Global Equities Extend Rise
July 11, 2023
Stock markets in the Pacific Rim rose 1.5% in Taiwan and Australia, 1.7% in South Korea, 1.0% in Hong Kong and Indonesia and 0.6% in China. An exception was a 0.3% dip in Japan’s Nikkei-225. The British FTSE thus far has also slipped 0.3%, but continental European share prices and U.S. stock futures are in the black.
The dollar fell overnight by 0.6% against the yen, 0.4% against the Swiss franc, sterling and Chinese renminbi. The dollar edged up 0.1% relative to the euro but not before touching a 2-month low of $1.1027. Sterling’s overnight peak of $1.2934 was its highest point since April 2022.
Prices for gold and WTI oil are 0.6% firmer. Ten-year sovereign debt yields in Japan and Europe are little changed, but the 10-year U.S. Treasury yield has settled three basis points lower.
Investor attention is focused on tomorrow’s release of U.S. consumer price data, which will be followed Thursday by the PPI report. A slew of Fed officials in recent days have double-downed on the assertion that the federal funds rate has to rise multiple additional times. The tightening cycle in the federal funds rate began 16 months ago in March 2022, but consumer and business spending haven’t responded nearly as much as officials had expected. Service sector prices and wages are too high still to secure a return to the 2% inflation target. Because of two tactical errors, the cresting point in inflation will end up being higher than assumed when tightening first began. Number one, officials took too long to realize that elevated inflation was not a short-lived supply side-induced spike.By June 2021, core PCE price inflation had exceeded 3.0% for three straight months, and such crossed above 4.0% early in the fourth quarter. Number two, officials took their time letting markets and the public get used to the notion that higher interest rates were coming. Doing so was simply following the approach taken at the start of earlier policy tightening cycles, but the starting point this time was an ultra-depressed 0-0.25% federal funds target. Given the long and variable lag of policy changes to actual impact on demand and inflation, an initial rate hike in March 2022 of 100 basis points or more would not have caused much damage because the real interest rate level would still have been highly negative and thus very accommodative after such a move.
Several other countries reported price data today.
- German CPI inflation in June was confirmed at the initial estimate of 6.4%, 0.3 percentage points higher than in May but down from a peak of 8.8% last October and November. ECB officials remain troubled, however, because while total inflation has eased, core inflation, excluding food and energy, has risen. When German total inflation crested last autumn, core CPI was 4.8%, but by last month such had climbed a full percentage point to 5.8%.
- Dutch CPI inflation in June was also confirmed at its preliminary estimate, which had been 5.7%. That was down from 6.1% in May and 14.5% last September.
- In Latvia, CPI inflation slowed to a 17-month low of 7.9% in June from 12.1% in May and 19.3% in June 2022.
- In Lithuania, CPI inflation of 9.0% last month represented a 20-month low and a drop from last September’s 313-month high of 24.1%.
- In Moldova, CPI inflation has decelerated from a record high of 35.0% in October 2022 to a 19-month low of 13.2% last month.
British labor statistics reported today included an acceleration of average weekly earnings’ on-year growth to 6.9% overall and 7.3% for regular pay in March-May. The labor market remained tight in spite of an unexpected 0.2 percentage point rise in the jobless rate to a 17-month high of 4.0%.
Investor sentiment toward the German and Euroland economies soured further to 7-month lows in July according to the latest ZEW expectations indices. Perceived current conditions also weakened to a 7-month low in Germany and a 4-month low in the euro area.
On-year Chinese M2 money growth of 11.3% last month was the slowest in 13 months.
U.S. small business confidence ticked higher to a 7-month high in June.
Australian reports out today showed a rise in consumer confidence and business sentiment.
The 21.7% year-on-year dive in Japanese machine tool orders last month was only slightly less than the 30-month-large 22.2% plunge in May.
Italian industrial production recovered 1.6% in May after posting declines in each of this year’s first four months, and the year-on-year drop of 3.7% was only half as great as that in April.
South African industrial production fell 1.3% in May and posted a smaller 2.5% increase from a year earlier.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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