Digesting the Powell and Biden Speeches and Other Central Bank Decisions
February 8, 2023
Fed Chairman Powell yesterday reaffirmed the assertion that inflation has begun to decline but balanced that success with views that the peak in interest rates may be higher than indicated earlier and that the job of restoring in-target inflation will take quite some time longer.
With a refrain of let’s-finish-the-job, U.S. President Biden sounded like a candidate rallying his supporters and inviting his detractors to join in bi-partisan efforts on numerous fronts. Biden devoted most of the State of the Union Address to domestic policies, citing numerous accomplishments and laying out the unfinished agenda items (like raising the debt ceiling) that need attention. The speech on the whole was uncharacteristically energetic, but the body english from the Republican side of the aisle underscored a continuing vast cultural divide in the nation.
Central bank interest rate hikes of 50 basis points in Iceland and 25 bps in India have been announced. Monetary policy decisions will be announced later today in Poland and Sweden, then tomorrow in Mexico, Peru, Serbia and Romania, and Friday in Russia.
The dollar has traded 0.3% lower in weighted terms and against the kiwi, peso, and Swiss franc. Other losses amount to 0.2% versus the yen, euro, and loonie, 0.4% relative to the Australian dollar, and 0.5% vis-a-vis sterling.
U.S. stock futures are moderately lower, trimming some of the gains yesterday afternoon after Powell’s speech. Share prices in the Pacific Rim today climbed 1.4% in Taiwan, 1.3% in South Korea, 0.6% in India, and 04% in Australia but fell by 0.5% in China and 0.3% in Japan. Stock markets are also up 0.7-0.8% in Germany, Italy and Great Britain.
Ten-year sovereign debt yields fell 3 and 2 basis points in the U.S. and U.K. but show nil net change today in Japan or Germany. The prices of gold and WTI oil have risen 0.6% and 0.2%, while Bitcoin has slipped 0.3%.
Japan’s seasonally adjusted current account surplus in December of 1.182 trillion yen was 38% narrower than November’s surplus, as both exports and imports tumbled sharply. The unadjusted surplus was only JPY 33 billion in December and, at JPY 11.44 trillion in 2022, 47% smaller than the surplus in 2021. As a huge importer of energy, this deterioration was not surprising. Japan also reported a 5-month low economy watchers index for January; this statistic measures sentiment among service sector workers. A third reported economic statistic today showed on-year bank lending growth rising to a 21-month high of 3.1% in January from 2.7% in the final quarter of 2022.
Indonesian consumer confidence increased 2.6% to a 5-month high last month, and South Korea’s current account surplus of $2.68 billion in December was 61% narrower than a year earlier.
Whereas Danish industrial production in December recorded a record 12-month rate of increase (24.7%), Swedish industrial production that same month posted a 2.5% year-on-year drop, its largest decline in 27 months.
Chilean CPI inflation decelerated further to an 8-month low of 12.3% in January from the 2022 peak of 14.1% reached in August.
At the Reserve Bank of India, the repo rate has been increased by 25 basis points to 6.5%. Prior to the pandemic’s onset, the rate had been 5.15% at the end of 2019 but was cut to 4.0% by May 2020 where it stood for two years until the current tightening cycle began in May 2022. Today’s rate is the seventh one so far but is unlikely to be the last, according to a released statement: “the MPC is of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break core inflation persistence and thereby strengthen medium-term growth prospects.” The deceleration of CPI inflation from 7.4% last September to 5.7% in December mainly reflects vegetable price disinflation, and core inflation of 6.1% is still twice the target range midpoint. Indian economic growth has been resilient and is outpacing China’s rate of expansion.
The Central Bank of Iceland‘s one-week term rate was raised today by 50 basis points to 6.5%. That incremental size is twice those of the previous two rate increases in October and November. The policy rate was cut five times in 2020, taking such from 3.0% to just 0.75%. Four hikes in 2021 between May and November totaled 125 basis points, and six more increases last year lifted the rate by four percentage points to 6.0%. According to a released statement, additional increases are considered likely over coming months because officials now believe it will take longer to restore in-target inflation than they presumed previously. Measured expected inflation has moved higher. The Icelandic currency, like many others, has lost value against the dollar. Fiscal policy is becoming more stimulative, and economic growth is coming off a very strong year. CPI inflation of 9.9% in January was its highest in 136 months.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Biden State of the Union Address, Central Bank of Iceland, Japanese current account, Reserve Bank of India