5.7% in May and 2.9% in June 2021. Core CPI inflation climbed to a 22-month high in Norway, and producer price inflation of 68.8% was the most since the record high of 79.4% in March and up from 37.1% in June 2021.
Lithuanian CPI inflation rose from 3.6% in June 2021 to 18.9% in May of this year and a 309-month high of 21.0% last month.
Rwandan consumer price inflation of 16.1% last month was up from a mere 0.1% a year earlier and the largest 12-month increase in 135 months.
Ireland’s construction purchasing managers index slumped to a 15-month low of 46.4. Being below the 50 level, this June report signaled the first outright contraction of activity in 14 months.
Indonesian retail sales fell 2.1% on month in May and posted the smallest 12-month increase (2.9%) in 8 months.
The latest Bank of Japan quarterly meeting of branch managers released an economic review that raised the view in 7 of 9 regions and left perceived conditions unchanged in the other two regions. The economy had paused in the first quarter, and officials caution that Japan still faces a highly uncertain environment, including possible negative fallout from the yen’s slide. Even so, yen weakness is not persuading them to back away from a very stimulative monetary policy, which is likelier from here to be loosened further rather than made less accommodative. But M2 money grew 3.3% on year in the second quarter, down from 3.5% in 1Q, 6.4% in 2021, and 6.5% in 2020.
A 17.1% year-on-year rise in Japanese machine tool orders was the smallest advance in 16 months. Core domestic Japanese machinery orders fell more sharply in May (5.6%) than had been expected, and government and export orders for machinery respectively dropped 20.1% and 2.4% in the latest month.
To offset slower growth related to the Covid pandemic, the People’s Bank of China has made its policy somewhat more accommodative. Yuan lending in June surpassed expectations, and on-year Chinese M2 money growth of 11.4% in June was the most in 68 months.
Italian retail sales rose 1.9% in May, most in a year, but by a lesser 7.0% from its level a year earlier. Czech retail sales fell 2.3% on month and by 6.9% on year in May. The 12-month drop was the Czech Republic’s first on-year slide since early 2021.
A monthly meeting of the Eurogroup is being held today.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without expresss permission.
Tags: BA.5 variant, Bank of Japan, Italian retail sales, Japanese elections, Putin warning
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