Investors Anxious Over Several Matters
January 25, 2023
Although down from 2022 highs in many places, inflation remains too elevated for central bankers to feel comfortable. Many data including this week’s spate of purchasing manager surveys are consistent with a contraction of GDP in this first quarter of 2023. The war in Ukraine and proliferation of mass shootings in the United States are two other concerns. The second amendment of the U.S. constitution and overly politicized Supreme Court seemingly give troubled young male Americans an unchecked licence to kill and monopolistic companies a free hand to stamp out competition, which is the lifeblood of healthy capitalism. These trends and other authoritarian tendencies are playing out in escalating fashion.
While the dollar’s lynchpin role in international trade and finance continues to lack any serious contenders, the present infrastructure would never have evolved as such without America’s attractive intangibles like political stability based on the rule of law, not people, and a superpower status in military and economic standings, plus a great abundance of skilled labor, land, and natural resources. The paradox lies in a system based on now dubious assumptions but with no obvious immediate replacements. Until they no longer behave like a champion, the dollar and U.S. financial markets will be viewed as such, but that doesn’t mean a lack of anxiety in the ride.
The dollar and crypto each rose modestly overnight. Gold is down about a half percent from 9-month highs. WTI oil is up 0.4% and back above $80 per barrel. The biggest dollar advance again has been versus sterling.
Financial markets reopened in several Asian countries, but China, Hong Kong, Taiwan, and Vietnam stayed shut for the Lunar New Year. Share prices rose 2.0% in South Korea, 1.8% in Singapore, and 0.4% in Japan but fell 1.3% in India and 0.5% in Indonesia. Nasdaq futures are also down 1.3% on worse-than-expected forward guidance. Other sectors of the U.S. stock market seem headed for a lower start as well.
Among 10-year sovereign debt yields, British gilts, German bunds and U.S. Treasuries are down 5, 4, and 2 basis points, while the 10-year Japanese bond yield rose 3 basis points today.
The drop in Japan’s index of leading economic indicators in November has been revised marginally smaller, but the level was at a 23-month low, nonetheless. The index of coincident economic indicators was its lowest in seven months.
Australian CPI inflation accelerated last quarter by a half percentage point to a 32-year high of 7.8%, which compared with 3.6% a year earlier and only 0.9% in the final quarter of 2020.
Consumer price inflation in New Zealand remained unchanged at 7.2% in 4Q 2022. That’s very near the crest of 7.3% in the second quarter of last year but over five times as high as 1.4% in the final quarter of 2020.
A monthly 0.8% drop in British producer output prices last month trimmed the PPI-O’s 12-month rate of increase to a 9-month low of 14.7% from 16.2% in November and a peak of 18.3% last September. Compared to December when PPI-O inflation was 9.3%, it remained considerable higher. Producer input inflation of 16.9% last month was down from a 164-month high of 24.1% in mid-2022.
Swedish producer price inflation slowed to a 2-month low of 18.7% last month from 19.5% in November, primarily because of a drop in the energy component. The peak last June was at a record 25.6%.
Icelandic producer price inflation had dropped abruptly in November to a 29-month low of 3.5% from 7.0% in October and a 146-month high of 29.6% last April but rebounded five percentage points to 8.5% in December.
Spanish producer price inflation subsided three percentage points to a 20-month low of 14.7% in December, which below last March’s record of 47.0%
Consumer price inflation in Singapore of 6.5% in December was down from 6.7% in the two previous months but above the 2022 average of 6.1%.
The IFO Institute’s monthly German business climate index continued to recover this month, printing at an as-expected 90.2 after readings of 88.6 in December, 86.4 in November, and a recent low of 84.3 in September. The pre-Ukraine war level in February 2022 had been 98.8. Germany has a long way to go before that milestone, but IFO officials characterized today’s data as evidence that businesses are “starting this year with more confidence.” The improvement transpired in spite of a lower reading for current conditions (94.1 versus 94.4 in December and 99.0 last February). Manufacturing and trade exhibited more improvement than construction and services.
Switzerland’s ZEW expectations index for January showed that investors have become less bearish about that economy. The index printed at -40 versus -42.8 in the prior month and a 2022 low of -72.7 in June. Before Russia invaded Ukraine, the index in January 2022 had been +9.5.
Turkish manufacturing sector confidence swung from a 30-month low of 97.8 in December to a 5-month high of 101.7 in January.
The Bank of Canada Board will announce the results of its first monetary policy review of 2023 later this morning and is also scheduled to publish its quarterly Monetary Policy Report with updated forecasts.
In other central banking news, the policy interest rate of the Central Bank of Sri Lanka was left unchanged at a record high of 14.5%, its level for the past half year. CPI inflation continues to sizzle in Sri Lanka but has slowed to a 6-month low in December of 57.2%. From July 2020 to August 2021, the policy rate had been ten percentage points lower than its current level. An initial 50-basis point hike in August 2021 was extended last year by 50 bps in January, 100 bps in March, 700 bps in April, and 100 bps in July. In Sri Lanka’s case, civil unrest amplified the globally-generated inflation winds felt by many economies.
Officials today at the Central Bank of Thailand raised their interest rate benchmark from 1.25% to a 3-1/2 year high of 1.50%. This was the fourth 25-basis point increase since last August. CPI inflation rose to a 2-month high in December of 5.9%. That’s still down from August’s peak of 7.9% but well above the December 2021 CPI level of 2.2%. With China reopening to foreign trade, officials at the Bank of Thailand are confident their economy can handle higher interest rates. “Risks of rising demand-side inflationary pressures must be monitored. The policy rate should be normalized to the level that is consistent with sustainable growth in the long term in a gradual and measured manner,” according to a released statement.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Thailand, British PPI, Central Bank of Sri Lanka, German business climate index IFO
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