An Active Session from a Data Release, Central Bank Watching and Market Volatility Standpoint
June 15, 2023
The dollar touched an 8-month high against the yen overnight of 141.5 and currently shows a net 0.9% advance from Wednesday’s close. The dollar edged only 0.1% higher against sterling, the euro and Swiss franc, however.
The price of Bitcoin tokens dived over $1000 (or 3.9%) so far today. Prices have diverged for West Texas Intermediate oil (+1.0%) and Comex gold (-1.4%).
In equity market action, stocks closed up 2.2% in Hong Kong, 0.8% in Singapore, and 0.6% in Taiwan but show losses of 0.7% in the German Dax and Nasdaq futures.
Ten-year sovereign debt yields climbed thus far today by 9 basis points in Italy, 6 bps in Germany, France and Spain, and 4 bps in the United States, but the 10-year Japanese JGB yield is a basis point softer.
The lack of a rate increase at this week’s FOMC meeting was overshadowed by the committee’s updated forward guidance implying probable 50 basis points of further increase in the federal funds target during the second half of 2023. Core inflation has emerged as more influential on policy than the headline inflation figure, and as before Fed policymakers want to see compelling evidence of a sustained slowdown in wage growth.
Hong Kong’s Monetary Authority took the Fed’s lead and left its key interest rate steady as well.
So did the Central Bank of the Republic of China (Taiwan). Following five increases totaling 75 basis points from a record low 1125% to 1.875% undertaken at consecutive scheduled quarterly meetings between March 2022 and March 2023, Taiwan’s discount rate was left unchanged. According to a released statement that takes “into account the previous streak of five policy rate hikes and two increases in the required reserve ratios, the Board judged that a rate hold would allow the Bank to assess the cumulative effects and implications of its monetary tightening and would help foster sound economic and financial development on the whole.”
Policymakers at the National Bank of Ukraine also left that central bank’s interest rate unchanged. Such has been at a lofty 25.0% since a fifteen percentage point increase one year ago. One earlier hike in 2022 just before Russia invaded Ukraine had lifted the key benchmark to 10% from 9%. Ukraine continues to be a special case with a unique uncertainty, namely the future evolution of its war. Consumer price inflation has eased from 26.6% in December to 15.3% as of May, but that remains well above target and the downward path of inflation is projected to become less steeply sloped. Very tight monetary policy is also warranted in order to protect the stability of the hryvnia, Ukraine’s currency.
The People’s Bank of China‘s medium-term lending facility rate has been sliced by 10 basis points to 2.65%. This first decline since last August is seen as a harbinger of broader fiscal and monetary stimulus that will be soon coming to promote what so far has been a disappointing economic recovery in the wake of lifted Covid restraints.
Analysts had expected this morning’s news of an eighth straight interest rate hike at the European Central Bank, and the 25-basis point increase matched the street consensus as well. At 4.0%, the refinancing rate has risen 400 basis points since tightening began 11 months ago from a base of zero percent. The bank’s deposit rate was also lifted by 25 basis points and, at 3.5%, is at the highest level since 2001. No indication in today’s statement was given that officials are done tightening, and investors will continue to anticipate another 25 basis points at next month’s review. Updated forecasts of CPI inflation for 2023, 2024 and 2025 were revised 0.1 percentage point higher to 5.4%, 3.0% and 2.2%. A return to in-target price stability soon is not in the cards. Even after the ECB interest rates hit their cyclical peaks, such ” will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.” As Paul Volcker did in 1981-82, the tight monetary policy is not being relaxed even after Euroland has endured consecutive quarterly shrinkages of GDP, which is not expected to bounce back more than tepidly. The recession has prevented unemployment from hovering near record lows.
China released a slew of monthly economic statistics. Industrial production rose 0.6% on month and 3.5% on year in May, and the 3.6% on-year advance over the first five months of 2023 matches 2022’s average pace. Retail sales growth of 0.4% on month and 12.7% on year undershot expectations, and so did the 4.0% year to date rise of fixed asset investment. Foreign direct investment in January-May was just 0.1% above a year earlier, and property prices likewise recorded a mere 0.1% rise between May 2022 and last month. The jobless rate in China stayed at a 10-month low of 5.2% last month.
Among Japan’s data reports today, the trade deficit of JPY 1.373 billion last month was down from JPY 2.366 trillion a year earlier. Core domestic machinery orders rose 5.5% in April following March’s 3.9% slide. The tertiary index that documents service sector activity likewise rebounded 1.2% in April after a 1.5% drop in March.
New Zealand suffered a second straight quarterly contraction of real GDP, but its 0.1% magnitude was smaller than the 0.7% decline in the final quarter of 2022.
Australian labor market statistics for May beat expectations. The jobless rate dipped to 3.6%, just off the 3.5% low early this year. Employment shot up by 75.9k, and labor market participation of 66.9% also exceeded forecasts.
Euroland’s seasonally adjusted and unadjusted trade positions — deficits of EUR 7.1 billion and EUR 11.7 billion — were weaker than thought. Exports fell in both monthly and year-on-year terms.
After dropping 1.0% in the final quarter of 2022, Hong Kong factory output (+2.7% in 1Q 2023) got a boost from the removal of Covid restraints in China.
French consumer price inflation in May was confirmed at the 13-month low of 5.1% reported initially. That’s down from a 38-year high of 6.3% in February.
Polish CPI inflation of 13.0% last month also represented a 13-month low.
The combined Swiss producer price and import price index dropped 0.3% in May both from April’s level and compared to May 2022. Import prices were 4.6% lower than a year earlier.
Nigerian CPI inflation of 22.4% in May was its highest in 212 months.
Argentina continues to experience hyperinflation (defined as prices doubling or more in a year’s time). The 114.2% rise between May 2022 and May 2023 constitutes a 31-year high and compares with CPI inflation of 64% in June 2022.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of the Republic of China (Taiwan), China retail sales and industrial production, European Central Bank, FOMC, National Bank of Ukraine
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