Fresh Banking Concerns Eclipse Some Encouraging Purchasing Manager Survey Results
March 24, 2023
Investor sentiment hit another air pocket in Friday’s session, with the banking sector absorbing the greatest shock. For example, the share price of Deutsche Bank AG has tumbled 11%, and overall stock markets in Germany, France, Italy, and Spain show declines currently that exceed 2.5% from Thursday’s close. A catalyst for this flight to safety is a report that U.S. officials are investigating whether UBS and Credit Suisse enabled Russian oligarchs to evade U.S. sanctions imposed after the Russian invasion of Ukraine. In other stock exchanges, the British Ftse is down 1.9%, U.S. stock futures have lost around 1.0%, and markets closed down 0.9% in South Korea, 0.7% in Hong Kong and India, and 0.6% in China but just 0.1% in Japan.
Another manifestation of haven-seeking hot money has been overnight drops in ten-year sovereign debt yields amounting to 19 basis points in the U.K., 15 basis points in Germany and France, 14 basis points in the Netherlands, 13 basis points in the United States, 12 basis points in Spain, 9 basis points in Italy, and 3 basis points in Japan.
Prices for oil and bitcoin tokens have dived 3.5% and 1.1% so far today, and gold remains elevated at around $2,015 per ounce.
The dollar and yen continue to be the safe-have currencies of choice. The yen is 0.7% stronger against the dollar, which in turn shows overnight appreciation of 0.9% against the euro and yuan, 0.8% relative to the New Zealand and Australian monies, 1.0% vis-a-vis the Mexican peso, 0.6% versus the loonie and sterling but just 0.3% against the Swiss franc.
Concerns about the global banking system have overshadowed data pointing to lower inflation and firmer growth early in 2023 than anticipated.
Preliminary composite purchasing manager survey results for the euro area (54.1), Germany (52.6), and France (54.0) improved to 10-month highs in March, while Japan’s PMI (51.9) was at a 9-month high. All four of these indices printed above the expansion-versus-contraction threshold of 50.0. Supply delivery delays have abated greatly. Inflationary pressure has lessened but remains excessive. Demand is growing, and Euroland’s report — to take one key example — are consistent with a 0.3% first-quarter rise in real GDP (0.5% for March alone).
The British composite purchasing managers index printed above 50 for a second straight month but at 52.2 were at a 2-month low. And although Australia’s composite PMI fell back under 50 to a 3-month low of 48.1, business sentiment was higher than in February.
Japanese consumer price inflation dropped a full percentage point from a 41-year high of 4.3% in January to a 5-month low of 3.3% in February. A 0.6% month-on-month decline in core consumer prices was the biggest such decline in 22 months, resulting in a 5-month low year-on-year pace of 3.1%. The Energy component plunged 10.7% on year, but food price inflation (a 515-month high of 7.5%) has become the new villain.
Malaysian CPI inflation in March of 3.7% matched January’s 7-month low.
Swedish producer price inflation of 9.3% in February represented a 21-month low and was down from a record high last June of 25.6%.
Spanish PPI inflation held steady at January’s 2-year low of 7.8% versus a record high of 47% in March 2022.
Even in beleaguered Sri Lanka, PPI inflation of 83.1% in January was a 7-month low and down from 103.4% last August.
British retail sales volume beat expectations, rising 1.2% after January’s 0.9% monthly advance but posting the smallest on-year decline (3.5%) in a streak of 11 drops in a row.
Consumer confidence in the U.K., although printing at a depressed minus 36 in March, was the best reading since -31 in March 2022. Irish consumer confidence slid from an 8-month peak in February to a 3-month low this month but, at 53.9, was well above last September’s 167-month high of 42.1.
Czech business confidence improved to a 7-month high in March. Danish business confidence edged a tad higher to a 6-month peak this month. Czech consumer confidence slid back to a 2-month low but only about half an index point below February’s one-year high.
Not all the overseas data were upbeat. Industrial production in Singapore last month plunged 11.7% compared to January’s level and posted the largest 12-month rate of decline (-8.9%) in 39 months. And a 1.4% monthly jump in Canadian retail sales in January after no growth in either November or December failed to have follow-through in February when such appears to have slid by 0.6%. Also, U.S. durable goods orders, which in January reversed December’s 5.1% increase fully, fell another 1.0% in February. Orders for durables in January-February combined were only 2.0% above their year-earlier level.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: banking system fears, Japanese CPI, purchasing manager surveys
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