Sell-Off Resumes
September 29, 2022
Sovereign debt selling resumed this Thursday, sending 10-year government debt yields up by 20 basis points in Italy, 19 bps in Great Britain, 16 bps in France and the Netherlands, 15 bps in Germany and Spain, and nine basis points in the United States.
Share prices are down 1-2% in the U.K., Germany, France, Italy and Spain. In U.S. futures trading, a 1.3% drop of the Nasdaq has outpaced declines in the SPX and DOW. The deteriorating investor mood began after Pacific Rim markets had closed. The Japanese and Australian stock markets in fact rose 1.0% and 1.4%, and the Shanghai Composite only dipped 0.1%.
Prices for gold and bitcoin slipped 0.6% and 0.3%, while WTI oil is up 0.1%.
The dollar attracted hot money flows, rising 0.5% in weighted terms and versus the pound, 0.6% against the Swiss franc, Canadian dollar and New Zealand dollar, 0.7% relative to the Aussie dollar, 0.3% vis-a-vis the yen and 0.2% against the euro.
Released data today reflect intensifying pessimism in the face of stagflation fears, tighter monetary policies, and a lack of confidence in economic policy management in the U.K. particularly but also other economies.
Euroland’s economic sentiment index fell to a 22-month low of 93.7 in September from 97.3 in August and 117.8 last October. The German, Italian, and French monthly ESI indices fell by 4.8, 3.7, and 3.2 points. Euroland’s sector breakdown put consumer confidence at a record low and confidence in industry and services at their lowest points in 20 and 17 months. Construction scored 1.6, down from +3.4 in August and 10.6 last December. The labor market index fell less sharply than activity measures, but inflation expectations jumped to 41.3 from 37.0 in the prior month.
Underscoring the fact that inflation may not yet have crested, German consumer prices leaped 10.0% on year in September, up from 12-month increases of 7.9% recorded in August and 4.1% in September 2021. The latest 12-month rise in consumer prices is the most in many decades and embodied increases of 43.9% in energy and 18.7% in food. An acceleration of service sector inflation to 3.6% from 2.2% is also worrisome.
CPI inflation in Belgium rose 1.4 percentage points to a 565-month high of 11.3% in September, and PPI inflation in Italy set another record high in August (40.1%).
To be sure, these increases were balanced by other reports that showed elevated but lower inflation. Producer price inflation in South Africa receded from August’s record high of 18% to a 2-month low of 16.5. Spanish CPI inflation continued to lessen, printing at a 4-month low of 9.0% this month versus a nearly two-decade high of 10.8% in July. Australia’s monthly inflation measure showed CPI inflation dipping 0.2 percentage points to 6.8% in August. Singaporean PPI inflation fell to 17.3%, a one-year low, in August. And Malaysian producer price inflation of 6.8% in August was the lowest in 17 months.
U.S. data highlighted the better prospects there compared to other economies around the world.
The quarterly contraction of U.S. real GDP in the second quarter remained unrevised at 0.6% but associated with a slightly larger 1.8% year-on-year expansion. Personal consumption growth was revised up by half a percentage point to 2.0%. But the contributions to GDP growth from net foreign demand and inventories were revised adversely. Government spending declined for a fifth consecutive quarter, non-residential investment essentially stagnated, and residential construction took a big hit. The personal consumption price deflator recorded a 6.6% year-on-year advance (5.0% excluding food and energy).
U.S. new jobless insurance claims fell another 16k to 193k last week, fewest since the week of April 20.
Canadian growth had exceeded expectations earlier this year but continue to cool significantly. Monthly GDP, which is compiled from the supply side, rose 0.2% in April, then 0.1% each in June and July, and early indications point to zero growth during August.
Turkish economic sentiment was unchanged in September from August’s 94.3 reading but down from 102.4 in September 2021.
Danish business confidence in September returned to the June and July readings of -9, erasing August’s improved score of -2.
China’s current account surplus during 2Q 2022 was revised down $2.7 billion but still at a record high of $77.5 billion. The first-half surplus equaled 1.9% of GDP.
On the central bank activity front, the Czech National Bank had raised its two-week repo rate at every scheduled policy review between June 2021 and June 2022. Before doing this, the rate had been pinned at 0.25% since May 2020, and CPI inflation had been at 2.9% when rate normalization began. The string of rate increases was interrupted at the August policy meeting, and today an unchanged 7.0% rate level was again announced. CPI inflation in July had been at 17.5%, most since the end of 1993, but such ticked lower for the first time since mid-2021 to 17.2% in August. Still, the inflation-adjusted repo rate level remains very negative.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Czech National Bank, Euroland economic sentiment, German consumer prices, U.S. GDP
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