Another Rise in Equities Despite Higher Bond Yields and Price of Oil
April 4, 2023
Fear of an additional climb in central bank interest rates has lessened. The Reserve Bank of Australia‘s Official Cash Rate, which had been raised from 0.1% to 3.6% between May 2022 and last month, was left unchanged. A released statement said that inflation had peaked in Australia but projects that a return to the 2-3% target isn’t expected until around mid-2025. This constitutes the first central bank of a major industrialized economy to pause its cycle of monetary policy tightening.
The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labor market.
Officials at the Central Bank of Sri Lanka, who had engineered a percentage point interest rate hike in March to 15.5%, also failed to raise its rate further at this month’s meeting. After holding at a pandemic low of 4.5% from July 2020 to August 2021, the rate had previously been increased by 11 percentage point in total, including a mega-dose 700 basis points at a meeting one year ago. Sri Lankan consumer price inflation has receded from a record high last August of 69.8% to a 10-month low of 50.3% in March. “The Board is of the view that there is sufficient space for a further downward adjustment in market interest rates with the improved market sentiments along with the dissipation of elevated risk premia.”
In financial market action overnight, equities rose 0.9% in Singapore, 0.5% in China and New Zealand and 0.4% in Japan. German and French stock markets so far show gains today of 0.9% and 0.6%, and U.S. futures are marginally higher ahead of the U.S. opening bell.
Ten-year sovereign debt yields are up today by 8 basis points in Switzerland and Italy, 7 bps in Germany, France and Spain, 5 bps in the United States and 4 basis points in Japan.
There’s been a further 1.0% rise in the price of oil reflecting the decision by OPEC Plus to cut output next month, and the price of bitcoin tokens has risen another 1.6%. Gold is little changed and hovering just south of $2000.
The risk-on mood has continued to let steam out of the dollar, which hit a 10-month higher of $1.2521 per British pound and eight-week lows of 1.0380 against euro and 0.9100 Swiss francs. Alternatively, the dollar is currently up 0.4% against the Japanese yen.
One monetary authority whose officials couldn’t afford to put policy tightening on pause is the State Bank of Pakistan. In a meeting scheduled initially for April 27 but moved up in the month, officials raised their policy rate for a tenth time since September 2021, but the percentage point increment announced today was only a third as much as the previous hike of 300 basis points in February. Against the backdrop of a near-tripling of CPI inflation from 12.7% in March 2022 to 35.4% last month, Pakistan’s policy interest rate has similarly risen to 21% from a pandemic low of 7.0% maintained from June 2020 to September 2021. Monetary officials today were additionally motivated by the need to secure a loan from the IMF that has been delayed.
Euroland had some favorable inflation news to report today. Producer prices, which had dropped 2.8% on month in January, fell 0.5% further in February, marking the fourth monthly drop in five months. Year-on-year producer price inflation of 13.2% in February was down from 15.1% in January and 41.8% last September. The energy component plunged in that span from 107.9% to 17.4%, while all other price items collectively declined from 14.5% to 10.2%.
Meanwhile, house price inflation in Euroland dropped sharply from 9.8% in the first quarter of 2022 to 2.9% in last year-final quarter.
The seasonally adjusted German trade surplus of EUR 16.0 billion in February matched January’s 18-month high and up from monthly averages of EUR 9.7 billion in 9.7 billion in 4Q 2022 and EUR 2.2 billion in 3Q 2022. The unadjusted surplus of EUR 16.9 billion was 40% wider than the February 2022 surplus. Imports, which had soared 25.1% over the twelve months to February 2022, went up only 2.6% in the ensuing one-year period.
Romanian PPI inflation of 21.6% in February was at a 17-month low and down from a record high of 53.0% last August.
South Korean consumer price inflation slowed to a one-year low of 4.2% last month from 4.8% in February and a 284-month high of 6.3% last July.
Japan’s monetary base, the aggregate over which the Bank of Japan exerts most direct control, posted a 2.1% year-0n-year decline last quarter versus rises of 1.5% in 2022 and 15.9% in 2021.
Non-oil purchasing manager indices in Egypt and Saudi Arabia slid in March to 2-month lows of 46.7 and 58.7, respectively. The 44.7 reading for Australia’s AiG-compiled PMI was at a 34-month low.
Turkey’s trade deficit widened from $26.5 billion in the first quarter of 2022 to $34.9 billion last quarter.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Sri Lanka, Euroland producer prices, Reserve Bank of Australia, State Bank of Pakistan
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