Weeks’ End Finds Investors Willing to Take Some Risk

September 9, 2022

Early in the U.S. trading day, the rises in key U.S. stock market indices range from 0.5% in the DOW to 1.2% in the Nasdaq. Share prices in the Pacific Rim had closed up 2.7% in Hong Kong, 1.2% in Taiwan, 0.9% in Singapore, 0.8% in China, 0.7% in Australia and 0.5% in Japan, and in Europe, equities have so far climbed more than 1.0% in Germany, France, Italy, Spain and the United Kingdom.

There has been some investor comfort from the hawkish tone of central banker actions and rhetoric. The hope is that a “whatever it takes” response to elevated inflation will restore price stability more quickly than a purely reactive monetary posture.

Ten-year sovereign debt yields dipped overnight by four basis points in the U.K. and 2 bps in the United States, but those in Italy, France, and Germany have alternatively risen by 7, 3, and 1 basis points.

The weighted DXY dollar index fell back 0.7% overnight and is 1.7% below its 20-year high hit earlier this week. Overnight dollar declines range from 1.2%, 1.0% and 0.9% against the Aussie dollar, Japanese yen and Swiss franc to 0.4% relative to the Canadian dollar, 0.5% against the euro and Chinese yuan, and 0.6% versus sterling.

The price of Bitcoin and WTI oil jumped today by 8.6% and 2.5%. Gold is 0.3% firmer.

Great Britain is in a 10-day period of mourning and celebration of the life of Queen Elizabeth II, who died at age 96 and reigned for 70 years. King Charles III will be making an inaugural address today.

In central banking news,

  • The Central Reserve Bank of Peru’s policy rate had been raised for the 14th time since August 2021, but the incremental rise after this month’s policy review unexpectedly reverted back to the 25 basis points done initially. all the other increases had been by 50 basis points, and the rate in total has gone from 0.25% to 6.75%. That’s a larger increase than the acceleration of Peruvian CPI inflation from 5.0% in August 2021 to 8.4% last month. According to a released statement, “the outlook for global economic activity this year and the next has deteriorated due to the expected unwinding of stimulus in advanced economies, international conflicts, and persistent global supply bottlenecks, despite some improvement in recent months.”
  • The Reserve Bank of Australia’s quarterly Monetary Policy Statement promises additional interest rate increases, admitting that “r, inflation in Australia has been higher than was previously expected and the labour market has tightened faster than was thought likely.” Five increases already since May have lifted the Official Cash rate to 2.35% from 0.10%.
  • Growth in the stock of Chinese M2 money accelerated to a 4-month high of 12.2% in August, and new yuan lending of CNY 1.25 trillion last month exceeded July’s total of 679 billion yuan. Unlike most central banks, the People’s Bank of China has lately loosened its stance.

Today’s array of price data releases revealed

  • A three-month low in Greek CPI inflation of 11.4% in August versus June’s 29-year peak of 12.1%.
  • A 0.3 percentage point dip of Norwegian CPI inflation in August following a 34-year high of 6.8% in the prior month.
  • Norwegian producer price inflation last month of 77.3%, up from 73.6% in July and 50.1% in August 2021.
  • A 2-month high in Irish CPI inflation of 8.7% in August versus 8.1% in July, 9.1% in June and 2.8% in August 2021.
  • A 2-month low in Chinese consumer price inflation last month  of 2.5% but still three times higher than 0.8% in August 2021.
  • Chinese PPI inflation slowed sharply to an 18-month low of 2.3% from 4.2% in July and 9.5% in August 2021.
  • CPI inflation in Belarus dipped 0.2 percentage points below July’s 18.1%, which had been the high point since late 2014.
  • Brazilian consumer price inflation slowed to a 14-month low of 8.7% last month, having crested at 12.1% in April.
  • Moldovian CPI inflation rose still higher to 34.3% last month from 33.6% in July and 4.6% in August 2021.

Canadian labor market statistics in August were considerably weaker than assumed. The jobless rate increased a half percentage point to a 6-month high of 5.4%. Employment, which had been forecast to rise by 10-20k, instead dropped 39.7k, including 77.2k fewer full-time employees. And yet, on-year growth in average hourly wages accelerated 0.2 percentage points further to 5.6%. Canadian capacity utilization improved to a four-year high of 83.8% in 2Q 2022.

In July, French industrial production dropped by 1.6% on month and 1.2% on year; Spanish industrial production fell 1.1% on month and rose at a slower 5.3% on year; and a 0.9% monthly increase in Greek industrial production didn’t prevent the smallest on-year rise (7.0%) in two years from happening.

Mexican industrial production rose 0.4% on month in July, but the 12-month rate of increase fell to 2.6% from 3.8% in the prior month.

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

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