Currency Thoughts

Six Things to Know

October 24, 2022

1. In a vote of no confidence in the political intentions and economic policy competence of President Xi, who grabbed an extra five-year term in defiance of post-Mao tradition, foreign investors in China are rushing for the exits. Share prices plunged 6.4% in Hong Kong and 2.0% in China.
2. The delayed September Chinese economic data were finally released and showed mixed results, better-than-expected growth in industrial production and GDP but softer retail sales, home prices and labor market conditions.
3. Preliminary October purchasing manager surveys reported today include 23- and 21-month lows in Euroland and the U.K.. Australian results were weaker than predicted, but Japan’s PMI improved to a four-month high.
4. Boris Johnson withdrew from the Tory Party leadership contest, seemingly clearing the way for former British Chancellor Sunak to be chosen prime minister.
5. This will be another crowded week for U.S. third-quarter corporate earnings reports. They’ve shown more resilience than expected thus far, lending support to U.S. financial assets.
6. The Wall Street Journal is reporting that FOMC officials are poised to consider smaller-sized interest rate hikes soon. This, too, has helped stabilize financial markets but is hardly definitive news given the data-driven policy framework that officials are using.

Rumored Japanese foreign exchange intervention to support the yen failed to prevent a net 0.9% rise of the dollar against Japan’s currency overnight. Against other currencies, the dollar has climbed 1.5%, 1.4%, and 0.7% against the New Zealand, Australian and Canadian dollars, 0.4% versus the Swiss franc, and 0.3% relative to the euro and Chinese yuan. But sterling is unchanged and getting support from the news that former President Johnson is not seeking a return to 10 Downing Street.

Ten-year sovereign debt yields are down twenty basis points in both Greece and Great Britain. There have also be large drops of 15 basis points in Italy, 11 basis points in Spain, 9 bps in France but just 2 basis points in the U.S..

European share prices show advances so far of around 2% in Germany, France, Italy and Spain, but the gains in the British Ftse and major U.S. indices in futures trading have been considerably less.

Among commodities, the price of WTI oil has fallen 1.8%, but that of gold is merely 0.2% lower. Bitcoin is down 1.2%.

Reported Chinese economic figures should be taken with a grain of salt, given their politicized delay. That said,

• Real GDP was said to have rebounded 3.9% in 3Q 2022 (representing their largest quarterly rise since 2Q 2020) after falling 2.7% in 2Q. On-year growth was also 3.9%. GDP in January-September posted an average advance of 3.0%, down from 8.1% in full 2021.
• Year-on-year growth in industrial production of 6.3% was up from 4.2% in August and the most this year.
• Capacity usage improved to a two-quarter high of 75.9% in 3Q.
• On-year growth of retail sales, however, slowed to 2.5%, a 4-month low, from 5.4% in the previous month.
• Fixed asset investment in the first nine months of 2022 surpassed the year-earlier level by 5.9%, up from a 5.1% increase in full-2021.
• China’s jobless rate had been projected to dip about 0.1 percentage point but instead rose 0.2 percentage points to a 3-month high of 5.5% in September.
• A 1.5% on-year drop in housing prices was the greatest 12-month decline in 95 months.
• A resilient 5.7% year-on-year rise in exports, juxtaposed against only 0.3% import growth, lifted the trade surplus to $84.75 billion in September from 67.8 billion a year earlier and $79.4 billion in August. The monthly average surplus so far this year of $71.7 billion was 113% wider than in January-September 2021.

Euroland’s composite PMI reading of 47.1 in October was below the 50 neutral level for a fourth straight month. If it doesn’t weaken further in November or December — and that is unlikely to happen because of sky-high energy costs and inflation are sapping demand — GDP probably would drop only 0.2% in the quarter. Inflation remains way too intense. With a composite PMI reading of 44.1 (a 29-month low), Germany is among the weaker economies in the euro area. The French composite PMI of 50.0 last month signifies stagnation with manufacturing contracting but services still above the 50 level.

The British composite, service sector, and manufacturing purchasing manager indices dropped to 47.2, 47.5 and 45.8, respectively. Manufacturing is at a 29-month low, and business sentiment fell, too.

Australia’s composite PMI dropped 1.3 points to a nine-month low of 49.6.

But Japan’s 51.7 composite PMI was 1.7% higher than in September and the best reading since June. Nonetheless, Japan’s outlook deteriorated to a 6-month low amid record inflation.

Finnish producer price inflation slowed to a 7-month low of 23.7, some 10 percentage points below this year’s peak.

Chilean PPI inflation of 17.3% in September was 0.1 percentage point above August’s 19-month low.

Czech business confidence and consumer confidence slid to 19-month and all-time lows in October.

Between September 2021 and September 2022, retail sales in Taiwan rose 7.5%, while industrial production fell by 4.8%. Both are losing steam.

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

Tags: Chinese GDP and other economic data, Preliminary purchasing managers surveys

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This entry was posted on Monday, October 24th, 2022 at 7:09 am and is filed under New Overnight Developments Abroad - Daily Update. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.