Mulling Service-Sector PMI Results and Waiting for the ECB Rate Hike
May 4, 2023
The dollar is modestly softer this Thursday, with drops of 0.2% against the yen and 0.1% versus the euro, Canadian dollar, and sterling.
Ten-year sovereign debt yields have risen six basis points in Italy, 4 basis points in Spain, 2 basis points in Germany and the United States and a basis point in Great Britain.
Share prices closed up 1.3% in Hong Kong, 0.8% in China, and 0.4% in Taiwan but have dropped 0.8-1.1% so far in Germany, France, Italy, Spain and the U.K. ahead of the European Central Bank’s scheduled interest rate announcement and ECB President Lagarde’s press conference. Another rate increase appears inevitable, either 25 bps or, more likely, 50 bps.
Meanwhile, there already has been an announced 25-basis point policy rate hike at the Bank of Norway. The new rate level there of 3.25% is the highest since late 2008 and up from a pandemic low of zero percent maintained from May 2020 until a 25-bp hike in September 2021. Norwegian monetary officials had not changed the rate at this year’s first review in January but resumed tightening in March, and today’s statement opined, “based on the Committee’s current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in June…. The labour market is tight, and wage growth is set to be higher in 2023 than last year… Higher wage growth and the krone depreciation will contribute to keeping inflation elevated ahead.”
Monetary officials in Brazil, in contrast, announced late yesterday that their Selic interest rate was being left unchanged at 13.75% where such has been since a 75-bp hike in August 2022. Inflation has been easing, and officials said that the chances of resuming rate hikes have diminished.
The price of oil is little changed, while that of gold has risen 0.7%.
Producer prices in the euro area fell month-on-month in every month of this year’s first quarter, including a drop of 1.6% in March. Year-on-year producer price inflation has dropped to 5.9% in the latest reported month from 24.5% as recently as December. There was a 4.8% monthly drop in energy costs, which were just 0.7% above their March 2022 level, but all other producer prices collectively posted an 8.0% on-year advance.
Euroland’s composite purchasing managers index for April was revised a tad lower but, at 54.1, still represented an 11-month high. The service sector experienced its fastest expansion in a year, with the Italian and Spanish economies buoyed especially by tourism and outpacing growth in Germany and France. One cloud in Euroland’s PMI data was weakening growth seen in order backlogs. A bright spot was the softest input price pressure in 26 months.
The finalized British composite and service sector PMI readings of 55.9 and 54.9 were above preliminary indications and at their highest levels in the past 12 months.
Russia’s composite and service sector PMI readings for April of 55.9 and 55.1 dipped to 2-month lows.
Sweden’s services PMI, which had dipped under the 50 no change level in February and March, improved to a 3-month high in April of 50.3.
China’s Caixin-compiled manufacturing PMI, which had a 50-handle in both February and March, dropped to a 3-month low of 49.5 in April. The aftermath of the zero tolerance for Covid has been a bumpy transition for manufacturers.
Vietnam‘s manufacturing PMI softened to a 4-month low of 46.7, and Hong Kong’s reading of 52.4 was at a 3-month low. Singapore‘s private PMI printed at a 5-month high of 55.3, however.
The German trade surplus of EUR 16.7 billion in March was the largest surplus in 25 months and well above a surplus of EUR 4.0 billion in March 2022. Exports were 5.0% above a year earlier, while imports fell 5.4%.
The Governing Council of the European Central Bank has hiked its repo, deposit, and marginal lending facility rates by 25 basis points each to 3.75%, 3.25%, and 4.0%. Today’s action represents a further reduction of incremental tightening after a trio of 50-bp hikes in December, February and March and before that hikes of 50 bps in July 2022 followed by back-to-back 75-bp increases last September and October. Officials also revealed that “the Governing Council expects to discontinue the reinvestments under the APP as of July 2023.”
The U.S. goods and services trade deficit narrowed by $6.4 billion between February and March, and the first quarter shortfall of $203.5 billion was 27.6% smaller than the $281.1 billion deficit posted in 1Q 2022.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Norway, Central Bank of Brazil, ECB announcement, Euroland PPI, U.K. and Euroland composite and service sector purchasing manager surveys, U.S. trade deficit
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