Market Reaction Muted to Missile Strike in Poland

November 16, 2022

A Russian-made missile struck a grain facility inside Poland, but it remains unclear who fired that round or from where such came. World leaders were fortunately already assembled in Bali, Indonesia, for the Group of Twenty annual summit, and an emergency meeting to forestall a direct Nato-Russian military conflict has so far prevented an outsized financial market reaction to this new source of uncertainty.

U.S. stock futures have barely moved on balance. The dollar, which ordinarily benefits from geopolitical tension, is in fact 0.4% weaker than Tuesday’s closing level. The dollar overnight fell 0.7% against the euro, 0.5% versus the Swiss franc and 0.4% relative to sterling but rose 0.5% against the Chinese yuan and 0.1% versus the Japanese yen. The 10-year German bund and British gilt yields are down by 4 and 3 basis points today, but the U.S. 10-year Treasury yield has only dipped one basis point. Atlanta Fed President Bostic made some hawkish remarks pointing to little change in parameters guiding Federal Reserve policy going forward.

The price of Bitcoin sank another 1.4% to $16,614 in continuing reaction to the FTX bankruptcy, which exposed a huge flaw in the view that crypto currencies, even in the absence of regulation, are safer than government-created money. WTI oil is down 0.2%, while gold‘s price rose 0.5% so far today.

In Asian and European equity trading, share prices closed down 0.5% in China and Hong Kong but up 0.1% in Japan. The German Dax is 1.0% weaker but the British FTSE is only 0.1% softer.

British government controls on electricity and gas bills were recently imposed to counteract the inflationary fallout of energy shortages related to the Ukraine war. Nevertheless, CPI inflation accelerated a full percentage point in October to a 492-month high of 11.1%, which is almost three times greater than the 4.2% 12-month pace in October 2021. Without the government’s actions, CPI inflation would be almost 14%. Core CPI held steady at 6.5%. Producer output prices eased to a 6-month low but still highly elevated 14.8%, having peaked in July at 17.1%. Producer input price inflation of 19.2% also eased and was down almost 5 percentage points since touching a 164-month high in June.

Italian CPI inflation was revised down by 0.1 percentage point to a 37-year high of 11.8%, and the month-on-month 3.4% surge in consumer prices was the biggest monthly advance since 1980. Energy and food price inflation printed at 71.1% and 13.5% in the latest month.

Canadian CPI inflation remained at September’s 5-month low of 6.9% in October, down from 8.1% in June but above 4.7% recorded in the year through October 2021.

Czech producer price inflation in October was 24.1%, an 8-month low but up from 8.6% a year earlier.

Croatian CPI inflation rose to a record high of 13.2% last month versus 5.8% a year earlier.

Australia’s quarterly wage price index rose in 3Q by 1.0% on quarter (most 41 quarters) and 3.1% on year (the most in 37 quarters).

House prices in China fell 1.6% on year in October, their weakest such comparison in 86 months.

British labor productivity edged up just 0.2% in the third quarter but was 1.4% greater than in 3Q 2021.

Japanese core private machinery orders stunningly fell 4.6% in September¬† on top of a 3.8% drop in August and in contrast to analyst forecasts of a likely increase of somewhat less than 1.0%. Government orders for machinery also fell (7.6%), but export orders went up 6.3% on month. Japan’s tertiary index, a measure of service sector activity, also performed poorly in September, slipping by 0.4% and to a year-on-year growth of 2.9% versus 4.1% in August.

The latest central bank to raise interest rates is the National Bank of Rwanda, whose policy rate today was raised by 50 basis points to a six-year high of 6.5%. Earlier rate hikes this year were engineered in February (50 bps) and August (100 bps). The rate of 4.5% from April 2020 until February 2022 had been a record low. Rwandan CPI inflation had risen to 31% in October and is expected to remain in double-digit territory until the second half of next year.

U.S. Statistics Just In: Counter-inflationary benefits of the strong dollar continued to be in evidence last month when import prices posted their fourth straight month-on-month decline, this time of 0.2%. Year-on-year import price inflation dropped to 4.2% from 11.0% in October 2021. Inflation of 16.3% in fuels was down from 90.6% in October 2021. By contrast, U.S. consumer spending has behaved resiliently in the face of elevated inflation. Retail sales in October rose by a much greater-than-forecast 1.3% in October and posted on-year advances of 8.3% that month and 8.9% on average in August-October. U.S. industrial production, NAHB housing index, and Treasury-compiled capital flow data will be released later today.

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

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