End-Month Data Storm

July 29, 2022

The last business day of each month tends to experience a load of economic data reports, and July has been no exception.

A market misconception caused by a policy dynamic fraught with uncertainty that translates into lessening transparency about future policy has complicated the task of reducing inflation. I personally did not think that Powell’s press conference implies a more dovishly-predisposed stance, nor that there was any intention on his part to convey such a tone in order to goose markets. Monetary policy only works through the demand side. Inflation has accelerated because of changes in the supply side. Officials cannot impact the evolution of supply, and they do not have a good sense of that evolution. If there stance is to restore price stability, and they want this to happen sooner rather than later, less froth is needed in stocks and other riskier assets, and long-term interest rates need to reflect the sharp shift toward a less accommodative monetary policy. There is still a lot of upward momentum in U.S. and global prices. It’s too soon to take the foot of the brakes, and officials cannot be pleased at overnight market activity.

  • The German Dax and Paris Cac have risen over 1.0%.  Share prices closed up 1.3% in India, 1.4% in New Zealand, 0.8% in Australia and 0.7% in South Korea and Taiwan.
  • The ten-year U.S. Treasury yield is at 2.70%, down from 3.08% on July 8 and 3.34% right after the first 75-basis point hike of the federal funds rate in mid-June.
  • Prices of oil and gold rose 2.0% and 0.8% overnight. Bitcoin’s price is down 1.6% from yesterday but up over 20% in July.
  • The Nasdaq and S&P 500 opened higher today after a very solid weekly performance.
  • The dollar so far today is up 0.5% against the Aussie and New Zealand dollars, 0.3% relative to sterling and the loonie, and 0.2% versus the euro, yen and Swiss franc.

CPI inflation in the euro area this month did not level off at June’s 8.6% as was expected by instead rose to another record high of 8.9% that compares with 3.2% a year earlier. Core inflation in Euroland also rose by 0.3 percentage points to 4.0% versus 0.7% in July 2021. Over the past year, on-year food price inflation has raced from 1.6% to 9.8% in July. In one particularly extreme example, Latvian CPI inflation rose from 2.8% in July 2021 to 21.0% in July 2022.

French CPI inflation rose to a 37-year high of 6.1% in July. Spanish CPI inflation of 10.2% was the most in 454 months. Italian CPI inflation slid just 0.1 percentage point below June’s 36-year high of 8.0%. Italy also reported a 34.1% June-over-June rise in producer prices. Portuguese CPI inflation of 9.1% was at a 356-month high.

Polish CPI inflation accelerated 2 more percentage points to 15.5% in July. Hungarian producer price inflation of 35.0% in June constituted a record high. So did Sri Lankan consumer price inflation in July of 60.8%. A 7.2% Filipino rate of producer price inflation in June was the most in 162 months. Producer prices in Singapore rose 28% between mid-2021 and mid-2022.

German import prices rose 1.0% on month and 29.9% on year in June, with energy prices recording an on-year advance of 136%.

Australian producer prices, which are released on a quarterly basis, jumped 1.4% between 1Q and 2Q and were 5.6% greater than in the second quarter of 2021. That the largest year-on-year increase since the final quarter of 2008.

German GDP growth flat-lined in the second quarter, which cut the year-on-year growth rate to 1.5% from 3.6% in the first quarter and 10.4% in the second quarter of 2022.

But unlike the examples of the United States and Germany, real GDP in Euroland, which had been forecast to tick only 0.2% higher, instead rose 0.7% in the second quarter (not annualized). Even so, the year-on-year growth rate still slowed to 4.0%  from 5.4% in 1Q. In Euroland’s other three largest economies, GDP expanded on quarter by 1.1% in Spain, 1.0% in Italy and 0.5% in France. All benefited from a relaxation of Covid restraints that promoted decent tourism. Whether that continued through the more recent summer heat wave remains to be seen.

Japan released several economic statistics.

  • Industrial production leaped 8.9% in June, more than reversing May’s 7.5% slump. Although 3.1% lower than a year earlier, officials upgraded their trend characterization from “has weakened” to “industrial production is fluctuating indecisively.”
  • Retail sales in June sank 1.4% on month, its biggest drop in since last August, and were just 1.5% above a year earlier.
  • Consumer confidence weakened to an 18-month low in July.
  • Housing starts posted a second straight year-on-year decline in June, this time of 2.2%. On-year growth in construction orders slowed to 15.5%.
  • Core CPI inflation in Tokyo, which excludes fresh food but includes energy, climbed 0.2 percentage points for a second straight time to 2.3%. If energy is also deleted, core inflation would have been only 0.4%. This makes Japan a blatant inflation outsider and is a reason why having a weak yen yields some benefits.

On-year changes of +1.4% and -1.5% in South Korean industrial production and retail sales during June respectively represent their weakest performances in nine and 18 months.

Swiss retail sales edged just 0.1% higher in June and were 1.2% greater than a year earlier. Switzerland’s KOF leading economic index fell to a two-year low in July.

French household consumer spending rose 0.2% on month in June, which was better than the expected outcome.

South Africa’s trade surplus shrank nearly 50% from 250 billion rand in the first half of 2021 to ZAR 133 billion in the first half of this year. Turkey’s trade deficit widened in a similar time comparison from $21.2 billion in the first half of last year to $51.4 billion in 1H 2022.

The U.S. employment cost index rose 1.3% last quarter, a tad more than forecast. Personal income growth of 0.6% and personal consumption spending growth in June of 1.1% also beat expectations. the PCE price deflator rose 1.0% on month, most in three months, and 6.8% on year versus May’s 6.3% on-year rise. Core PCE was 4.8%.

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




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