Fresh Wave of Concern Surrounding Financial Institutions
March 15, 2023
Equities had rebounded Tuesday following U.S. government measures to protect depositors and amid a slew of reassuring comments from the experts that 2023 is not 2008. In Asia overnight, stock markets had climbed 1.5% in Hong Kong, 1.4% in Singapore, 1.3% in South Korea, and 0.6% in China where growth in retail sales (+3.5% year-on-year in January-February) and industrial production (+2.6%) had been closely aligned with market expectations.
But by the dawn in Europe on this Ides of March, Calpurnica had spoken, and the message was to sell bank stocks. Credit Suisse Group AG took the heaviest blow, dropping 21.3%. Overall stock markets in Europe are currently down 3.9% in Spain, 3.6% in France, 3.4% in Italy, 2.9% in Germany and 2.5% in Great Britain. U.S. stock futures shortly before 08:30 EDT were down 1.7% according to the SPX, 1.6% for the DOW and 1.3% in the Nasdaq. With the European Central Bank perceived to be poised for a 25-50 basis point rate hike tomorrow, and the Federal Reserve Open Market Committee reviewing its stance next week, these are tense times. And with trust low in what authorities have to say, market participants are acting on instinctual emotion rather than carefully considered analysis.
As the proverbial go-to money in times of uncertainty, the dollar has experienced a well-bid session, rising as much as 1.2% on the weighted DXY basis and advancing 2.0% against the Mexican peso, 1.3% versus the euro, 0.8% relative to the Swiss franc, 0.7% against the Australian dollar, 0.7% against sterling, and 0.5% versus the Canadian dollar.
The Japanese yen has done even better, rising 0.5% against the dollar following published minutes of the Bank of Japan Board meeting where considerable concern was expressed about distortions to Japan’s yield curve and damage to the soundness of Japanese banks from the central bank’s ultra-loose policy stance. With a leadership change at the BOJ happening in April, speculation returned that Japanese long-term interest rates will soon be allowed to rise, and the 10-year JGB yield jumped 16 basis points today.
Other 10-year sovereign debt yields this Wednesday fell by 17 bps in Germany and the U.K., 16 bps in U.S. pre-open trading, 15 bps in France and 9 bps in Italy.
The price of West Texas Intermediate oil has dropped 1.1%, but those of gold and Bitcoin are up 0.5% and 0.4%.
U.S. producer price inflation was lower than forecast last month, slowing to a 23-month low of 4.6% from 5.7% in January, 6.5% in December and last year’s high of 11.7% in March. Food and energy posted respective month-on-month declines of 2.2% and 0.2%. PPI inflation excluding food, energy and trade services declined to 4.4%.
Among price data reported by other economies,
- Argentine CPI inflation accelerated to 102.5% last month, most since the hyperinflationary year of 1991.
- Polish consumer prices rose 1.2% on month and 18.4% on year (most in 319 months) in February.
- CPI inflation climbed 0.9 percentage points in Kgrgyzstan to a 138-month high of 16.2% in February, up from 10.6% in February 2022 and 8.1% in February 2020.
- In Slovakia, CPI inflation returned to 15.4% last month, November’s 269-month high, from 15.2% in January.
- French consumer price inflation of 6.3% in February was a tick above its preliminary estimate and its highest pace in 453 months. The CPI jumped 1.0% on month and was associated with a core inflation rate of 6.1% after 5.6% in January.
- Swedish consumer prices rose 1.1% on month and 12.0% on year in February, not far below December’s 382-month year-on-year peak of 12.3%.
- As in the United States, wholesale prices have receded considerably in Germany, falling to a 22-month low of 8.9% in February from 10.6% in January, 12.8% in December and a record high of 23.8% last April.
- Bulgarian CPI inflation of 16.0% last month was down from a 281-month high of 18.7% in September.
Chinese retail sales rose 3.5% on year in the first two months of 2023. That compares to a 0.2% dip in full 2022 and a rise of 1.7% on year in the first two months of last year. Industrial production grew 2.4% in January-February from a year earlier, down from increases of 3.6% in full 2022 ad 7.5% in January-February of 2022. Chinese fixed asset investment over the past two months expanded 5.5%, similar to the 5.1% rise recorded in 2022 but well below the 12.2% on-year expansion in the first two months of 2022. China’s jobless rate rose to a 3-month high of 5.6% in February following back-to-back months of 5.5% in December and January. Unemployment was also at 5.5% in February 2022.
A greater-than-expected 0.7% monthly rebound in Euroland industrial production in January after December’s 1.3% drop was skewed to intermediate goods, whose output went up 1.5%. Non-durable consumer goods, energy, and capital goods respectively fell 2.1%, 0.8% and 0.2%. Compared to January 2022, industrial production went up 0.9% but, among the common currency area’s largest members, fell 1.5% in Germany, 2.5% in France and 0.4% in Spain.
India’s fiscal year ends this month. The trade deficit of Asia’s third largest economy over the first eleven months of the fiscal year widened 40% on year to $247 billion.
Other U.S. data reported today included a much more pessimistic manufacturing scene this month as attested by a deterioration from -5.8 in February to a March reading of -24.6. That was the seventh sub-zero score in the last eight months. The continuing repercussions of the three U.S. bank failures presents the Federal Reserve with a big dilemma, since interest-sensitive mortgage applications are again on the rise, climbing 6.5% last week after a 7.4% advance in the prior week. It seems inconceivable that the Fed could restore price stability as soon as officials want if housing market activity starts reheating. On the other hand, leaving the fed funds target unchanged at next week’s meeting would be at great variance from the rhetorical signals that Fed officials have given lately. Officials don’t like to surprise markets because surprises can undermine the credibility of forward guidance and the pledge to keep policy as transparent as possible.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese retail sales and industrial production, Euroland industrial production, German WPI and French CPI, U.S. PPI
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