Risk Aversion Fueled by This Week’s FOMC Meeting and Hawkish Remarks from ECB Officials

September 19, 2022

The rout in equities retains plenty of momentum today even though Japan and Great Britain are respectively closed in observance of Respect for the Aged Day and Queen Elizabeth’s state funeral. Share prices closed down 1.4%, 1.1%, 1.0% and 0.9% in China, South Korea, Hong Kong and Taiwan, and losses have occurred thus far in Europe of 1.4% in Germany, 1.2% in Italy, 0.8% and 0.7% in Switzerland and Spain. The three key U.S. stock market indices each show a loss of 0.9% in futures trading.

Ten-year sovereign debt yields leaped 18 basis points in Greece and rose today by five bps in Spain and France and by four bps in the U.S. and Germany.

Prices for bitcoin, WTI oil and gold have fallen by 3.3%, 1.8%, and 0.6%.

The dollar remains in strong demand, trading withing 0.5% of its recent 20-year weighted high. The greenback is up 0.5% by against the Australian and New Zealand currencies, 0.4% versus the Mexican peso, and 0.3% relative to the yen, sterling, Turkish lira and Canadian dollar. Gains of 0.2% against the euro and 0.1% versus the Swiss franc have been only modest.

ECB VP de Guindos said Europe’s economic slowdown will need not by itself restore price stability and that monetary restraint will also be necessary, and the chief economist at the European Central Bank, Philip Lane projected several more interest rate hikes following those of 50 basis points in July and 75 bps earlier this month.

This has been a light day from a data release standpoint. Construction output in the euro area rebounded just 0.3% in July following four straight month-on-month declines. Construction had contracted 1.4% in the second quarter and posted a 12-month rate of increase of only 1.5% in July, down from 9.3% in February.

Portuguese producer prices fell back 1.0% in August but still posted a 22.4% advance compared to a year earlier. The PPI had crested in March at 26.6%, its highest 12-month increase in at least 31 years.

Chinese foreign direct investment in January-August was 16.4% greater than a year earlier, down from a 17.4% increase in the first half of the year.

Hong Kong unemployment of 4.1% in June-August was down from 4.7% a year earlier.

New Zealand’s service sector purchasing managers index rose 5.8 index points to a 57-month high of 58.6 in August.

Canadian producer prices recorded their third straight monthly decline in August, reducing on-year PPI inflation to a 17-month low of 10.6%. Such had crested at a 567-month high of 17.9% in March.

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

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