Equity Retreat Extended and Dollar Narrowly Mixed
December 6, 2022
Overnight dollar movements include a rise of 0.4% against the loonie coupled with a drop of 0.4% against the Swiss franc; an uptick of 0.2% relative to the yen versus a 0.2% downtick against the euro, dips of 0.1% vis-a-vis the Australian and New Zealand dollars, and no net change against sterling.
More significant change has occurred in bonds and equities:
- Ten-year sovereign debt yields are down 8 basis points in Germany and 7 bps in France, Italy and Spain. Ten-year British gilt and U.S. Treasury yields have fallen by 3 and 2 basis points.
- Stock markets closed down 1.7% in Taiwan, 1.4% in Indonesia, and 1.1% in Singapore. The German, French and Italian stock markets so far show losses between a half percent and a full percent, and the U.S. Nasdaq has dropped 1.5%.
The price of West Texas Intermediate oil is 1.5% lower, while those of Bitcoin and gold are 0.3% and 0.1% firmer.
There’s been some constructive developments on the inflation front, but the world remains distant from a state of price stability. Members of the ECB Governing Council opined that a peak in inflation will likely occur soon. Much but not all of the tightening of monetary policy has been done, and the stance is no longer accommodative.
Wholesale price inflation fell to a 9-month low of 16.5% in Austria last month from 21.2% in the prior month and 16.6% a year earlier. Wholesale prices in Taiwan were 9.1% higher than in November 2021, down from an on-year pace of 16.9% in May. These economies experienced monthly WPI drops last month of 3.0% and 1.5%.
Taiwan also reported a lower rate of consumer price inflation last month of just 2.35%, representing a 9-month low. In the Philippines, in contrast, consumer prices increased by 0.9% month-on-month in both November and October, lifting the 12-month rate of increase to 8.0%.
The Reserve Bank of Australia’s Official Cash Rate’s hike this month of 25 basis points matched the expected changed and lifted the rate level to a 123-month high of 3.10% from 0.10% at the onset of the tightening cycle last May. Current CPI inflation in Australia of 6.9% is well above the central bank’s medium-term 2-3% target, which officials hope to be reestablished sometime in 2024. In the short-term, inflation probably crested further this quarter, and the cycle of interest rate hikes is not yet complete. Forthcoming policy moves will be dictated by the data.
The U.S. goods and services trade deficit in October widened to a 4-month high of $78.162 billion, a tad less than forecast. Exports fell 0.7% on month in a sign of slowing demand, which is what Fed officials hope to see. But the U.S. deficit is so large that it takes much faster export than import growth to achieve a steady deficit. The $825 billion deficit in the first ten months of 2022 was 20% larger than a year earlier despite identical 19.8% year-on-year advances in exports and imports.
The Canadian trade surplus of C$ 1.214 billion in October was the widest since July but down from C$ 1.919 billion in October 2021. Canada’s IVEY-PMI index recovered slightly in November from October’s steep drop but at 51.4 was down from 59.5 in September and 61.2 in November 2021.
Purchasing manager surveys for the construction sector were published today for the Euroland and British economies. The U.K. construction PMI reading of 50.4 was the third straight score above the 50 level that separates positive from negative growth, but it was lower than the September and October readings. The euro area’s construction PMI sank 1.3 points further to a 30-month low of 43.6 and embodied even weaker readings for Germany and France of 41.5 and 40.7. Italian construction, on the other hand, broke a fourth month streak of sub-50 scores to print at a 6-month high of 52.0.
Real household spending in Japan during October rose 1.1% on month and by 1.2% compared to October 2021.
The measured contraction in Czech GDP last quarter has been halved to 0.2%, which still constitutes the first negative quarter since early 2021. On-year Czech growth of 1.7% was also the weakest result in six quarters.
South African GDP grew 1.6% on quarter (annualized) and 4.1% on year during the third quarter. The on-year growth rate was the most in five quarters and reflects a weather-related weak third quarter of 2021.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland and British construction PMIs, Reserve Bank of Australia, U.S. and Canadian trade balances
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