Equities Tumbling in Many Countries… FOMC Minutes To Be Released Later Today
February 22, 2023
Tuesday’s sharp drop in the U.S. stock market set the tone for European and Asian equities today, with markets closing down 1.7% in South Korea, 1.5% in India, 1.3% in Japan, 0.9% in Taiwan and Indonesia, and 0.5% in China and Hong Kong. Italian stocks currently show a loss of 1.2%, but other key markets in Europe are down less than 1%. A marginal uptick in U.S. stock futures likely reflects investors not wanting to take on additional exposure ahead of the publication of FOMC minutes.
There’s been little change overnight in the dollar or sovereign debt yields, but the price of a Bitcoin token has slumped 1.4%. Oil has lost 0.7%, while gold is 0.3% firmer.
New Zealand’s Official Cash Rate has undergone its tenth hike since October 2021, and the 50-basis point increase matched market expectations. Although not a surprise, the Reserve Bank of New Zealand policymakers haven’t been deterred from getting ahead of inflation despite the country’s recent devastating cyclone underscores a reality that investors bet against central bank tightening at their own peril. The new cash rate level is 4.75%, 450 basis points above the pandemic low and at a 14-year high. A released statement makes a strong case for tightening in the face of excessive 7.2% inflation, elevated price expectations, an inflationary global environment, and domestic demand that although starting to ease still exceeds available supply.
The recovery from recent severe storms in the North Island is likely to
add to near-term inflation, short-run production volatility, and medium-term activity. Higher interest rates are still needed to meet our inflation and
employment objectives, to the same extent as in the November
Statement.
Economic data released today around the world highlight a slowdown of activity that has not been as pronounced as feared, a little more improvement in business confidence, but a stubborn inflation that refuses to go away easily.
Lebanese consumer price inflation bounced off December’s 18-month low of 122% to 128.5% in January when prices recorded an 8.4% monthly surge.
German CPI data, rebased to 2020, show a lower path in 2022 that crested at 8.8% in October rather than 10.4% under the previous figures that were based to 2015, but after falling to 8.1% in the final month of 2022, inflation popped up to 8.7% (and barely below the peak). Both energy (23.1%) and food (20.2%) recorded gains of more than 20% from January 2022 levels, and core inflation that excludes those two components accelerated 0.4 percentage points above December’s level to 5.6%.
Revised Italian CPI inflation in January was 10.0% overall and at a record high of 6.0% excluding volatile food and energy items.
Moroccan consumer price inflation of 8.9% in January was 0.6 percentage points above the prior month’s level and constitutes a new record high.
Irish wholesale price inflation had slowed from an 82-month high in October of 8.0% to a 10-month low in December of 2.5% but jumped to 3.7% last month.
Serbian producer price inflation slowed further to 10.6% last month from 19.8% six months earlier.
Corporate service price inflation in Japan ticked up to 1.6% in January from 1.5% in December and 1.2% in January 2022.
Australian wage cost inflation hit a 40-quarter high of 3.3% in the final quarter of 2022 versus 2.3% a year earlier.
Turkish manufacturing sector business confidence improved to a 7-month high in February of 102.4 versus 97.8 at end-2022, but the rise should be taken with a grain of salt in light of the three massive earthquakes earlier this month.
The German IFO Institute’s business climate index climbed to an 8-month high of 91.1 in February, which compares with a recent low of 84.4 last September, prompting the compilers of this widely watched monthly survey to to observe that the recession will be mild and that the economy already is “working its way out of a period of weakness.” Perceived current economic conditions softened only marginally this month, while outlook expectations jumped 2.1 points to a one-year high of 88.5 versus a reading last September of 75.3. All major sectors of the economy exhibited less pessimism than in January.
French business confidence rose to a 6-month high in February and (printing at 103.3) exceeded the long-term average reading of 100. The readings for manufacturing, services and retail improved to 7-, 6- and 12-month highs, but construction fell in the face of higher interest rates to a 16-month low.
The Westpac-MI index of leading economic indicators’ 6-month change is implies that Australian growth is in fact slowing in response to the substantial tightening of monetary policy last year.
U.S. mortgage applications plunged 13.3% last week and have dropped 21.8% over the past four weeks. Last week’s 6.62% 30-year mortgage rate was at a 3-month high and up from 6.18% two weeks earlier.
In 2022, real GDP contracted 3.5% in Hong Kong but rose 2.5% in Taiwan.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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