Back and Fill

September 27, 2022

Today has been a day for counter-trend financial market movements. The dollar and sovereign debt yields are down. Stocks and commodities have rallied. The dollar has fallen 0.6% against the Swiss franc, 0.4% versus the euro and in weighted terms, 0.3% relative to the yen, and 0.2% against sterling. Bitcoin jumped 5.2% overnight, while prices for gold and oil rose 0.7% and 1.2%.

Most likely, this is but a pause in trend. Tuesday is a common day for backing and filling. The fundamental landscape driving the dollar to 20-year highs hasn’t changed. Cleveland Federal Reserve President Mester made a hawkish speech last night, doubting that interest rates can be lowered anytime soon. It emerged that Japan’s currency market intervention last Friday involved the greatest single day operation ever, was authorized by the Ministry of Finance, and does not signal any step away from the Bank of Japan’s ultra-easy stance.

Hungary’s central bank base rate has been raised by a further 125 basis points to 13.0%. Although greater than analysts were anticipating, the increase didn’t keep pace with the 1.9 percentage point acceleration of Hungarian CPI inflation to 15.6% in August from 13.7% in July and 4.9% in August 2021. The base rate had been lifted during the final seven months of 2021 from a pandemic low of 0.60% to 2.4%. Additional increases in every month of the first half of 2022 totaled 535 basis points, and today’s hike was the fourth since midyear, resulting in a further combined increase of 525 basis points. Monetary officials are trying to reduce inflation but also attempting to halt the depreciation of the Hungarian forint, which has dropped 6.6% in the past fortnight and 27.3% against the dollar since September 27, 2021.

The Republican Party election theme for November is that inflation has shot up under Biden but it will restore price stability. In fact, inflation has soared in many countries like Hungary where political rule has moved even farther away from democracy than in the United States.

Global growth is in a slowdown.

Finnish consumer confidence dropped four index points to a record low in September.

South Korean consumer confidence rebounded 2.9% in September but, at 81.4, was down from a reading of 107.6 in November 2021.

Taiwanese consumer confidence fell to a 13-year low this month.

Chinese corporate profits posted a 2.1% year-on-year drop in January-August. That’s the worst such result in two years and contrasts with an 8.5% on-year advance in 1Q 2022.

Swedish producer price inflation re-accelerated to 22.0% in August from July’s six-month low of 20.4%.

Japanese corporate service prices were 1.9% higher in August than a year earlier versus a 1.1% 12-month increase posted in August 2021.

Sweden’s trade deficit widened to SEK 18.4 billion in August from SEK 11.1 billion a year earlier.

Many U.S. indicators get released today: consumer confidence, durable goods orders, the Case Shiller and FHFA house price indices, new home sales and the Richmond Fed manufacturing index.

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

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