Dollar and Stock Markets Partly Reverse Direction as Jackson Hole Symposium Kicks Off
August 25, 2022
In overnight action, the dollar fell 0.8% against the Australian dollar and 0.5% versus the kiwi. The greenback eased back only 0.2%, however, relative to the euro, yen, Swiss franc, sterling, loonie and weighted DXY index.
Stock markets advanced 3.6% in Hong Kong, 1.2% in South Korea, 1.0% in China, 0.9% in Taiwan, 0.6% in Japan and 0.7% in Australia. U.S. gains so far range from 0.4% in the DOW to 1.3% in the Nasdaq. European share prices are up but more modestly.
Ten-year sovereign debt yields have reversed, too, with dips of 10 basis points in Italy, 7 bps in the U.K., 2 bps in Germany and a basis point in the U.S..
The price of WTI oil has slipped 0.5%, while those of gold and Bitcoin are up 0.4% and 1.7%.
In central banking developments,
The Jackson Hole Central Banking Symposium, which is hosted annually by the Kansas City Fed, has a theme this year of “reassessing constraints on the economy and policy.” Among early speakers, Bank of Japan Board member Nakamura said it remains imperative for Japan to keep stimulating heavily.
The Bank of Korea‘s policy interest rate was raised by 25 basis points to 2.5%. This was the seventh normalizing hike over the past year from a starting rate level of 0.50%. All of the moves except the prior one in July of 50 basis points have been by a quarter of a percentage point. South Korean CPI inflation is currently at 6.3%, most since November 1998. A released statement explains, “The Board sees continued rate hikes as warranted, as inflation is expected to remain high, substantially above the target level, despite the increase in economic downside risks and underlying high uncertainties surrounding domestic and external conditions.”
Minutes from last month’s European Central Bank Governing Council meeting, which hiked interest rates for the first time since 2011, frame that action as the first of several normalizing moves that will be decided based on available information at future policy meetings. There was a rush to get rid of the negative deposit rate as soon as possible, which is why July’s move was by 50 basis points.
U.S. real GDP contracted 0.6% in the second quarter, revised from an initial estimated decline of 0.9%. This followed a contraction of 1.6% in the first quarter and resulted in a halving of year-on-year growth to 1.7% from 3.5%. Inventories, residential construction and government expenditures exerted drags on the economy, and non-residential business investment neither augmented nor reduced the overall growth rate in the quarter. Despite back-to-back quarterly declines in GDP, it is highly doubtful that a recession had begun because the labor market remained robust. The PCE price deflator, showing inflation rising to 6.5% overall and 4.8% excluding food and energy, was unrevised. In a separate U.S. report, new jobless insurance claims last week totaled 243k, little changed from the prior week.
German GDP growth in the second quarter was revised from zero percent to +0.1%, and a 1.7% year-on-year increase of German GDP matched that experienced in the United States.
The German IFO Institute’s monthly business climate index slid to a 26-month low in August but was above analyst expectations. Current conditions clocked in at a 4-month low, while the sub-index for future expectations sank to a 152-month low. Conditions deteriorated in trade, remained unchanged in manufacturing, and recovered slightly in the services and contraction sectors. Supply bottlenecks have eased somewhat. But summing up, IFO officials said the data point to a contraction of GDP in the third quarter.
Business confidence in France recovered a little in August, but the 103.4 reading was still well below last November’s reading of 113.3.
Turkish business confidence dropped to a 25-month low of 102.1 in August from 105.7 in July and 113.9 in August 2021.
Belgian business confidence fell to a 19-month low of August.
The CBI monthly survey of British distributive trades improved 41 index points to a 9-month high but remains soft viewed from a historical standpoint.
Brazilian consumer confidence rose to a 31-month high in August.
Mexican real GDP growth was revised downward by 0.1 percentage point to 0.9% in the second quarter and associated with year-on-year growth of 2.0%. Mexico posted a second straight current account deficit in 2Q, amounting to $704 million. A year earlier, the country experienced a $5.8 billion surplus.
Corporate service prices in Japan increased 0.5% last month and matched June’s year-on-year increase of 2.1%.
Spanish producer price inflation receded to a 6-month low of 40.4% in July compared to a 47.0% record high four months earlier.
But South African PPI inflation is still cresting and posted its record high of 18.0% last month.
New Zealand retail sales in the second quarter fell by 2.3% last quarter and was 3.7% below its year-earlier level.
An 8-point recovery in the Kansas City Fed manufacturing index in July proved shortlived, as such swung from +7 to -9 this month, which constitutes a 27-month low and compares with the record high of 46 attained last March.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: French business confidence, German GDP and business climate index, U.S. GDP
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