Japanese and Euroland GDP Reported… Also Monetary Policy Decisions in India and Serbia

June 8, 2023

The dollar slipped further overnight, losing 0.5% against the Australian dollar, 0.4% versus the kiwi, 0.3% relative to the yen and euro, and 0.2% against the Swiss franc and sterling. One currency that fell against the dollar was the Turkish lira, which dropped 0.4% additionally.

With both the European Central Bank and possibly the Federal Reserve expected to hike interest rates next week, 10-year sovereign debt yields are up by four basis points in the U.K. and a basis point each in the U.S., Germany and Japan. West Texas Intermediate crude oil, up 0.9% overnight, is attempting to return to highs hit right after the recent Saudi announcement of a planned production cutback. And the price of Bitcoin climbed 0.4%.

Equity markets dropped 0.9% in Japan and 1.1% in Taiwan but otherwise have been pretty narrowly mixed so far. The tech sector remains out of favor.

Japanese GDP growth last quarter was revised higher to 0.7% from 4Q 2022 (2.7% annualized and roughly twice as much as the U.S. economy experienced) and 1.9% compared to the same quarter a year earlier. Personal consumption, non-residential investment, and inventory changes more than counterbalanced a 1.4 percentage point drag from net exports. Japan’s GDP price deflator climbed 1.3% on quarter and posted a 33-quarter high year-on-year advance of 2.0%.

In other Japanese data releases today, the economy watchers index of sentiment among service sector workers improve to a 17-month high of 55.0 in May from 54.6 in April and a 5-month low of 48.5 last January. April’s current account surplus of 1.895 trillion yen 76% wider than a year earlier and also somewhat bigger than analyst forecasts. Also, the 12-month rise in bank lending (3.4%) was the most in two years.

Whereas Japan’s economy outperformed the U.S. economy in the first quarter, revised Euroland figures reveal that its economy did slip into modest recession after all. GDP in the 20-nation bloc posted back to back 0.1% dips in each of the past two quarters. In the more recent first quarter of 2023, GDP fell 0.7% in the Netherlands, 4.6% in Ireland, 0.3% in Germany and 0.1% in Greece but rose 0.6% in Italy,  0.5% in both Spain and Belgium, and 0.2% in France. GDP last quarter in the whole Euroland economy got negative contributions from inventories, personal consumption, government spending and inventories, but a big drop in imports translated into significant mitigating support from net foreign demand. Employment in the euro area rose 0.6% on quarter, twice as much as in the final quarter of 2022.

Officials at the Reserve Bank of India had paused the cycle of interest rate hikes at their policy review in April and maintained the existing stance again at this month’s meeting. Between May 2022 and February 2023, the RBI’s repo rate had been increased six straight times from 4.0% to 6.5%. Consumer price inflation in India crested at a 95-month high of 7.79% in April 2022 to 4.7% one year later, which happens to fall inside the 2-6% target corridor. According to today’s statement about the world and Indian economies, “the pace of monetary tightening has slowed in recent months, but uncertainty remains on its future trajectory as inflation continues to rule above targets across the world.” Officials decided to leave the interest rate steady by a unanimous vote but remain in trust-but-verify mode, promising to “do whatever is necessary to ensure that long-term inflation expectations remain firmly anchored.”

Perhaps anticipating a likely ECB rate hike next week, officials at the National Bank of Serbia, who had not changed interest rates at May’s review, lifted the key benchmark today to 6.25% from 6.0%. From a pandemic low of 1.0%, the rate had been raised a total of four percentage points in the final nine months of 2022 and now by an additional 125 basis points this year. Since Serbian CPI inflation had dropped 1.1 percentage points in April to 15.1% versus March’s record high, analysts had not been expecting today’s interest rate increase. Citing many persistent price risks around the world, today’s statement of explanation strikes a cautionary tone: “It is possible that the period of elevated interest rates will last somewhat longer than initially anticipated.”

For the record, lower rates of CPI inflation were reported in

  • Ireland: A 15-month low of 6.6% in May, down from last October’s 38-year peak of 9.2%.
  • Hungary: A 7-month low of 21.5%, down from January’s 323-month high of 25.7%.
  • Latvia: A 14-month low of 12.1% versus last September’s record 29.2% 12-month rate of increase.
  • Lithuania: A 17-month low of 11.7%, less than half the 313-month high of 24.1% in September 2022.
  • Colombia: A 7-month low of 12.4%, still not far removed from the 24-year high of 13.3% in March.

An important and welcome sign of some slack returning to the U.S. labor market emerged today. New jobless insurance claims leaped 28k to 261k last week, the most for any such period since the final October week in 2021. By contrast, new claims back in January averaged a tad under 200k. Labor market data will have a critical influence on future Fed interest rate decisions.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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