Intensifying Exodus from Equities
September 16, 2022
Led by a nearly 21% overnight plunge in Fed Ex shares, key U.S. stock market indices are down about 1%. Stock markets in the Pacific Rim had closed down 2.3% in China, 2.3% in China, 1.9% in Indonesia, 1.8% in India, 1.3% in Australia and 1.1% in Japan. The German Dax and Paris Cac are off more than 1.0%.
Investors are prioritizing safety of investment over financial return, as companies rapidly scale back expected earnings in the second half of 2022.
In this environment, the dollar has been mostly well bid, rising overnight by 0.3% in weighted terms to within a half percent of its 20-year high. Individual dollar appreciations overnight include gains of 0.8% against sterling, 0.4% versus the euro, 0.5% relative to the Canadian dollar, 0.3% relative to the New Zealand and Australian dollars, 0.2% vis-a-vis the Chinese yuan but just 0.1% against the Swiss franc. Dollar/yen is 0.2% lower. Some key thresholds have been crossed such as 7.0 yuan, 1.14 per pound sterling, and $0.6000 per kiwi.
Prices for WTI oil and bitcoin are 0.7% and 0.3% higher. Gold fell further below $1700 per ounce and back near its 2020 low in the early days of Covid.
In Argentina where consumer price inflation has soared to a 31-year high of 78.5%, the central bank’s 28-day Leliq interest rate has been lifted by an additional 550 basis points to a 35-month high of 75.0%. This move announced today followed a 950-basis point increase in August and catapults the year to date increase to 37 percentage points.
In contrast, the Central Bank of Russia’s policy interest rate was sliced by 50 basis points to 7.5%, which is only about half as much as August’s 14.3% year-on-year rate of Russian CPI inflation. According to a released statement, Russian GDP is liable to contract 4% or slightly more this year, and subdued consumption should promote a decline of inflation to around 6% next year and 4% in 2024. To protect financial market functionality, the interest rate had been jacked up a combined 1150 basis points last February. Forex and capital controls subsequently promoted stability, and today’s reduction follows declines of 300 basis points each in April and May and then drops of 150 basis points each in June and July. A remaining concern is that measures of expected inflation in Russia remain elevated amid uncertainty related to the war with Ukraine, which has already lingered almost seven months.
The month-on-month rise in Euroland consumer prices last month was revised upward by 0.1 percentage point to 0.6%, but the 12-month 9.1% record high rate of increase was not changed. Core CPI inflation of 4.3% also represents a record. The food component’s inflation rate has soared more than fivefold from 2.0% in August 2021 to 10.6%. Inflation among non-energy industrial goods has doubled over the past year, and that of services nearly tripled. Among the four largest economies using the euro, latest inflation rates were 10.5% in Spain, 9.1% in Italy, 8.8% in Germany and 6.6% in France.
Italian CPI inflation of 8.4% matched the preliminary estimate, which was a 439-month high. Likewise, Polish CPI inflation in August was confirmed at 16.1%, three times more than 5.5% in August 2021.
Austrian CPI inflation in August was revised 0.2 percentage points above the preliminary estimate of 9.1% and well above just 1.9% in the year that ended in August 2021.
Czech producer prices dipped 0.1% on month in August but were 25.2% above year-earlier levels, not far below the 30-year high of 28.5% in June.
Croatian CPI inflation of 12.3% in August matched July’s pace and was four times that of 3.1% in August 2021.
Several Chinese August economic indicators were reported:
- Industrial production grew 4.2% year-on-year in the month alone and 3.6% for January-August, which was down from 9.6% in 2021 as a whole.
- Retail sales growth also exceeded analyst forecasts, reaching 5.4% in just August but just 0.5% for the first eight months of 2022 combined, which was down from a 12.5% increase in full 2022.
- Fixed asset investment climbed 5.8% in January-August compared to a rise of 4.9% in full-2022.
- Property prices posted a year-on-year decline for a fourth straight month and, at -1.3%, the largest drop in that streak.
- Unemployment, which had crested at 6.1%, slid 0.1 percentage points to 5.3% in August, not far above the August 2021 level of 5.1%.
Italy’s trade balance remained in deficit for an eighth straight month but only to the tune of EUR 361 million in July. That compares with a EUR 8.575 billion surplus a year earlier.
On this 30th anniversary of Black Wednesday in the U.K., that country reported a much larger-than-forecast 1.6% monthly drop in retail sales volume. Sales were 5.4% fewer than a year-earlier. September 16, 1992 was the day the ruling Conservative Party at the time took sterling out of the European Exchange Rate Mechanism. To participate in the planned single currency arrangement, aspiring candidate countries had to demonstrate that their currencies could maintain with specified narrow trading ranges against all other member currencies. The United Kingdom entered the ERM in October 1990 but was forced to exit in mid-September after the pound came under major pressure from currency speculators. That retreat was an enormous political humiliation for the government but engineered a more price-competitive exchange rate that improved Britain’s balance of payments and led to stronger overall economic growth for many years thereafter.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Black Wednesday, British retail sales, Chinese retail sales and industrial production, Euroland CPI
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