Gloomy Finale to 2022
December 19, 2022
Global confidence has suffered a succession of shocks: the Covid pandemic in 2020, heightened doubts about America after Trump’s attempted coup in 2021, and Putin’s unstable invasion of Ukraine in 2022. Financial markets will be putting their books to bed over these last two weeks of 2022, hoping for better times but conditioned to a reality of at least two disappointments for every positive piece of news. The end of each calendar year often bring a lightening of trading volume that can produce erratic and unrepresentative financial market movements. In the early days of flexible dollar exchange rates, the U.S. currency weakened between December 15 and endyear in 13 of the 14 years from 1974 to 1987 against the Deutsche mark, which at the time was the dominant currency of Europe and the major benchmark of dollar sentiment. The exception was 1984 when the dollar was late in the third and final stage of a multiyear appreciation that depressed the mark from a high of 1.70 per dollar to a trough on February 26, 1985 of DEM 3.48 per dollar.
On this Monday, the dollar has opened the new week on a modestly down note, losing 0.5% against the Australian dollar, 0.3% versus the Canadian dollar and Swiss franc, 0.2% relative to the euro, and 0.1% against the Japanese yen and sterling.
Share prices in the Pacific Rim also began this week on a back foot, extended the downward momentum of equities last week and also reacting to the increasingly confusing Covid policy of China, which officials have just loosened after long resisting calls for moderation but timing their about-face with with biggest upsurge of cases in China since the pandemic first emerged in that country. Equity markets closed down today by 1.9% in China, 1.1% in Japan, 0.7% in Taiwan and New Zealand, and 0.5% in Hong Kong. In contrast, European equity markets are currently seeing green, but today’s gains have been held mostly to no more than 0.5% so far. In the U.S., the SPX and Nasdaq are down slightly, while the DOW shows a small gain.
There have been significant rises today in ten-year sovereign debt yields of 11 basis points in Italy, 13 basis points in the U.K., 10 basis points in the United States and 5 bps in France and Germany.
Prices for gold and Bitcoin are steady, while that for West Texas Intermediate oil has climbed 1.9% so far today.
A rash of central bank policy reviews last week sent a message that more tightening is on the way. It will take an uncomfortable span of time before inflation settles back to a semblance of acceptability, and officials have unfolded the mantra that delayed or half-baked resistance to high inflation invariably leads to more painful monetary medicine ultimately.
The Central Bank of Colombia is the latest monetary institution to raise its policy interest rate, lifting such by a full percentage point last Friday to 12.0%. That’s its highest level in 21 years and compares with 3.0% at end-2021 and a pandemic low of 1.75% from September 2020 until a 25-basis point initial rate hike in September 2021. Consumer price inflation in Colombia has accelerated over the past year from 5.3% in November 2021 to 12.2% in October 2022 and a 28-year high of 12.5% last month.
Today was day one of a two-day policy review at the Bank of Japan, which remains the final holdout against ending an ultra-stimulative monetary policy stance. Japan’s short-term policy rate target is expected to remain at -0.1%, and quantitative stimulus is being used to keep a low lid on longer-term rates.
Like many Mondays, today has had a limited menu of economic data releases around the world.
The December IFO German business climate survey results were better than forecast, showing a 4-month overall high, a 6-month high in future expectations, and a 3-month high in currently perceived business conditions in Euroland’s largest economy. IFO officials opined that Germany “entered the holiday season with a sense of hope.”
The orders subindex of the CBI survey of British industrial trends weakened a point to a 4-month low of -6. That compares with a record high of +26 last March and May. The U.K. Rightmove house price index fell on month in December as such had in November. This trimmed the 12-month rate of increase to 5.6% in December from 7.2% in hNovember and 10.4% last March.
Construction output in the euro area rebounded by a sharp 1.3% in October after back-to-back quarterly declines of 1.1% in the second quarter and 0.8% in the third quarter. A 2.2% year-on-year advance was up from 0.9% posted in the prior month but down from 5.3% between the first quarters of 2021 and 2022.
The year-on-year advance of Euroland labor costs decelerated to 2.9% in 3Q 2022 from 3.8% in the first half of this year. It was the smallest rise in five quarters but above 2.1% in the year through 3Q 2021.
The monthly U.S. National Associationof homebuilders index recorded a twelfth consecutive monthly decline and, with a reading of 31, was as low as such has been since 2012 and down from a record high of 90 in December 2020.
Canadian producer prices fell 0.4% on month in November, trimming its 12-month increase to a 2-month low of 9.7%. PPI inflation had crested last March at 18.1%.
Moldovian PPI inflation slowed to a 6-month low in November but remained high at 28.1%.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian PPI, Central Bank of Colombia, Euroland construction output and labor casts, NAHB index
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