More Pessimism
May 24, 2023
The possibility of a U.S. debt default next month persists.
Central Bank interest rates were raised today by 125 basis points in Iceland, 50 bps in Nigeria, and 25 bps in New Zealand.
Europe’s largest economy has “suffered a setback” according to the May German business climate index compiled by the IFO Institute.
Inflation according to the latest batch of British CPI and PPI figures surpassed expectations by a significant margin. CPI inflation was 8.7%, and core CPI of 6.8% was the most in 3 decades. Producer output price inflation was 5.4%.
Amid numerous concerns, the dollar is trading near two-month highs, and U.S. stocks have weakened to near two-month lows.
The dollar overnight jumped 1.9% against the kiwi, as New Zealand’s central bank rate hike was accompanied by a statement acknowledging a moderate recession and signaling that the new 5.5% Official Cash Rate level will likely be its peak. Other dollar movements overnight were modest.
Share prices are down so far today by 1.8-2.5% in Germany, France, Italy and Great Britain. The Chinese, Hong Kong, and Japanese stock indices dropped 1.3%, 1.6% and 0.9%. U.S. major stock indices are around a half percent lower.
Ten-year sovereign debt yields are five basis points firmer in the U.K. and up a basis point each in Japan and the United States. But Germany’s 10-year bund rate has eased two basis points. The German IFO business climate index and sub-indices for current conditions and business expectations all dropped to 3-month lows. Manufacturing and trade absorbed particularly sharp hits in May.
The price of Bitcoin sank 3.3%. WTI oil jumped 1.8%, while gold held pretty steady.
Iceland’s 7-day term deposit rate was lifted 125 basis points to 8.75%. Such had been as low as 0.75% prior to May 2021, 2.0% at the beginning of 2022, and 6.0% when 2023 started. With CPI inflation edged up to 9.9% and measures of long-term expected inflation also creeping higher, the statement released in conjunction with today’s third hike of 2023 indicates that more restrictive moves are likely coming: “it is necessary to tighten the monetary stance still further. It is especially important to prevent a wage-price spiral, particularly in view of the strong demand pressures in the economy and how soon the next round of wage negotiations will begin.”
New Zealand’s 25-basis point rate hike was smaller than the two earlier 50-basis point hikes done in 2023 and was accompanied by the unexpected signal from officials that the 5.5% new interest rate level likely represents the peak, although one that will likely be maintained well into next year. A record low of 0.25% had prevailed until an initial tightening in October 2021. New Zealand’s economy is in recession, although one of only modest degree. CPI inflation of 6.7% last quarter was not much below the 7.3% cresting point three quarters earlier.
Nigerian CPI inflation of 22.2% last month was a tad above March’s reading, justifying a 50-basis point increase in the Central Bank of Nigeria’s policy rate to a 17-year high of 18.5%. That’s two full percentage points above the end-2022 level and a pandemic low of 11.5% prior to May 2022.
Czech consumer sentiment and business confidence dropped to two-month lows in May.
Business confidence fell to a 3-month low in Belgium but improved to 6-month and one-year highs last month in South Korea and Turkey.
Producer prices in Finland plunged 1.6% on month during April, resulting in the first negative 12-month rate of change (-0.3%) in 28 months. PPI inflation had peaked at a record high of 32.5% last June.
Retail sales in New Zealand dropped last quarter by 1.4% versus the final quarter of 2022 and by 4.1% year-on-year.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI, Central Bank of Iceland, Central Bank of Nigeria, German business climate index, Reserve Bank of New Zealand
ShareThis
