Third Quarter Ushered Out With Disturbing Inflation Data, More Central Bank Hikes,High Tension in Asia, a Mega-Storm in the U.S. Southeast, and a Strong Dollar
September 30, 2022
The weighted DXY dollar index rose 0.2% overnight but is 2% below Wednesday’s peak. The dollar advanced so far today by 0.4% against the euro, Swiss franc, Australian dollar and sterling but just 0.1% versus the yen.
Thursday had seen heavy selling of equities. Share prices today closed down 1.8% in Japan, 1.2% in Australia, 0.7% in South Korea and 0.6% in China. Continental European stock markets and U.S. futures show modest gains.
Ten-year sovereign debt yields continue to swing widely, dropping back today by nine basis points in Italy, eight basis points in the U.K., Spain and France, and seven basis points in the United States and Germany.
Prices for West Texas Intermediate oil and Bitcoin have retreated 1.4% and 0.7%, respectively. A meeting of OPEC Plus oil ministers is planned next Thursday.
Consumer price inflation in the euro area leaped 0.9 percentage points to a record high of 10.0% in September. There were year-on-year price rises of 40.8% in energy, 11.8% in food, and 4.8% in core CPI, which excludes those two volatile items. All three categories were significantly higher than August’s results. Price acceleration has been especially steep in Germany (from 4.1% to 10.9%), the Netherlands (from 3.0% to 17.1%), Greece (from 1.9% to 12.1%), and Italy (from 2.9% to 9.5%).
Among released August producer price figures today,
- French PPI posted a record high on-year advance of 29.5% in August and were 2.7% above July levels.
- Belgium’s PPI was 36.2% above the August 2021 level, up from a 12-month rise of 34.4% in July but below May’s 40.6% record 12-month rate of increase.
- Filipino PPI inflation slowed to a three-month low of 7.3%.
- Austrian PPI inflation printed at a 4-month high of 21.3%.
- Hungary’s 43.4% rate of PPI inflation was the most ever.
Mexico and India are the latest economies to see central bank interest rates raised. The Bank of Mexico overnight interbank rate has been increased by 75 basis points to 9.25%. The size of the increase matches the prior move in June and brings the combined increase since June 2021 to 550 basis points. The Governing Board expresses continuing determination “to set a policy rate that is consistent at all times, with both the orderly and sustained convergence of headline inflation to the 3% target within the time frame in which monetary policy operates as well as with an adequate adjustment of the economy and financial markets.” CPI inflation rose from 8.2% in August to 8.7% in September.
Excessive inflation also concerns officials at the Reserve Bank of India, who raised the repo rate by an expected half percentage point to 5.90% at this weeks policy review. Three previous hikes in May, June and August had totaled 140 basis points, more than reversing 115 basis points of ease enacted in the first half of 2020. One dissenting vote today had favored a rate increase of 35 basis points. Officials not only are concerned that current CPI inflation of 7.0% exceeds target but also felt a need to lend additional support to the rupee, which at 81.5 per dollar is close to its recent all-time low of 82.06 and almost 10% weaker than early in 2022. A released statement predicts “inflation is likely to be above the upper tolerance level of 6 per cent through the first three quarters of 2022-23, with core inflation remaining high” and notes “The outlook is fraught with considerable uncertainty, given the volatile geopolitical situation, global financial market volatility and supply disruptions.”
Russian President Putin’s promised annexation of parts of Ukraine will raise the geopolitical stakes of other countries providing military munitions that are used by Ukraine to defend itself in those area.
In the Hurricane Ian‘s path, major parts of Florida are a disaster area, and now the storm is taking aim on South Carolina.
Japan released several economic statistics today that on the whole painted a better economic picture than assumed:
- Industrial production jumped 2.7% on month in August, resulting in the first year-on-year increase since December. The 5.1% rise compared to August 2021 compares to a 3.7% drop between 2Q 2021 and 2Q 2022.
- Housing starts rose 4.6% on year in August, most in five months, and a 17.9% on-year increase in construction orders was the most in three months.
- Retail sales rose 1.4% last month, resulting in the biggest year-on-year increase (4.1%) in 15 months.
- A 2.5% jobless rate in August matched April’s 25-month low and was associated with the highest ratio of job offers to job seekers in 28 months.
- A drop in consumer confidence to a two-month low of 30.8 in September versus 39.1 last November produced the one sour note in today’s reports.
Chinese markets will be closed most of next week. Ahead of the National Day holidays commemorating the anniversary of the Communist Party takeover in 1949, purchasing manager survey results for September were reported today. The privately compiled manufacturing PMI weakened to a 4-month low of 48.1, marking the second straight sub-50 score that divides contracting activity from expansion. The government-compiled manufacturing PMI, however, recovered 0.7 points to a 3-month high of 50.1, but was accompanied by a 4-month low in the non-manufacturing PMI to 50.6, down from 52.6 in August and a 13-month peak of 54.7 in June.
British GDP growth in the second quarter was revised upward to +0.2% on quarter and 4.4% on year from a prior estimate of a 0.1% quarterly dip and on-year growth then of 2.9%. Britain’s current account deficit shrank last quarter to GBP 33.77 billion (or 5.5% of GDP) from GBP 43.88 billion (7.2% of GDP) in 1Q 2022.
Unemployment in Euroland remained steady at 6.6% in August but still down from 7.5% in August 2021.
French household consumption has been soft lately with a 0.1% monthly rise in June, followed by a 0.9% drop in July and no net change in August.
Turkey’s trade deficit ballooned from $29.8 billion in January-August 2021 to $73.44 billion in the equivalent period of this year, which included a record monthly shortfall of $11.2 billion last month.
U.S. personal income and personal consumption rose by 0.3% and 0.4% in August. The PCE price deflator went up 0.3% on month and 6.2% on year. While the on-year comparison was down from 6.4% in July, core PCE inflation accelerated 0.2 percentage points to 4.9%. There’s nothing here to deter the Fed’s mission to transform monetary policy into a restrictive stance as soon as possible.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, British current account and GDP, Euroland CPI and unemployment, Japanese retail sales and industrial production, Reserve Bank of India, U.S. personal income and PCE
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