Worries about China’s Economy Weigh on Equities but Support Dollar
April 25, 2023
Multiple concerns continue to percolate about China’s economic outlook such as insufficient growth in the labor force, Xi’s policy shift toward security at the expense of growth, trade tensions with the U.S., excessive debt, and an imbalanced domestic property sector.
Share prices fell Tuesday by 1.7% in Hong Kong, 1.6% in Taiwan, 1.4% in South Korea, and 0.8% in Singapore. The Shanghai composite fell only 0.3%, and Japan’s Nikkei closed 0.1% higher. European equities are down thus far, especially in Spain (-1.3%) and Italy (-0.9%). U.S. futures point to a drop at the open.
The dollar traded up 0.6% overnight against the Australian dollar (New Zealand and Australia are observing Anzac Day). The dollar has also risen 0.4% relative to the Canadian dollar and sterling, 0.2% versus the euro and Turkish lira, and 0.1% vis-a-vis the Swiss franc, Mexican peso, and Chinese yuan but has dipped 0.1% against the yen ahead of an historic Bank of Japan Board meeting at the end of this week.
Global growth concerns weighed on commodities and crypto. Prices are down 0.7% for oil, 0.4% in the case of gold, and 0.3% for bitcoin.
Ten-year sovereign debt yields have meanwhile dropped six basis points in Germany and France, five basis points in Spain, Italy, Great Britain, and the United States but are a basis point higher in Japan.
In inflation news today,
- Consumer prices in Lebanon leaped 33.3% month on month in March on top of February’s 25.5% increase, catapulting the 12-month CPI increase from 122% at end-2022 to 263.8% last month.
- Japanese service sector producer prices posted their largest month-on-month advance in a year (0.7%) but posted a 2-month year-on-year low of 1.6% in March.
- Spanish producer price inflation, which had decelerated from a record 46.6% in March 2022 to 8.0% by February 2023, swung to -1.0% in March, their first sub-zero reading 27 months. Energy prices in March 2022 had been 134.6% above their year-earlier level but then fell 15.9% in the ensuing year to March 2023.
- Icelandic PPI inflation declined from a 136-month high of 29.6% in April 2022 to 7.9% in February 2023 and -1.0% in March 2023.
- Latvian producer price inflation dropped from 28.0% in March 2022 to a 20-month low of 16.2% last month.
- Swedish PPI inflation dropped to a 25-month low of 3.5% in March from 9.3% in February and a record high of 25.6% last June.
The National Bank of Kyrgyzstan’s policy interest rate was left unchanged at 13.0%. Whereas most central banks were slashing interest rates when the Covid pandemic emerged early in 2020, Kyrgyzstan’s central bank rate was hiked by 75 basis points in February 2020 and stayed at 5.0% for the balance of that year. Three percentage points of tightening administered in four increments lifted the rate to 8.0% during 2021, and three more increases raised the rate to 14% by April 2022. This was followed by a 100-basis point cut last November to the current level of 13.0%. CPI inflation crested at 16.2% this past January but decelerated to 12.7% last month and is believed to have fallen discernibly further in the current month.
On-year GDP growth of just 0.8% in South Korea last quarter was down from 1.3% and 3.0% in the final and first quarters of 2022, respectfully, and represents the weakest increase in nine quarters.
April’s Conference of British Industry industrial trends survey orders index matched March’s 25-month low reading of -20, 46 points below the record high of +26 observed in March 2022. Fiscal debt in the U.K. rose to 100.6% in fiscal 2022, which ended in March, from 97.2% in the previous fiscal year.
The Swiss trade surplus in March of CHF 3.073 billion was 29% wider than February’s surplus, but a first-quarter surplus of CHF 8.28 billion was 0.5% narrower than that in the first quarter of 2022.
Hong Kong experience a dramatic 77.5% jump in its trade deficit to HKD 111 billion from a year earlier.
A bunch of U.S. data releases are scheduled for later this morning, including the FHFA and Case Shiller house price indices, new home sales, the Richmond Fed manufacturing survey and consumer confidence.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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