U.S. Debt Ceiling Obsession Progressively Crowding Out Other Issues
May 16, 2023
On this Tuesday,
- The second estimate of Euroland growth in 1Q was reported, leaving GDP unrevised at 0.1% higher than in the final quarter of 2022 and 1.3% above its year earlier level, down from four-quarter advances of 1.8% in 4Q 2022 and 5.5% in the first quarter of last year. Last quarter saw the largest quarter-on-quarter increase in employment (0.6%) in six quarters. There were 1.7% more jobs than in 1Q 2022.
- A trio of key U.S. economic indicators out today revealed a 0.4% rise in April of retail sales (just half as much as presumed); a stronger-than-forecast 0.5% increase in industrial production last month after no growth in either February or March plus the largest capacity usage ratio since November; and a 10-month high in the housing market index compiled monthly by the National Association of U.S. home builders.
- Weaker-than-forecast Chinese industrial production (+5.6% year-on-year), retail sales (+18.4%), and fixed asset investment (4.7%) were announced, counterbalanced by the news that the jobless rate had dipped 0.1 percentage point to a 16-month low of 5.2%.
- Tighter-than-projected British labor market indicators were also reported featuring a 5.8% year-on-year rise in average weekly earnings last quarter (6.7% excluding bonuses). Meanwhile, labor productivity in the U.K. sank 1.4% on quarter and by 0.6% on year, which was the worst annual slide in a decade.
- Canadian consumer price inflation in April unexpectedly ticked 0.1 percentage point above March’s 19-month low of 4.3%.
- Italian CPI inflation also accelerated, climbing 0.6 percentage points above the one-year low of 7.6% experienced in March, while Croatia and Bulgaria reported still-high CPI inflation rates of 8.9% and 11.6%.
- Investors learned, too, that Euroland’s seasonally adjusted trade balance had returned to surplus for the first time since September 2021, printing at EUR 17.0 billion versus a deficit of EUR 0.2 billion in February. The unadjusted deficit in the first quarter consequently shrank to EUR 2.6 billion from EUR 59.7 billion a year earlier.
- However, investor confidence in the euro area economy suffered a large setback in May. According to the German ZEW Institute’s, the bloc’s investor expectations index printed at -9.4, a 5-month low after readings of +6.4 in April and +29.7 as recently as February, while the index for perceived current conditions in Euroland remained negative at -27.5.
- For central bank watchers, there was more encouragement to believe that policy tightening might be close to an inflection point. Minutes from the Reserve Bank of Australia’s May meeting that concluded with a 25-basis point interest rate hike revealed that officials had considered not changing the rate for a second straight month. And more Fed officials went on record favoring a pause at the next FOMC meeting.
The driving concern in world financial markets today was not any the above developments but rather the still-unresolved talks to raise the U.S. debt ceiling. Just over two weeks remain for an agreement to be be reached before a catastrophic U.S. government debt default occurs. While these negotiations in the past have tended to go down to the wire, the difference this time is the existence of several far-right Republican members of the House of Representatives who seemingly would prefer to blow up the system and build from scratch.
The dollar ironically is trading well as the predominant reserve currency in times of peril. The greenback ovrnight rose 0.4% against the Australian dollar and Chinese yuan, 0.3% relative to the Mexican peso, and 0.2% vis-a-vis the Japanese yen, Canadian dollar, British pound and Turkish lira.
The ten-year U.S. Treasury yield is five basis points higher, while its German, French, and Italian counterparts have risen 3 bps each.
The DJIA is down 0.6%. Share prices have dropped 0.3% in Germany, France and Italy and by 0.4% in the U.K.. The Shanghai Composite index closed down 0.6%, but Japan’s Nikkei rose 0.7%.
Prices for Bitcoin and gold are 0.8% and 0.6% lower, while oil has firmed 0.3%.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese retail sales and industrial production, Euroland GDP and trade balance, Italian and Canadian CPI, U.S. retail sales and industrial prodeuction
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