Powell’s Hawkish Message Received Along With Some Data Surprises
March 8, 2023
TINA is the acronym for there-is-no-alternative, and that is the unflinching stance that the Federal Reserve wants to convey regarding its priority to restore in-target two percent inflation whatever such takes. In day one of Chairman Powell’s semi-annual testimony before congress yesterday, that message was expressed more forcefully than before including the surprise hint that larger-sized interest rate hikes may return. He will be reprising his testimony today before the House Financial Services Committee starting at 10:00 EST, but don’t look for him to dilute the medicine. Fed officials likely welcomed yesterday’s dive in U.S. share prices. As has been warned from the outset of tightening, it will be a narrow and challenging path for the Fed to complete its mission without the collateral damage of at least a mild recession, for monetary policy impacts from the demand side, and the current economic imbalance is one of excessive demand in the U.S. and global economies.
There has not been significant market movement so far today.
- The weighted DXY dollar index has dipped less than 0.1%, and bilateral dollar relationships have been no greater than +/- 0.1% versus the yen, euro, loonie, kiwi, Aussie dollar and sterling.
- The ten-year U.S. Treasury yield at 08:00 EST is steady at 3.96%, while comparable sovereign debt yields are down 3 basis points in the U.K., Spain and Italy and by 2 basis points in Germany and France.
- In the Pacific Rim, share prices dropped 2.4% in Hong Kong, 1.3% in South Korea, and 0.8% in Australia but also closed up 0.5% in Japan and dipped only 0.1% in China. U.S. stock futures and European share prices have barely moved. Likewise, gold is a mere 0.1% softer.
- But prices for WTI oil and Bitcoin tokens are down 0.5% and 0.7%, respectively.
Today’s data menu features revised Euroland GDP and jobs growth and includes German industrial production and retail sales, Japan’s current account and economy watchers index of sentiment among service sector workers, as well as an assortment of consumer price releases.
GDP in the euro area for 4Q 2022 was revised down 0.1 percentage point (ppt) to 0.0%, while that in the third quarter of last year got revised up 0.1 ppt to 0.4%. On-year GDP growth of 1.8% last quarter was down from 4.8% in the final quarter of 2021, and full calendar year growth slowed to 3.5% in 2022 from 5.3% in 2021. Consumer spending took a big hit last quarter, swinging to a drop of 0.9% from a rise of 0.9% in the prior quarter. Business spending growth likewise swung from +5.9% in 3Q to -3.6% in 4Q, and next exports exerted a 0.9 percentage point drag on fourth-quarter GDP growth. Employment growth of 0.3% last quarter was the same as the quarterly rise of jobs in 3Q but resulted in a 1.5% year-on-year increase, down from 1.8% in 3Q and 3.1% in the first quarter of 2022. On average, employment climbed 2.2% in 2022.
Among Euroland’s four biggest economies, GDP in 4Q 2022 fell 0.4% on quarter and rose 0.9% on year in Germany; fell 0.1% on quarter and rose 1.4% on year in Italy; rose 0.1% on quarter and 0.5% on year in France; and rose 0.2% on quarter and 2.7% on year according to today’s revised figures.
Lithuanian CPI inflation slowed to a 10-month low but still lofty 18.7% in February from 21.7% in October and 14.2% in February 2022.
Latvian CPI inflation of 20.3% last month, an 8-month low, was down from 21.5% in January and 22.2% last September.
In Hungary, a country whose culture the U.S. Republican Party wishes to emulate, CPI inflation dipped to a two- month low in February of 25.4% after January’s 7-year peak of 25.7% in January, and it remained three times more elevated than 8.3% recorded in February 2022.
Although Albanian consumer price inflation of 7.1% in February was 1.2 percentage points below October’s peak, both January and February saw month-on-month price jumps of more than 1.0%.
Chilean CPI inflation decelerated to a 9-month low but, at 11.9%, remained in double digits last month.
German industrial production rose 3.5% on month in January, more than twice the projected increase and the biggest such advance in 31 months. This cut the year-on-year rate of decline in half to -1.6%. But German retail sales volume, which after a 5.3% plunge in December was expected to rebound, instead slipped 0.3% further and posted the largest year-on-year drop (6.9%) in seven months.
Italian retail sales rose 1.7% in January and 6.2% versus a year earlier. Spanish consumer confidence settled back to a 2-month low in February from January’s 7-month high but, at 71.6, remained well below the pre-Ukraine war level of 89.8 recorded in February 2022.
Japan posted its largest current account gap ever, a deficit of 1.977 trillion yen in January, but such was due in part to seasonal factors. The trade balance always weakens sharply in January. Adjusted for seasonal distortions, the current account surplus narrowed to a JPY 219 billion from JPY 1.184 trillion in December and JPY 1.192 in November. Japan’s economy watchers index improved to an 8-month high in February from a 5-month low in January, but the leading and coincident indices of economic indicators fell in January to 26- and 8-month lows, respectively.
U.S. mortgage applications rebounded 7.4% last week after posting back-to-back declines of 13.3% and 5.7% in the prior two weeks. The 30-year fixed mortgage rate of 6.79% was up 61 basis points in the space of 4 weeks.
Just in: The U.S. goods and services trade deficit of $68.3 billion last month was the largest imbalance in three months but less than the 2022 monthly average deficit of $78.8 billion. Canada experienced its widest trade surplus in seven months during January. It was C$ 1.92 billion, 61% larger than December’s surplus.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland GDP, Fed Chairman Powell, German retail sales and industrial production, Japanese current account, U.S. and Canadian trade balances