Fresh Developments Driving Investor Hopes

November 15, 2022

Equities in the Pacific Rim rose by 4.1% in Hong Kong, 2.6% in Taiwan, and 1.6% in China as yesterday’s talks between the presidents of the United States and China went as well as could have been expected considering their government’s significant differences. The South Korean Kospi rose only 0.2%, and Japan’s Nikkei dipped 0.1%.

Share prices in Europe are up 0.8% in France and 0.5% in Germany but down 0.1% in the U.K., and U.S. equity futures just got a big boost from better than expected U.S. producer price figures that reinforced the last week’s CPI news. A 0.2% monthly rise in the PPI last month was only half as much as forecast and included a 0.1% monthly dip in producer service prices. On-year PPI inflation of 8.0% was 0.4 percentage points lower than September’s pace, representing a 15-month low and a substantial drop from 11.2% as recently as June.

The ten-year German bund yield has matched the U.S. treasury yield’s five-basis point decline today and contrasts with a two basis point rise in the 10-year British gilt yield.

More favorable British interest rate appeal has lifted sterling by 1.7% against the dollar so far today. At $1.195, the pound has rebounded 15.5% from its recent low of $1.0349. The dollar has also declined today by 1.0% versus the euro, 0.8% vis-a-vis the Australian dollar, 0.7% against the Japanese yen, 0.6% relative to the Chinese yuan, and 0.4% against the Canadian dollar and Mexican peso. The weighted DXY dollar index touched a 3-month low overnight and is currently 0.7% weaker on net this day.

Prices for Bitcoin and gold have rallied 2.5% and 0.2%, while WTI oil is 1.0% weaker.

Today’s menu of economic data, aside from the aforementioned U.S. PPI, featured 3Q GDP for both Japan and the euro area as well as a bunch of Chinese October releases.

  • A fourth straight quarter of positive growth in Japan had been forecast, but the release there instead revealed an annualized 1.2% contraction of real gross domestic product between 2Q and 3Q. The expansion rate of personal consumption slowed to 1.1% from 5.1% in the prior quarter, non-residential investment of 6.3% was down from 9.9%, and next exports and inventories exerted a combined net drag on the GDP growth of 2.9 percentage points. Compared to 3Q 2021, GDP went up 1.8%, and the GDP price deflator dropped by 0.5%.
  • GDP growth in the euro area was unchanged from a flash report in late October. GDP expanded 0.2% on quarter in the joint currency zone. The year-on-year growth rate dropped to 2.1% from 4.3% in 2Q, 5.5% in 1Q and 3.7% in the summer of 2021. A 0.2% rise in Euroland employment last quarter was the smallest jobs gain since the first quarter of 2021. Among the four largest economies using the euro, GDP increased between 2Q and 3Q by 0.5% in Italy, 0.3% in Germany and 0.2% in France and Spain. GDP in Belgium and the Netherlands contracted.
  • In China during October, retail sales posted their first on-year drop (0.5%) since May. Sales in January-October were up only 0.6%, down from an average increase in the first ten months of 2021 of 14.9%. Industrial production, which had recorded a 7-month high 6.3% on-year advance in September, retreated to an on-year rise in October of 5.0%, least since July. China’s jobless rate in October matched September’s 3-month high of 5.5%, and fixed asset investment growth in January-October was 5.8% greater than a year earlier.

In other data news today, British jobless insurance claims (+3.3K) posted their third straight increase following 17 straight months of declining. Employment fell 52K in September, double what analysts expected, and average wage earnings in the third quarter were 6.0% higher than a year earlier (5.7% excluding bonus pay).

Investor sentiment in Germany according to the ZEW expectations index rebounded sharply this month to five-month high of -36.7 from -59.2 in October. Perceived current economic conditions improved but more slowly to a 2-month high. For the entire Euroland economy, ZEW expectations (-38.7 after -59.7) also jumped to a 5-month high and the present situation was assessed at a 2-month high.

Euroland’s seasonally adjusted trade deficit of EUR 37.7 billion in September was the smallest in three months, but the unadjusted deficit of EUR 34.4 billion was the third widest short fall ever and resulted in a year-to-date deficit of EUR 267 billion versus a surplus of EUR 129 billion in the first three quarters of 2021.

The U.S. monthly Empire State manufacturing index swung to a 4-month high of +4.5 in November from -9.1 in the previous month.

Japanese industrial production in September was revised to a marginally deeper monthly decline of 1.7%. For 3Q as a whole, production still rose 5.8%. Capacity usage fell 0.4% on month in September but rose 12.3% on year.

Among price data reported around the world today,

  • Swedish CPI inflation rose 0.1 percentage point to a 380-month high of 10.9% in October versus 2.8% a year earlier. Core CPI printed at 9.3%.
  • Finnish CPI inflation of 8.3% in October versus 3.2% a year earlier constitutes a 478 month high.
  • German wholesale price inflation of 17.4% in October was at an 8-month low but above 15.2% in October 2021.
  • Bulgarian CPI inflation decelerated to 17.6% in October from a 24-year high of 18.7% in September.
  • Polish CPI inflation accelerated to a 314-month high of 17.9% last month, same as the flash indication.
  • Spanish and French CPI inflation of 7.3% and 6.2% in October were also unrevised from preliminary indications.
  • Nigerian CPI inflation increased 1.2% on month and 21.1% on year in October, the largest 12-month rate of rise in 205 months.
  • Mongolian CPI inflation climbed to a 3-month high in October of 14.5%, about double 7.6% a year earlier.

In central banking news today, Federal Reserve Vice Chairperson Brainard supported other rhetorical signals that the next federal funds rate hike could be one of 50 basis points versus the 75-bp increment of recent moves, but that a pause in tightening is not in the cards.

Minutes from this month’s Reserve Bank of Australia Board meeting, which the rate increase’s size was reduced unexpectedly to 25 basis points, indicate that both making no change or reverting to a 50 basis points are still in play but that a move of 25-bps seems most likely.

The People’s Bank of China’s five-year and one-year Loan Prime Rates were left unchanged at this month’s review at 4.30% and 3.65%, respectively. Their most recent reductions of 15 bps and 5 bps occurred in August.

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

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