FOMC Rate Announcement at 18:00 GMT to Be Followed By Powell’s Press Conference
July 26, 2023
Investors are positioned for a further 25-basis point hike in the federal funds target later today and will pay particular attention to what is said about likely rate decisions over the balance of 2023. U.S. CPI inflation has slowed more rapidly than was expected to 3.0% from a peak of 9.1%, but labor market conditions remain too tight and core disinflation has lagged.
In overnight financial market action, the dollar slipped 0.4% relative to the yen, 0.2% against the Swiss franc and euro and 0.1% versus sterling. A 0.6% advance against the Australian dollar reflects a full percentage point decline in Australian CPI inflation last quarter. With the ECB poised to raise its interest rate tomorrow, 10-year sovereign debt yields climbed overnight by four basis points in Germany and three bps in Spain, France and Italy. A sense of disbelief surrounds confidence in the Chinese government’s promise of more fiscal and monetary stimulus. Share prices fell 0.3% in China, 1.7% in South Korea and 0.2% in Taiwan. European stock markets have so far lost 1.9% in France, 0.9% in Germany and 0.7% in the U.K., and U.S. stock futures are marginally lower ahead of the opening bell. The price of gold is up 0.5%, Bitcoin is barely changed, and oil has settled 1.1% lower.
Australian CPI inflation slowed to 6.0% in the second quarter from 7.0% in 1Q and a peak of 7.8% in the final quarter of 2022. The quarterly 0.8% rise in 2Q was only half the average pace in the previous four quarters, but a 6.3% year-on-year rise in service sector prices was the most in over two decades.
Japanese corporate service price inflation slowed a half percentage point to 1.2% in June and was down from 2.1% in June 2022. Japan’s May index of leading economic indicators was revised slightly downward but still at a 6-month high. The index of coincident economic indicators got revised upward and was the best reading in three months.
French consumer confidence in July held steady at a 13-month high but at 85 remained well below the June 2021 high of 103 and not far above the July 2022 109-month low of 80.
South Korean consumer sentiment improved 2.5% to a 14-month high this month.
Industrial production in Singapore posted its ninth straight year-on-year decline, a 4.9% drop between June 2022 and June 2023.
Investor sentiment toward Switzerland worsened slightly in July to a 3-month low and was at a very depressed level for a fourth consecutive month.
Progressively tighter ECB policy is reflected in diminishing money and credit growth in the euro area. M3 money recorded only a 1.0% on-year rise last quarter, down from 2.9% in 1Q 2023. In June alone, M3 was just 0.6% above its year-earlier level, and the growth of loans to households and to non-financial firms (respectively 1.7% and 3.0%) represented 73- and 19-month lows.
Sweden’s trade balance improved from a SEK 3.1 billion deficit in the first six months of 2022 to an SEK 18.9 billion surplus in the first half of this year.
Hungary’s central bank base rate was left at 13.0%. It was raised to that level by September 2022 from 2.9% at the start of last year 0.6% prior to an initial increase in June 2021. According to a statement, “in the Monetary Council’s assessment, it is necessary to maintain tight monetary conditions in order to achieve price stability.” CPI inflation of 20.1% as of June remained highly elevated but down from January’s 27-year peak of 25.7%.
133-month lows in U.S. house price inflation of 2.8% according to the FHFA index and -1.7% in the Case-Shiller index of prices in 20 metropolitan areas were reported yesterday, and this morning came news of a 1.8% drop in U.S. mortgage applications last week. These drops won’t dissuade the FOMC from raising the federal funds target today. Yesterday’s economic data menu was dominated by a 2-year high in consumer confidence according to the Conference Board’s index.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australia CPI, Euroland money and credit growth, French and U.S. consumer confidence, Japanese corporate service prices
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