Prices, Consumer Confidence, and Recessionary Worries

January 20, 2023

On this eve of the Chinese Lunar New Year holiday, investors are digesting the latest inflation data, perusing reports on consumer confidence, but also continuing to worry about the risk of recession to which many economists in both the private and public sectors ascribe better than even odds. The global economy is coming off a year in which central banks reacted forcefully to the highest inflation in decades. The war in Ukraine hits its first anniversary next month with no end in sight. Today’s New York Times front-page lead story (U.S. Hits Debt Cap, Heightening Risk of Economic Pain) outlines yet another factor pointing to recession, and Google became the latest big tech company to announce large-scale layoffs, with the CEO explaining that a different world economic reality has emerged from Covid than the one imagined.

The world’s pain continues to be the dollar’s gain. The U.S. currency in overnight action jumped 1.3% against the Japanese yen and rose 0.5% relative to the Swiss franc and 0.3% versus the Australian dollar, sterling and its weighted DXY index. Smaller 0.1% upticks were made against the loonie and euro.

While share prices closed up 1.8% in Hong Kong, 0.8% in China, Indonesia, and New Zealand, 0.6% in Japan and have risen so far in Europe, stock futures in the United States, whose performance is likely to set the tone for the coming week, remain pretty listless.

Ten-year sovereign bond yields have increased today by 12 basis points in Italy, 9 bps in Spain, 8 bps in France and Germany, 5 bps in Great Britain, 4 bps in the United States but slipped 3 basis points in Japan. Prices for gold and oil are 0.3% and 0.2% higher, while Bitcoin has dipped 0.1%.

Japanese total and core consumer price inflation accelerated to 383- and 492-month highs of 4.0% last month from 0.8% and 0.5% at the end of 2021. The seasonally adjusted core CPI index, which excludes fresh food but not energy, recorded a 0.4% month-on-month increase for a sixth consecutive time. Even when energy prices, which rose 15.2% on year, are excluded, core inflation rose to 3.0% in December from 2.8% in November and minus 0.7% in the last month of 2021. According to the Japanese definition of core inflation, such averaged 2.3% in 2022 versus -0.2% in both 2020 and 2021.

From a peak of 45.8% in both August and September, German producer price inflation settled back to a 13-month low of 21.6% by December, as the energy component plunged from 139% to 41.9%. Excluding energy, however, the index only fell from 14.4% to 12.0%.

South Korean producer price inflation decelerated by a further 0.2 percentage points in December to a 20-month low of 6.0%, having crested in June at a 164-month high of 10.0%.

Slovenian producer price inflation printed at a 9-month low in December of 19.3%, down from 19.7% in November and a record high of 22.5% last May.

Malaysian CPI inflation dipped to a 6-month low of 3.8% last month from 4.0% in October and November and 4.7% last August. Alternatively, consumer price inflation in Hong Kong of 2.0% in December was 0.2 percentage points higher than the prior two months’ readings.

British consumer confidence dropped to a 3-month low in December. The reading of -45 followed one of -42 in November and -15 in December 2021, which also depicted more pessimism than optimism. British retail sales volume in December had been projected to partly reverse November’s decline, but instead fell 1.0% on month and 5.8% on year. Sales on average were 3% fewer in 2022 than 2021.

Dutch and Belgian consumer sentiment improved to 8- and 5-month highs, but those readings of -49 and -12 also signify a cup more than half empty. The improving trend in Europe can be ascribed to a milder-than-usual winter that has alleviated so far what could have been a calamitous energy shortage.

New Zealand’s manufacturing purchasing managers index fell to a 31-month low of 47.2 in December, having crested just four months earlier at a 13-month high of 54.8. Readings below 50 signify a contraction of activity, and December’s was the third sub-50 score in a row.

Mexican retail sales dipped 0.2% on month in November, trimming its 12-month rate of increase to 2.4% from 3.8% in October and 6.7% in January 2022.

A 1.3% advance of Canadian retail sales in October had reversed September’s 0.6% drop and was followed by a 0.1% dip in November. In the process, the 12-month increase in sales slowed to 5.2% from 6.9% in September and 14.0% last May.

The People’s Bank of China’s one- and five-year Loan Prime Rates were left unchanged at 3.65% and 4.30% after this month’s review. The most recent changes — cuts of five basis points in the one-year rate and 15 bps in the longer-maturity LPR — were made last August. Prior to December 2021, the rates were at 3.85% and 4.65%.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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