Volatile Start to 2023 in a Market Full of Doubt
January 4, 2023
The second business day of the year and first in Japan’s case has seen more churning in world financial markets without the emergence of clear convictions, so reactions to data and other developments that deviate from the experts’ predictions are producing outsized market reactions.
Share prices closed in the Pacific Rim up 3.2% in Hong Kong, 1.7% in South Korea, 1.6% in Australia, and 0.9% in New Zealand but down 1.5% in Japan, 1.1% in Indonesia and 1.0% in India. So far today, stock markets in Germany, France, Italy and Spain have risen 1.3-1.7%, and the British Ftse is 0.6% firmer, but U.S. stock futures are up only marginally.
Ten-year sovereign debt yields firmed three basis points in Japan but tumbled by 14 basis points in Italy, ten bps in France and Spain, nine bps in Germany and Great Britain, and five basis points in the United States.
After strengthening earlier this week, the dollar posted significant declines overnight of 1.9% against the Australian dollar, 1.1% versus the kiwi, 0.9% relative to the loonie, 0.8% versus the Swiss franc and 0.5% vis-a-vis the euro and sterling. Losses of only 0.1% occurred against the Japanese yen and Chinese yuan.
The price of West Texas Intermediate oil dived 3.4% so far today, while those of gold and Bitcoin rose 0.8%.
Previous core assumptions are being questioned, such as America being a beacon of political stability. Republicans in the House of Representatives are doing their best imitation of the cannibalizing reign of terror during the French Revolution. Substantial failures of judgment have been exposed in Chinese President Xi and Russian President Putin, and confidence has eroded deeply that anybody can predict future inflation accurately on a consistent basis. The so-called rule of law has been boiled down to whatever people in power say it is. The track record of the Federal Reserve in forecasting growth or inflation hasn’t been particularly good. Officials say policy will follow the data, but investors aren’t confident that they can predict future data and consequently the future path of interest rates. Weather systems around the world continue to go haywire, creating another dimension of uncertainty surrounding economic performance.
Wednesday saw the release of service sector purchasing manager surveys and price data. Both pointed to a faster deceleration of inflation than assumed, mirroring 2021 when inflation accelerated unexpectedly quickly and far.
German import prices tumbled 4.5% in November following a 1.2% drop in October, causing their 12-month rate of rise to plunge to a 17-month low of 14.5% from 23.5% in October, 29.8% in September and 32.7% in August.
Brazilian producer price inflation of 4.4% in November was down from 6.5% in October, 17.9% last July, and about 37% in mid-2021.
Romanian PPI inflation likewise dropped from a record 53% in August to an 11-month low of 35.1% in November.
French consumer prices dipped 0.1% on month in December and to a lower-than-forecast year-over-year pace of 5.9% from 6.2% in both October and November. French consumer confidence printed at a subdued 82 level in December. That was the fourth 82 reading in the past 7 months and down from 83 in November.
Swiss consumer prices had been unchanged in November and then slipped 0.2% last month, resulting in a 12-month 2.8% rate of increase versus 3.0% in November and 3.5% in August and also matching last year’s average price advance of 2.8%.
Investors wonder less these days about whether there will be a recession and more about how deep and long such might be.
A 5.3% year-on-year drop in Hong Kong retail sales in November was the biggest slide since March.
British mortgage approvals dropped to 46.1k in November from 57.9k in the previous month.
U.S. mortgage applications plunged 10.3% in the last half of December, as the 30-year fixed mortgage rate climbed back to a six-week high.
The Japanese manufacturing purchasing managers index slipped to a 26-month low of 48.9 in December.
The non-oil PMI readings in Lebanon and the United Arab Emirates last month both represented 11-month lows.
Egypt‘s non-oil PMI (47.2) rebounded to a 2-month high but remained below the 50 neutral level for the 25th time in a row.
The Swedish service-sector purchasing managers index printed at 53.0, its lowest reading in two and a half years.
The global manufacturing purchasing managers index at the end of 2022 was at a 30-month low (48.6) as well.
Although higher than in November, the composite PMI readings of the four largest economies in the euro area last month, which comprise both manufacturing and service sector activities, ranged between 49.0 and 49.9.
Euroland’s composite and services PMIs of 49.3 and 49.8 showed the softest contractions in five and four months, respectively.
India’s service sector PMI rose 2.1 points to 58.5 in December and was accompanied by a 131-month high in its composite purchasing managers index.
Brazil’s composite and service sector PMI readings last month of 49.1 and 51.0 represented 19-month lows and reflected a considerable loss of momentum compared to October readings of 53.4 and 54.0.
Two U.S. economic releases later today could draw considerable interest, the first being the Labor Department monthly figures on job openings, hires, and quits. The so-called JOLTS report has been cited by Fed officials as data that may have particular future influence over monetary policy. Later, the minutes from last month’s Federal Open Market Committee meeting that rates interest rates by 50 basis points will be published.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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