Awaiting European Central Bank’s Decision Amid Fast Evolving Banking Crisis
March 16, 2023
America’s banking crisis jumped the Atlantic to Credit Suisse on Wednesday, sending Pacific Rim stock markets down today by 1.1% in China, Australia, and China. Hong Kong’s Hang Seng index fell 1.7%, and the Japanese Nikkei fell 0.8%.
But news today of Credit Suisse accepting a $54 billion loan from the Swiss National Bank has catapulted the troubled bank’s share price by almost 22% so far today and seemingly gives the European Central Bank maneuvering room to go forward with an expected rate hike today. 50 basis points is the consensus of the action.
European share prices are currently up 1.3% in France and Spain, 1.1% in the U.K., 0.8% in Switzerland, 0.9% in Germany, and 1.1% in Great Britain. But U.S. stock futures are marginally lower.
Ten-year sovereign debt yields have scattered widely, with those of Germany, France and Spain 12, 11, and 10 basis points higher, the British gilt yield up just 3 bps, Japan’s JGB yield down 10 basis points and the U.S. Treasury yield off two basis points.
The price of a Bitcoin token jumped 1.8%, while WTI oil is trading around a 15-month low after plunging yesterday. Gold, by contrast, has remained steady.
And the dollar has softened 0.7% against the Swiss franc, 0.6% versus the yen, 0.4% relative to the Australian dollar, and 0.3% vis-a-vis the euro and Canadian dollar.
Several Japanese economic indicators were reported today. First, the trade balance, which had experienced its largest deficit in 43 years during 2022, fell sharply in seasonally adjusted terms to JPY 1.191 trillion last month from JPY 1.823 trillion in January and JPY 1.182 in December. The unadjusted deficit of JPY 898 billion in February was 26% wider than the deficit in February 2022, however, and both export and import growth continued to slow.
Core domestic Japanese machinery orders leaped by a much greater-than-forecast 9.5% in January and were 4.5% above their year-earlier level, but foreign orders for machinery orders plunged 25.2%, causing overall to slump 10.2%. The monthly drop in Japanese industrial production during January was revised from 4.6% reported initially to a slide of 5.3%, which was associated with a 3.1% decline from a year earlier. Industrial production had dipped 0.1% in 2022 after a 5.6% advance in 2021. Capacity utilization fell 5.5% in January and was 1.7% less than in the year-earlier month.
New Zealand GDP contracted 0.6% last quarter, their worst performance in five quarters. In contrast to average GDP growth of 2.4% in 2022, GDP in the final quarter was 2.2% below its year-earlier level.
Australia’s labor market roared back in February, with the jobless rate falling 0.2 percentage points to 3.5%, employment jumping 64.6k, and labor market participation rising too. A record low unemployment rate of 3.4% had occurred last November.
In China, housing prices (-1.2%) were lower than a year earlier for a tenth straight time in February.
Italian CPI inflation was revised 0.1 percentage point lower to 9.1% in February, down from a 37-year peak of 11.8% last September and October but well above 5.7% in February 2022.
Polish consumer price inflation jumped 1.8 percentage points to a 319-month peak of 18.4% last month, well above the country’s central bank policy rate of 6.75%.
Although dipping 0.1 percentage point to a 15-month low, CPI inflation in Mongolia remained in double digits at 12.2% in February and not far apart from the peak of 16.1% last June or the 14.2% reading in February 2022.
The updated Swiss government’s 2023 GDP growth forecasts of 1.1% in 2023 and 1.5% in 2024 are each lower than 2.2% achieved in 2022.
Bank Indonesia left its 7-day reverse repo rate unchanged at 5.75%. Six straight monthly hikes through January 2023 had totaled 225 basis points. The policy rate had previously been cut by 125 basis points in 2020 and culminated in February 2021 with one final 25-basis point reduction to 3.5%. Indonesian CPI inflation had accelerated 0.2 percentage points to 5.5%, but officials still believe that such will slow into the 2-4% target range by the final quarter of this year.
Officials at the Central Bank of Uzbekistan lowered their policy interest rate by a full percentage point to 14%. In doing so and following similar reductions last June and July, they have now fully reversed a three-percentage point hike done in March 2022. The rate had been at 14% from September 2020 until that tightening move. CPI inflation has plateaued at around 12.2% since last July.
What a difference a year of dollar buoyancy has made in U.S. import price inflation. In February 2022, import prices leaped 1.8% on month and 11.4% on year, with fuel costs soaring 57.9% from a year earlier and other import prices going up 7.4%. Last month, import prices dipped 0.1% on month and fell 1.1% on year, reflecting an 11.6% year-on-year drop in fuel countered by only a 0.2% uptick in other import prices.
Other U.S. data reported today shows a continuing weak Philly Fed manufacturing index of -23.2 this month but a sharp 9.8% monthly jump in housing starts that will be unwelcome to Fed officials.
The ECB policy decision for U.S. market participants is being revealed later than usual due to the U.S. going on daylight saving time earlier than Europe’s scheduled date for doing so.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian labor statistics, Bank Indonesia, Central Bank of Uzbekistan, Credit Suisse, Japanese trade and industrial production, U.S. import price inflation
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