Marking Time Ahead of Powell’s Press Conference and Amid Whiffs of Possible Change
November 2, 2022
Another 75-basis point Federal Reserve interest rate hike appears highly likely today and is discounted in the marketplace. Investors are focused on how monetary policy will evolve afterward, as hints of smaller increases from December have been floated. The Fed announcement arrives at 18:00 GMT, but a macroeconomic forecast update isn’t scheduled until next month’s meeting. That puts the focus on Powell’s press conference at 18:30 GMT.
In political developments,
- Brazilian President Bolsonaro did’t formally concede that he lost to Lula but also hasn’t refused to abide by the result. He was defeated but very narrowly. Investors are watching to see if grassroots protests ensue.
- Yesterday’s election in Israel was won by the right, returning Netanyahu to power. He will next assemble a coalition with himself as prime minister once again.
- Denmark, by contrast, will retain a center-left government after its recent election.
- Republicans in the United States appear headed for meaningful mid-term election congressional and state house gains. Early voting has begun, and Election Day is less than a week away.
Minutes from the Bank of Japan’s September Board meeting and overnight remarks by Bank of Japan Governor Kuroda suggest that the ultra-stimulative monetary policy may be headed for slight modification sooner than has been implied previously. The catalyst for change has been the weakness of the yen. It was revealed that that forex intervention to support the yen in October had totaled $43 billion, and Finance Minister Suzuki extended the intent of yen-supportive operations beyond countering disorderly market conditions (i.e., excessive volatility) to preventing cumulative depreciation of Japan’s currency. BoJ minutes revealed acknowledgment that inflationary pressures have increased and a call for appropriate communication regarding a tweak in policy before such is done.
Purchasing managers surveys released today for parts of the euro area reveal deepening recession in manufacturing but also lessening, albeit still historically high, inflationary pressures.
Financial market activity overnight has been muted. Ten-year sovereign debt yields are unchanged on net in Germany, Japan, and the United States. Their British counterpart dipped just one basis point. Prices for oil, gold and Bitcoin have moved only marginally. The weighted DXY dollar index is 0.2% softer, mainly because of a 0.8% slide against the yen. The dollar also shows dips of 0.2% against the loonie, peso, and sterling and of just 0.1% relative to the euro.
Reports emerged Tuesday that Chinese President Xi is considering a less stringent no-Covid stance to help bolster faltering growth in China’s economy. Share prices today rose 2.4% in Hong Kong and 1.2% in the Shanghai Composite index. Otherwise in the Pacific Rim, stocks closed up 0.1% in South Korea and Australia but down 0.1% in Japan. European equities are marginally softer, and U.S. stock futures are very narrowly mixed.
Romanian producer price inflation eased to a 4-month low of 46.7% in September from August’s record high of 53.0%. South Korean consumer price inflation, which at 6.3% in July had touched a 284-month high, eased back to 5.7% by last month.
Euroland’s manufacturing purchasing managers index in October was revised downward by 0.2 points to a 29-month low of 46.4. This was the fourth straight month with a sub-50 result, signalling a contraction of factory activity. Being down from an average reading of 49.25 in the third quarter, this latest report implies that the manufacturing recession was intensifying early in the fourth quarter, with demand depressed by very high inflation, tighter monetary conditions, geopolitical turmoil and energy shortage fears. Manufacturers are bracing for conditions to get worse for quite a while before there is improvement.
Within the euro area, only Ireland’s 2-month low PMI reading in October of 51.4 indicated positive growth. The other countries had PMIs ranging from a 29-month low of 44.7 in Spain to a 22-month low of 48.1 in Greece. The French and Italian PMI scores were also their weakest in 29 months. The German and Austrian PMIs sank to 28-month lows, and the Dutch index was at a 27-month low. Except for the first burst of Covid, European manufacturing is in its worst state in a very long time.
Among other purchasing manager surveys released today, the Saudi Arabian non-oil index rose 0.6 points to a 2-month high of 57.2, just half a point from August’s 10-month peak. Hungary’s PMI rebounded also to a two-month high (56.4), but Poland’s manufacturing index fell a full point to a 2-month, very depressed 42.0. The AIG-compiled Australian manufacturing purchasing managers index fell back under the 50 level to 49.6 from 50.2 in September, 49.3 in August, and 54.0 as recently as June.
New Zealand third-quarter labor market statistics depict tighter labor market conditions and may prompt central bank officials their to ramp up rate normalization. The jobless rate held steady at just 3.3% versus 5.3% in the second quarter of 2020, Employment grew faster than forecast, and labor participation rose to 71.9% from 70.9%. A further concern was an additional rise in average labor costs to 3.7% year-on-year growth from 3.4% in 2Q 2022 and 2.4% in the third quarter of 2021.
German unemployment and trade figures were reported. Unemployment increased for a fifth straight month but by a smaller-than-expected 8k, and the jobless rate remained steady at 5.5% (3.0% when harmonized). Germany’s trade position has been squeezed substantially by rising energy costs. The unadjusted EUR 9.0 surplus in September was down from EUR 16.2 billion a year earlier, and the January-September surplus amounted to just EUR 48.4 billion. In seasonally adjusted terms, the surplus rose to EUR 3.7 billion in September from just EUR 1.2 billion in August, but in a sign of weakening demand both at home and abroad, imports fell 2.3% on month and exports slid 0.5%.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan, Euroland manufacturing PMI, FOMC meeting today
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