Much More Than an FOMC Announcement Day
February 1, 2023
The FOMC policy statement at 19:00 GMT today (14:00 EST) will be followed half an hour later by the start of Chairman Powell’s press conference. Officials are expected to raise the target federal funds corridor by 25 basis points to 4.50-4.75%. This is the first scheduled FOMC meeting of 2023 and therefore the one in which the composition of voting district presidents gets changed. There are 11 FOMC voting members, the six governors (including the chairman), the New York district president, and four of the other 11 district presidents, who get to vote during one calendar and then are replaced by four different district presidents. All 12 district presidents attend FOMC meetings and participate in discussion, whether or not they get to vote. Today’s policy review was not one in which macroeconomic forecasts are formally updated.
Today also saw the release of a slew of manufacturing purchasing manager surveys for January, as well as Euroland unemployment and consumer price inflation, various price data from other countries, and the ADP-compiled estimate of U.S. private employment growth in January.
- Euroland unemployment failed to drop as widely expected and instead remained at 6.6% for a third straight month in December. That’s still down from 7.0% at end-2021.
- January consumer prices in the euro area unexpectedly matched December’s 0.4% month-on-month drop, resulting in a 0.7 percentage point deceleration in the 12-month rate of increase to 8.5%. That’s also down from a record 10.6% set in October. Energy prices, which rose 17.2% on year compared to 25.5% in December and 41.5% in October, was the main driver of the lower inflation rate. Service sector price inflation also slowed, but food price inflation of 14.1% crested further, and core CPI (excluding food & energy) remained stuck at December’s cyclical high of 5.2%. It should be also noted that German consumer prices have not yet been reported for the month, creating more than typical uncertainty about how Euroland’s figure might ultimately get revised. In neighboring Austria and France, CPI inflation actually rose during the month.
- ADP’s estimated 106k rise in U.S. private sector jobs last month was only a little more than half of the number that analysts were anticipating and the smallest figure in almost two years.
In overnight financial market action, share prices advanced in Europe and Asia, but U.S. stock futures lost ground. The ten-year U.S. Treasury and British gilt yields dropped by four and five basis points, while those of Germany and Japan held steady. West Texas Intermediate oil appreciated 0.5%; oil ministers from OPEC and other key producers holding their monthly meeting today are not expected to change production plans. Prices for gold and Bitcoin dipped marginally. At a high of $1.0907, the euro was trading a mere 0.2% below last week’s three-quarter peak. The dollar overnight fell by 0.5% against the yen, 0.4% versus the Aussie dollar and Mexican peso, and 0.3% vis-a-vis the euro, yuan, and on a weighted basis.
Euroland’s manufacturing purchasing managers index printed at a 5-month high of 48.8, indicating that the pace of deterioration in the factory sector slowed further in January. Positive factors included China’s reopening, better balance in input and labor supplies, falling inflation, and lessened fear of an energy crisis. But the weather could shift, the ECB is signalling more monetary tightening to come, and much of the impact of interest rate hikes done last year has yet to be felt. The best national PMI score among reporting members of the euro area was France with a 50.5 reading implying no more than marginal improvement, and the scores of Germany, Spain, Greece, Austria and The Netherlands all remained in negative-growth territory.
Britain’s manufacturing PMI score was revised up 0.3 points to a 4-month high of 47.0. While better than December’s 31-month low of 45.3, 47.0 still implies appreciable deterioration in the sector, but business optimism about conditions a year from now improved to a 9-month high.
Switzerland’s January PMI reading of 49.3 was 4.8 points lower than December’s and the worst in 19 months.
January manufacturing PMI scores in Sweden of 46.8 and Denmark of 54.9 were 4- and 7-month highs, while Norway‘s 50.0 score matched December’s 3-month low and signified neither improvement nor contraction.
Turning to Eastern Europe, Russia’s 52.6 reading was at a 3-month low. Hungary’s PMI fell to a 4-month low, while the Polish and Czech indices (47.5 ad 44.6) showed the slowest rated of deterioration in 8 and 4 months.
China’s manufacturing PMI printed below the 50 level for an eighth straight month but ticked 0.2 points higher to 49.2. Japan’s PMI reading (48.9) was unrevised from the preliminary estimate and also matched December’s 26-month low.
Indonesia‘s 51.3 reading and India’s 55.4 represent a 3-month high and a 3-month low, respectively. The Filipino PMI remained in positive growth territory at a 7-month high of 53.5. So did Thailand‘s 4-month high of 54.5. But several other Asian manufacturing PMIs were below the 50 threshold, however: Malaysia‘s 17-month low of 46.5, Taiwan‘s 2-month low of 44.3, Vietnam’s 2-month high of 47.4, and South Korea‘s 2-month high of 48.5.
Australia’s manufacturing PMI was revised up 0.2 points and straddled the 50.0 level but still was its lowest in 32 months. South Africa‘s Absa-compiled PMI edged 0.1 point below December’s 7-month high. Brazil’s 47.5 reading was the best since October. A 6-month low in Turkish input price subindex enabled that economy’s manufacturing PMI to finally rise above 50 to an 11-month high of 50.1.
Canada’s manufacturing PMI moved just above the 50 threshold to a 6-month high of 51.0, but the S&P Global U.S. purchasing managers manufacturing index, a 2-month high of 46.9, stayed in the deterioration territory. Just as worrisome, the ISM manufacturing PMI showed an accelerating pace of deterioration for a fifth straight month and printed at a 32-month low of 47.4. Brazil’s 47.5 PMI was at a 3-month high, but Mexico‘s 48.9 score represents a 5-month low.
Among other price news reported this first day of February,
- Indonesian consumer price inflation decelerated to a 5-month low of 5.28%. Core CPI of 3.27% was at a 4-month low.
- Pakistani consumer prices leaped 2.9% between December and January, resulting in the largest 12-month rate of rise (27.6%) in 572 months.
- Italian CPI inflation continued to decelerate in January but stayed in double digits (10.1% versus a a 37-year high of 11.8% in October).
- British shop prices rose 8.0% on year in January, the most since at least 2008. Austrian CPI inflation of 11.1% last month was the most in over 60 years.
Britain’s Nationwide house price index fell 0.6% on month and posted a year-on-year rise of 1.1%, which was down from 14.3% last March and 11.2% in January 2022.
The Central Bank of Azerbaijani’s policy interest rate was increased by 25 basis points to 8.5%, its most elevated level since July 2019. From 13% at the start of 2018, the rate was lowered to 6.25% by the end of 2020.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Azerbaijan, Euroland CPI and unemployment, manufacturing purchasing managers indices
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