U.S. Data Out Today Supports Fed Message that a Rate Cut in 2023 is Highly Doubtful
January 5, 2023
The 2022 dynamic of progressively tighter Fed policy supporting the dollar and depressing stocks and bonds remains intact. Minutes from the December FOMC meeting project higher interest rates persisting for some time and indicates that market valuations that imply an initial rate cut late in 2023 are premature.
Although inflation cooled in recent months in many countries, U.S. labor market statistics remain problematic in that ones released today depict continuing overly tight conditions.
- New U.S. jobless insurance claims last week fell to a 14-week low of 204k, and their four week average dropped to an 11-week low.
- There were more U.S. job openings in November than perceived by analysts.
- ADP estimate of private U.S. jobs growth in December came roaring back to 235k from 127k in November.
In overnight market action prior to the U.S. stock market opening on Thursday, the dollar’s DXY weighted index rose 0.6%, including increases of 1.2% versus sterling, 0.8% against the yen, and 0.5% relative to the euro. U.S. equity futures are down about 0.5%, and the 10-year U.S. Treasury yield has popped nine basis points higher. WTI oil’s price rebounded 1.0%, but gold and Bitcoin are down 0.8% and 0.3%. In Asia, equities had risen 1.3% in Hong Kong, 1.0% in China and 0.4% in Japan. European bourses are narrowly mixed, while 10-year German bund and British gilt yields have climbed six basis points each.
Price data reported around the world Thursday revealed
- An 11-month low in Euroland producer price inflation of 27.1% in November, down from 43.5% in August. Energy costs sank 2.2% on month, with a 55.7% 12-month rate of increase down from 117.3% in August.
- Cypriot CPI inflation of 7.9% last month was the lowest in 9 months and down from a 491-month peak of 10.9% high in July.
- Colombian CPI inflation increased half a percentage point to 13.1% last month to a 285-month high, which compares to 5.6% in December 2021.
- Polish CPI inflation has subsided from a 26-year high of 17.9% in October to 16.6% in December.
- Austrian CPI inflation touched a record high of 11.0% in October but likewise slid subsequently to 10.2% by December.
- Italian CPI inflation dipped to a 3-month low of 11.6% last month from 11.8% in November and October but remained well above the 3.9% reading in the final month of 2021.
- Brazilian PPI inflation imploded from 28.4% at the end of 2021 to 4.4% in November.
- CPI inflation in Thailand slowed from a 169-month peak of almost 7.9% in August to 5.6% in November but then rose to 5.9% last month.
November trade statistics were released today in the United States, Canada, and Germany. The U.S. goods and services $61.5 billion deficit was the smallest in 26 months, reflecting a 6.4% drop in imports versus a 2.0% monthly slide in exports. The year-to-date deficit of $886 billion was 15.7% wider than that during the first 11 months of 2021, however.
Canada experienced its first deficit of 2022, albeit just C$ 41 million in size. A C$ 2.1 billion surplus had occurred in November 2021.
Comparatively warm weather in Europe and thus less-than-usual energy consumption saw Germany‘s seasonally adjusted trade surplus increase to EUR 10.8 billion in November from EUR 6.9 billion in October and a monthly average of EUR 2.2 billion in the third quarter.
A parade of December purchasing manager surveys continued today.
- Euroland’s construction sector contracted for an eighth straight month. The PMI reading of 42.6 was a 31-month low despite marginal upticks in the German and French readings to 41.7 and 41.0. Italy’s PMI, which had risen 3.9 points to 52.0 in November, slid back under the neutrality line to 47.0.
- The British composite PMI of 49.0 was unchanged from its preliminary estimate and a tad better than the readings in October and November. Services were revised somewhat lower to 49.8, but input price inflation in that sector was the least since September 2021.
- China’s composite and service sector PMI readings of 48.3 and 48.0 were at 2-month highs but below 50 for a third straight time.
- Australia‘s composite and service sector PMI readings of 47.5 and 47.3 were their weakest in 11 months.
- Although at a 2-month high, Ireland’s services PMI reading of 52.7 was over ten points below the 2022 highest point of 63.4 last March.
- Private sector purchasing managers indices in Hong Kong and Singapore were similar at 49.6 and 49.1. But Hong Kong’s reading represented a 14-month high, while Singapore’s dropped to a 25-month low.
- South Africa’s private PMI fell 0.4 points to a 2-month low of 50.2, indicating near stagnation.
Consumer confidence in Japan rose 1.7 points in December but remained very subdued at 30.3. Meanwhile, Japan’s monetary base, over which the central bank exerts the most direct control, posted a 6.5% year-on-year drop in the fourth quarter versus no change in 3Q and on-year increases of 8.0% in 1Q and 5.1% in 2Q.
Spanish business confidence printed below zero in every month of the second half of 2022, but December’s reading of -5.1 was less negative than November’s. Danish business sentiment weakened further to a 31-month low.
Just In: The U.S. S&P Global-compiled composite and services purchasing manager indices in December were revised slightly higher but nonetheless constitute four month lows and, at 45.0 and 44.7, signify considerable contractionary momentum in the final month of 2022.
Failing to pick a speaker of the House of Representatives for a second straight day, House Republicans do not seem to understand that the right to complain entails a willingness to commit. Otherwise, what’s left is anarchy. But so far, financial markets aren’t reacting to U.S. politics. That will change if America stumbles into a debt default.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland PPI, German trade balance, purchasing manager surveys, U.S. and Canadian trade balances
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