Revolting Developments but the Dollar Rally Plays On and Central Bankers Scramble to Catch Up
July 14, 2022
Not for the first time this year, JP Morgan CEO Jamie Dimon’s candid remarks about a deteriorating global economic outlook has fanned investors’ flight to safety. The litany of problems includes soaring inflation, tighter monetary policies, Russia’s relentless destruction of Ukrainian infrastructure, other geopolitical tensions, and weakening business and consumer confidence. He could have added the Covid, a problem that has seemingly been crowded out in the public consciousness by the slew of other problems but which nonetheless grinding higher with new U.S. cases and deaths yesterday not far short of 200,000 and 1,000. Dimon was more encouraged that the U.S. economy can weather the maelstrom than other places around the world. His latest warning came in the context of the announcement of weaker-than-expected JP Morgan earnings last quarter.
U.S. equity futures point a drop of at least 1.5%. Share prices in Europe are down 2.6% in Italy, 1.8% in Spain, 1.2% in Germany, 1.1% in France and 0.8% in Great Britain. Stock markets in the Pacific Rim, in contrast, performed reasonably well today.
The exodus from risky assets can be observed, too, in today’s increased 10-year sovereign debt yields of 24 basis points in Italy, 13 bps in Spain, 12 bps in Portugal, 9 bps in Greece, 7 bps in Germany, 5 bps in the U.K. and 3 basis points in the United States.
Bitcoin continues to betray its true believers, dropping another 2.3%. The price of gold has sunk 1.4%, and WTI oil is down 1.9%.
The Federal Reserve Beige Book of regional economic conditions found substantial inflation, continuing labor market tightness, mostly only modest growth, mounting fears of a coming recession, and weaker confidence.
The European Commissions summer update of growth and inflation forecasts revised projected GDP growth in the euro area to 2.6% in 2022 and 1.4% in 2023 but bumped up projected CPI inflation to 7.6% this year and 4.0% in 2023.
Price data released this Thursday include
- A 1.1% monthly increase in U.S. June producer prices, that lifted the 12-month rate of increase to a 3-month high of 11.3% and includes on-year advances of 54.4%, 12.7%, and 8.2%, respectively, in energy, food, and core producer prices. PPI inflation has exceeded 10.0% for the past seven reported months.
- German wholesale prices in June were 21.2% above their year-earlier level. That’s the fourth straight such rise of more than 20.0% and compares to 10.7% in June 2021 and a record 23.8% in March 2022. The silver lining in the data was that wholesale prices only went up 0.1% compared to April.
- Indian wholesale prices in June posted their third straight on-year rise of 15-something percent but at 15.18% was less than in April or May.Food costs accelerated from 3.1% in June 2021 to 14.4% last month.
- The 6.9% on-year increase of the Swiss combined PPI/import price index in June matched May’s 488-month high and exceeded the 2.9% pace a year earlier by four percentage points. Import prices and domestic producer prices were 12.1% and 4.4% above year-earlier levels.
- Finnish consumer price inflation last month of 7.8% was at a 458-month high and up from 2.0% a year earlier.
- Irish CPI inflation accelerated from 1.6% in June 2021 to a 38-year high of 9.1% last month.
- Swedish CPI inflation of 8.7% in June after 7.3% in May was the most in 371 months and up from 1.3% a year earlier.
- In Namibia, CPI inflation accelerated 0.6 percentage points to a 5-year high of 6.0% in June.
- Last and least, Saudi Arabian CPI inflation ticked up just 0.1 percentage point to a 2-month high of 2.3%.
Central bank policy interest rates have been raised by 75 basis points in Chile and the Philippines.
Chilean monetary officials had cut their interest rate twice in March 2020 by a total of 125 basis points to 0.50% but began to raise the rate in July 2021 and did so in four moves by a total of 350 basis points by December. Yesterday’s unanimously decided increase to 9.75% from 9.0% was the fifth hike of 2022 and exceeded analyst expectations of a half percentage point move. Chilean inflation of 12.5% is at a 28-year high and still well above the new central bank interest rate level. A released statement asserts, “the Board estimates that new increases in the monetary policy rate will be necessary to ensure the convergence of inflation to 3% in two years.”
Officials at the Central Bank of the Philippines had not scheduled a policy review for today. But with Filipino CPI inflation jumping 0.7 percentage points to 6.1% in June, a 92-month high and over 2 percentage points above the target corridor of 2-4%, they felt they could not delay intensifying the monetary tightening cycle any longer. Increases in May and June had been by only 25 basis points, and today’s 75-basis point increase lifts the rate to 3.25%, its highest level since March 2020. According to their statement, “the domestic economy can accommodate a further tightening of monetary policy settings,” and officials pledge “unwavering commitment and readiness to take further necessary actions to steer inflation towards a target-consistent path over the medium term in keeping with its price stability mandate.”
Australia’s labor market in June was hotter than realized. The jobless rate fell to a 48-year low of 3.5% from 3.9% in the prior three months, and there were 149 thousand more jobs than two months earlier.
Singapore GDP failed to rise in the second quarter following three straight quarters of positive growth.
The drop in Japanese industrial production during May has been revised to an even sharper 7.5% from 7.2% estimated initially. Such followed a 1.5% drop in April and left production 3.1% below its year earlier level. Capacity usage plunged 9.2% on month and 6.7% on year.
On-year growth in Turkish retail sales and industrial production during May of 20.8% and 9.1% represent a 1-year high and a 4-month low.
New U.S. jobless insurance claims increased by 9k to 244k last week and, at 235.75k represent the largest number of new claims since the week of November 20, 2021.
The dollar continues to perform extremely well. Shortly before the U.S. PPI data release, the dollar was trading above Wednesday closing levels by 1.4% against the Canadian dollar, 1.2% versus the yen, 0.9% relative to the Mexican peso, 0.7% versus the Aussie dollar and 0.6% against the euro and sterling. With investors increasingly expecting the Fed to tighten at least a percentage point at the end of July, the dollar extended its rally. The weighted DXY index is close to today’s peak currently, 1.1% higher than yesterday and 19% above its 52-week low. For the dollar, which represents the external value of U.S. money, to be so strong yet domestic inflation (the internal value of the money) to be so high is one of the more remarkable and paradoxical developments of 2022.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bangko Sentral Ng Pilipinas, Central Bank of Chile, India WPI, James Dimon, U.S. PPI
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