Weak Data Amplifies Market Concern and Confusion Over Direction of Monetary Policies
August 23, 2022
The question haunting investors continues to be the reaction function of the Fed and other central banks faced with weakening demand and tentative signs that inflation may be leveling off. Rhetorically, central bankers are giving not indication of a readiness to stop their rapid rise in interest rates, and two more central banks have raised their policy rates.
A fourth interest rate hike has been engineered by the Bank of Israel, and it’s 75-basis point size is the largest so far. This followed increases of 25 basis points in April, 40 bps in May, and 50 bps in July. Altogether, Israel’s key rate has climbed to 2.0% from 0.1%, but more moves seem inevitable. CPI inflation of 5.2% last month is well above the ceiling in the Bank of Israel’s 1-3% target range.
Bank Indonesia had been one of very few hold-outs against interest rate normalization but today announced its first rate increase a 25 basis point hike to 6.0% in November 2018. There had been five 25-basis point hikes in 2020 punctuated by a sixth drop of similar size in February 2021. That lowered the key rate to 3.50%, and today’s move merely reverses that last of many reductions. CPI inflation in Indonesia has meanwhile climbed from 1.5% in July 2021 to a 91-month high of 4.9% one year later, and rupiah vulnerability has become an additional worry to monetary officials.
Asian and European equities were widely varied overnight,with gains of 1.0% in Taiwan, 0.8% in Indonesia, and 0.9% in Italy, but drops of 1.2% in Australia, 1.0% in New Zealand, 1.2% in Switzerland, and 0.6% in the U.K.. Markets are little changed in the U.S., Germany, and France.
Long-term interest rates continue to grind upward. Ten-year sovereign bond yields increased by 8 basis points in Great Britain, six bsp in Italy, 5 bps in Spain, 4 bps in Germany and France, and 3 basis points in the United States.
Saudi Arabia is warning that it may cut oil production to shore up price. The price of WTI oil jumped 3% overnight in response. Gold is 0.2% firmer.
The dollar mostly slipped overnight, dropping 0.6% against the peso and Turkish lira, 0.4% versus the loonie, ruble and kiwi, 0.3% relative to sterling and euro, and 0.2% vis-a-vis the Swiss franc. Dollar/yen is steady, and the Swiss franc has eased 0.3%.
Consumer confidence in the euro area rebounded 2.1 points in August from July’s record low reading of -27.0 but, at -24.9, remains far beneath last September’s reading of -3.8.
U.S. new home sales collapsed 12.6% in July to its lowest level since 2015 and were 29.6% fewer than in July 2021.
The Richmond Fed manufacturing index dropped eight index points to a 2-month low of -8 in August.
The S&P Global-compiled U.S. composite purchasing managers survey preliminary findings revealed 27-month lows in the composite and service sector indices of 45.0 and 44.6, respectively. The manufacturing index sank 0.9 points to a 25-month low.
Other composite purchasing managers indices reported today revealed
- A 1.2-point drop to 50.9 in Britain‘s composite PMI and a 6.1-point plunge in the manufacturing index to a 27-month low of 46.0.
- Euroland PMI readings of 49.2 overall (an 18-month low), with manufacturing dropping to a 26-month low of 49.7 and services treading water at a 17-month low of 50.2, signaling that it too is poised to contract.
- French and German composite PMI scores of 49.8 (an 18 month low) and 47.6 ( a 26-month low).
- A six-month low in Japan‘s composite PMI of 48.9, with services dropping below the 50 threshold between expansion and contraction and manufacturing (at 51) barely staying in the black.
- A 7-month low in Australia‘s preliminary composite PMI reading of 49.8.
South Korea’s consumer confidence index rebounded 2.8 points to a 2-month high of 86.0 in August, still well below April’s score of 103.8.
Turkish consumer sentiment rose 4.2 points to a 5-month high of 72.2 in August.
Danish consumer confidence printed at -25.1 in August, not far above the record low of -26.5 in July.
CPI inflation in Singapore rose from 2.5% in July 2021 to 7.0% last month, its highest point since mid-2008.
The orders component of the CBI survey of British industrial trends weakened to a 16-month low reading of -7 in August from +8 in July.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Preliminary purchasing manager survey results
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