More Banking Uncertainty
March 20, 2023
The share price of First Republic Bank plunged 32.8% on March 17, and over the weekend Swiss authorities arranged for UBS to acquire Suisse Bank. Market expectations of the Federal Reserve’s interest rate decision this Wednesday range from an increase of only 25 basis points to no change at all in the federal funds target.
Ten-year sovereign debt yields have dropped significantly further today, sliding by 15 basis points (bps) in Australia, 10 bps in Switzerland, 8 bps in the United States, 7 bps in Italy, 6 bps in France, Germany, Spain and the Netherlands, 5 bps in the U.K., and four basis points in Japan.
Following big Friday slides in the North American share prices, stock markets in the Pacific Rim got slammed today with losses of 2.7% in Hong Kong, 1.4% in Japan, Australia and Singapore, 1.3% in New Zealand, 1.0% in Indonesia, 0.7% in India and South Korea, and 0.5% in China. But major European stock markets are currently showing gains ranging from 0.3% in the U.K. to 0.8% in France. U.S. stock futures have dipped 0.1%.
One beneficiary of the liquidity woes afflicting mid-sized banks around the world has been cryptocurrency. The price of Bitcoin tokens climbed another 0.8% overnight and, at $28,276, have reversed a quarter of the plunge between November 2021 and November 2022. Another coveted haven has been gold, whose price advanced 0.7% so far today and, at $2,003.4, exceeds $2,000 for the first time in a year. Gold’s most expensive level, $2,058 per ounce, was touched in 2020.
Alternatively, the price of WTI oil sank 1.6% overnight amid more prevalent forecasts of a coming U.S. and global recession. Chinese President Xi is in Moscow to hold his first talks with Russian President Putin since before the start of the Russia’s unprovoked and invasive war against Ukraine.
Today also will mark the vernal equinox in the Northern Hemisphere, due at 17:24 Eastern Daylight Time in North America. The Vernal Equinox is a national holiday in Japan on Tuesday.
Banking turmoil has depressed the dollar today by 0.7% against the yen, 0.4% versus sterling, 0.3% relative to the euro, and 0.2% vis-a-vis the Canadian dollar, but one currency in which the dollar has risen slightly has been the Swiss franc in the wake of UBS’s absorption of Credit Suisse.
There has been central banking news today from both China and Japan. Officials at the People’s Bank of China, who on Friday had injected liquidity via a 25-basis point reduction of the required reserves ratio, did not change it Loan Prime Rates at the March fixing. The one-year LPR has been at 3.65% since a 5-basis point cut last August that had been the second adjustment of 2022 following a 10-bp cut in January. At end 2019 prior to Covid, the rate had been at 4.75%. The 4.30% five-year LPR was similarly left at unchanged at its level since August. Such had been cut three times during 2022 by a total of 35 basis points and is down from 4.80% at the end of 2019.
The Bank of Japan published a summary of the recent and final board meeting of the decade-long stewardship of Governor Kuroda. The incoming governor, Ueda, is expected to oversee a shift away from Kuroda’s relentless adherence to an ultra-expansive stance even in the face of yield curve distortions straining the health of Japanese banks. The Summary, which serves as an executive brief of meeting minutes to be released later, projects that distortions will abate eventually and asserts that the consequences of tightening too soon would be greater than those of starting to tighten too late. The change of governors takes place April 8, and Ueda will preside over the next Board meeting.
German producer prices recorded their fifth consecutive monthly decline, a dip of 0.3% in February that was associated with a 17-month year-on-year low increase 15.8%. That’s down from the crest of 45.8% last August and September and also lower than a pace of 25.9% in February 2022. Energy price inflation at the producer level has dived from 139% last August to 27.6% last month, while all other producer prices including a 23.4% in food costs have only slowed to 10.2% from 14.8%.
Polish PPI inflation of 18.4% last month was at a one-year low and down from a 323-month high of 25.6% last June. PPI inflation in February 2022 was 15.9%.
In the former Soviet Republic of Georgia, PPI inflation (-1.0%) slid under zero percent for the first time in 76 months from a peak of 17.2% in November 2021. Moldovian producer price inflation reaccelerated to a 2-month high of 26.0% in February from January’s 10-month low of 24.9% and a high last October of 34.9%.
Euroland’s seasonally adjusted trade deficit of EUR 11.3 billion in January was similar in size to December’s gap of EUR 11.4 billion and well below the monthly average deficit of EUR 27.8 billion in 2022. Likewise, the unadjusted deficit of EUR 30.6 billion in January 2023 was little changed from EUR 30.2 billion in January 2022.
Britain’s Rightmove house price index rose 0.8% in March, but the 3.0% 12-month rate of increase was at a two-year low and down from 10.4% in March 2022, which was the high point of 2022.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan, Euroland trade balance, German PPI, Peoples Bank of China, UBS and Credit Suisse
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