More Difficult Access to Credit But Central Banks Still Leaning Into Inflationary Winds\
April 20, 2023
Touted as a hedge against inflation and other uncertainties, cryptocurrencies have proven to be a fair-weather friend. The price of Bitcoin, down another 0.5% overnight, has been a good barometer of whether investors see a cup half full or half empty. Today’s stock market mood has been edgy. U.S. equity futures are down over half a percent, with particular focus on the disappointing earnings reported by Tesla. The Milano Borsa Italiana and German Dax show losses of 1.0% and 0.7% so far, and modestly lower closes were recorded in Taiwan, South Korea, Singapore, and China today. The Japanese Nikkei eked out a 0.2% rise.
Recessionary concerns are reflected 10-year sovereign debt yield declines of 3 basis points in Germany, 2 bps in France, Britain and the United States, and a basis point in Japan.
The price of WTI oil is trading 1.4% weaker, and the dollar is narrowly mixed.
The Federal Reserve Beige Book that gets published about two weeks before FOMC meetings depicts stagnant activity lately in the NY, Boston, Cleveland, Chicago, and St. Louis FRS districts, slight contractions in the districts of Richmond, Philadelphia, and Kansas City, and slight or modest growth in those of Minneapolis, Atlanta, Dallas and San Francisco. Access to credit has become more limited, and although inflation continues to lessen, official after official has made clear that the quest for restored price stability is not over. Barring some unforeseen shock, the federal funds target will be again raised next month.
Minutes of the European Central Bank’s Governing Council meeting in March published today reveal less unanimity than earlier regarding the rapid pace of interest rate tightening to date that included a 50-basis point hike after that meeting. There was a minority of committee members favoring a pause, which is not surprising given the turmoil surrounding bank lending last month. A pause at the May meeting seems doubtful, but an increase of 25 basis points rather than 50 bps is plausible, depending on the next CPI release and financial market behavior.
Among price data reported today,
- German producer prices plunged 2.6% on month in March, depressing the year-on-year increase to a 22-month low of 7.5%. That’s way down from a record 45.8% last August and September.
- Consumer price inflation in New Zealand slowed to a five-quarter low of 6.7% in 1Q 2023 from 7.2% in the second half of 2022.
- Portuguese producer prices dropped 2.2% on month and rise just 0.2% on year during March versus 8.9% in February and a 31-year high of 26.5% in March 2022.
- After setting a record high modestly north of 20.0% in November 2021, the 12-month change in producer prices in the former Soviet Republic of Georgia turned negative in February and even more so at -5.2% last month.
- Malaysian consumer price inflation has slowed from a 16-month high of 4.7% last August to a 9-month low of 3.4% last month but remained 1.2 percentage points above the March 2022 reading.
- Estonian PPI inflation slowed from a 328-month peak of 33.3% last May to 7.9% last month.
In other economic news,
Japan’s customs clearance trade deficit of JPY 755 billion in March was the smallest deficit in a year but the twentieth red-ink result in a row. Japan’s fiscal year runs April to March, and the deficit in FY 2022 of JPY 21.8 trillion was 3.9 times wider than in the previous fiscal year. In seasonally adjusted terms, the deficit in March of JPY 1.21 trillion was similar to the JPY 1.25 trillion size in February. In a separate piece of Japanese data news, the tertiary index of service sector activity rose 0.7% on month in February matched January’s 8-month high and was associated with its largest 12-month increase (3.5%) in nine months.
Euroland experienced its first non-seasonally adjusted trade surplus (EUR 4.7 billion) since September 2021 during February, and the seasonally adjusted deficit was only EUR 0.1 billion versus deficits of EUR 11.6 billion in January and EUR 46.1 billion last August. In the six months between last August and February, imports imploded 16.6% in seasonally adjusted terms, while exports slid 1.1%.
Consumer confidence improved in April to a 26-month high in Belgium, a 14-month high in the Netherlands, and a 13-month high in Denmark.
French business confidence weakened a little further to a 7-month low of 101.9 in April where 100 represents the long-term average score. The peak of 112.8 prior to the Russian invasion of Ukraine was experienced in November 2021. The sectors that saw the largest deterioration between March and April were manufacturing (a 5-month low of 101.1) and services (a 2-year low of 103.0). Retail and trade ticked up 0.1 point.
Net foreign direct investment in China was 4.9% greater last quarter than a year earlier, which compares to a 25.6% on-year jump in the first quarter of 2022. President Xi’s priority of Communist Party control of everything, everywhere and all at once over the market-driven economic growth that former President Deng Chao Ping espoused continues to dampen the appetite of multinational corporations for doing business in China.
New U.S. jobless insurance claims last week (245k) were slightly greater than in the prior week and compared to the latest four-week average of 239.75k, but the level still represents a pretty tight labor market by historical standards. U.S. existing home sales and index of leading economic indicators will be released later this morning.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Beige Book, European Central Bank minutes, German PPI, Japanese and Euroland trade balances
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