Taking Stock of the Mixed Signals of Recent Developments

August 3, 2022

Investors breathed a sigh of relief that the Pelosi visit to Taiwan is over but continue to worry that adverse geopolitical repercussions will outweigh any symbolic benefits. In its present fragmented political conditions, America could do without the trio of elevated tensions with Russia, China, and the Middle East.

Yesterday’s primary U.S. elections demonstrated the disgust that voters feel toward the Supreme Court but also the continuing strong influence of Former President Trump over the Republican Party.

Inflation remains very elevated around the world, but a unifying theme in the various and sundry purchasing manager surveys reported overnight is that pricing pressure started to lessen last month. It remains to be seen if that dip has follow-through.

Global growth continues to slow. Europe faces the particular threat of natural gas shortages in the coming winter.

The dollar is marginally softer this Wednesday, slipping 0.5% versus the Mexican peso, 0.4% against the Australian dollar, 0.3% versus the euro, 0.2% via-a-vis the loonie, sterling and Swiss franc, but holding steady versus the kiwi and ruble and rising 0.2% against the Japanese yen.

Stock markets around the Pacific Rim closed up 0.9% in South Korea, 1.4% in New Zealand, 0.8% in Indonesia, 0.5% in Japan, and 0.4% in Hong Kong but down 0.7% in China. European share prices and U.S. futures are somewhat higher.

Ten-year sovereign debt yields rose overnight by 7 basis points in Germany, six bps in France and the U.K., 3 bps in the U.S. and Italy and a single basis point in Japan.

Bitcoin‘s price recovered 1.8%. The price of WTI oil increases 0.9%, but that of gold fell 0.5%.

Euroland’s service sector and composite purchasing manager indices for July were revised higher but, at 50.6 and 49.9, still constitute their weakest readings in six and seventeen months, respectively. Confidence in the futures dropped to a 21-month low. The German and Italian composite scores of 48.1 and 47.7 were at 25- and 18-month lows. France’s 51.7 reading, although still above the 50 no-change threshold, signaled the softest growth in 15 months.

British composite and service sector PMI readings of 52.1 and 52.6 was lower than the preliminary estimates and signify a 17-month low in activity. Sweden’s composite purchasing managers index fell 2.7 points to a 22-month low.

The Japanese composite and service sector PMI readings last month were also revised downward and, at 50.2 and 50.3, reflect the economy’s weakest pulse in 5- and 4-months.

In spite of upward revisions, Australia’s composite and service-sector purchasing manager readings of 51.1 and 50.9 in July still represent their weakest levels since January.

In spite of a 15-month high in China‘s services purchasing managers index, the composite 52.2 reading fell 1.3 points below June’s 18-month high. It was also below analyst expectations.

India‘s July composite and services PMIs of 56.5 and 55.5 were the lowest in 3 and 4 months and, like those for China, below the expectation of analysts.

In another sign that Russia is coping better than hoped with Western economic sanctions, its composite and services PMIs rose in July to 13-month highs. The ruble is about 25% stronger now than its pre-invasion level.

The July private purchasing manager indices of Hong Kong (52.3) and Singapore (50.1) each weakened to 4-month lows.

The Egyptian and UAE non-oil purchasing manager indices in July rose to 2-month highs of 46.4 and 55.4, while the Saudi Arabian index dropped to a 2-month low of 56.3. Egypt’s index had hit a 2-year low of 45.2 in June. Lebanon‘s PMI printed at 49.9, the closest such has been to the 50 no change threshold in 9 years.

South Africa’s PMI rose to a one-year high in July of 52.7.

Among other data reported this Wednesday, producer price inflation in the euro area slid to a 4-month low but, at 35.8%, exceeded 35.0%for a fourth straight month. The 1.1% month-on-month jump in the PPI during June was more than twice as much as in May, and non-energy producer price inflation printed at an elevated 15.6%.

High inflation, rising interest rates, and supply shortages have depressed consumer confidence in the euro area to a record low. Retail sales volume in the joint-currency bloc dropped 1.2% on month in June, which was the largest drop of the first half of 2022. In year-on-year terms, retail sales growth deteriorated from +8.5% in January to  minus 3.7% by June.

The German EUR 7.697 billion trade surplus in June was only half as much as the June 2021 surplus. The seasonally adjusted surplus rebounded to a greater-than-forecast EUR 6.4 billion from 0.8 billion euros in May but was down from EUR 13.5 billion in June 2021.

Almost all economies have higher inflation now than a year ago, but there is a wide diversity in the heights of current inflation. Towards one end of the dispersion, Turkish CPI inflation rose to a 286-month high of 79.6% in July, while Turkish PPI inflation that month swelled to 144.6%, most since at least 1982. Near the other end of the spectrum, Swiss consumer price inflation remained at June’s 3.4% last month, but it had been only 0.7% in July 2021.

New Zealand released second quarter labor market data overnight. Unemployment edged up 0.1 percentage point to a 3-quarter high of 3.3%. Labor costs climbed 1.1% on quarter and 3.4% on year, which was up from 2.1% in the year through 2Q 2021.

Australian retail sales rose just 0.2% on month in June, their smallest increase in the first half.

The National Bank of Georgia‘s policy interest rate was left unchanged at 11.0%, its level since a 50-basis point hike last March. Prior to March 2021, the rate had been 8.0%. Georgian CPI inflation had retreated from 13.3% in May to 11.5% by July but remains well above the 3% medium-term target. A released statement from officials reads hawkishly and warns, “Monetary policy will remain on the tight side until the risks of rising inflation expectations are sufficiently mitigated. Should inflation expectations rise further and/or demand-side pressures on prices exacerbate, further tightening of policy or maintaining the current tight stance for a longer time period may become necessary.”

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

 

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