Wave of Risk Aversion Following Moody’s Downgrade of Mid-Sized Banks and China’s Weak Trade Figures
August 8, 2023
Ten-year sovereign debt yields plunged overnight by 16 basis points in France, 15 bps in Germany and Spain, 12 bps in the U.K. and nine basis points in the United States. Prices for gold and oil have dropped 0.4% and 2.3%, while that for Bitcoin advanced 0.7%. Share prices fell 1.8% in Hong Kong and so far have declined today by 2.6% in Italy, 1.4% in Spain and Germany, 1.2% in France and 0.8% in Great Britain. U.S. stock futures point to a loss at the open of at least 0.8%. As the predominant safe haven currency, the dollar strengthened 1.2% versus the Russian ruble, 1.1% relative to the Australian and New Zealand dollars, 1.0% vis-a-vis the Canadian dollar, 0.7% against sterling, 0.5% against the Swiss franc, 0.6% versus the euro, and 0.3% relative to the Chinese renminbi and Japanese yen.
China’s trade surplus in July of $80.6 billion was 21.5% smaller than in July 2022, but the attention-getting elements of this drop were year-on-year declines of 14.5% in exports (most in 41 months) and 12.4% in imports.
Moody’s has downgraded the credit rating of a slew of smaller sized U.S. banks, asserting that their profits will be squeezed by elevated interest rates and an eventual recession.
Italy’s government has approved a large windfall profits tax on its banking sector, which has depressed the Italian stock market by over 2.5% today.
The U.S. goods and services trade deficit contracted 4% to a 3-month low of $65.5 billion in June. As in China, exports and imports fell compared to June 2022 levels (by 4.3% and 7.8%) and May levels. The second-quarter deficit of $208.2 billion was very similar in size to the first quarter gap of $201 billion. In a separate U.S. data report, small business sentiment improved sto an 8-month high in July.
Price data released around the world today
- Confirmed that German consumer prices in July had risen 0.3% on month and 6.2% on year, down from 6.4% in June and just slightly above May’s 14-month low 6.1%. German inflation crested at 8.8% last October and November.
- Also confirmed the preliminary Dutch CPI inflation results of July, a 1.0% monthly increase but a 1.1 percentage point deceleration of the 12-month rate of increase to a 4-month low of 4.6%.
- Revealed an acceleration of Greek CPI inflation to 2.5% last month from 1.8% in June. This was the first on-year acceleration since September 2022. Greek CPI inflation peaked in June 2022 at a 343-month high of 12.1%.
- Showed a additional 2.5 percentage point decline in Hungarian CPI inflation to 17.6% last month. Such crested in January at a 323-month high of 25.7%, and 17.6% represents an 11-month low.
- Revealed a 21-month low in Latvian CPI inflation of 6.4% in July down from a record high 22.2% last September.
A number of Japanese economic data were reported this Tuesday. A current account surplus of JPY 1.509 trillion was experienced in June, roughly three times wider than a year earlier and equivalent to 2.346 trillion yen when adjusted for seasonal variation. The economy watchers index, a gauge of the sentiment of service sector workers, improved slightly to a 2-month high in July. Average cash earnings in June were 2.3% above year-earlier levels in nominal terms but 0.9% lower than in June 2022 when adjusted for inflation. Japanese real household spending was 4.2% below its year-earlier level in June. April and May had also seen such drop at least 4.0%. Bank lending grew 2.9% between July 2022 and July 2023, down from on-year growth of 3.2% in 2Q 2023.
July same-store sales in the U.K. were only 1.8% above their level a year earlier. That was the smallest 12-month increase in 9 months and below analyst expectations.
Australian business confidence rose to a six-month high in July but still low with a value of only 2. Business conditions slid back to a 2-month low according to the monthly measure compiled by the National Australia Bank. According to Westpac, consumer confidence this month in Australia fell to a four-month low.
South Korea’s current account surplus imploded 90% to $2.44 billion in the first half of 2023 compared to the first half of 2022.
The French current account unexpectedly swung into surplus (EUR 758 million) during June.
Canada’s trade deficit widened additionally to a 31-month high of C$ 3.73 billion in June. The deficit has averaged C$ 1.178 billion per month over the past five reported months compared to a average surplus in full-2022 of $1.675 billion per month.
The National Bank of Romania‘s benchmark interest rate was again left steady at 7.0% after the latest review of monetary policy. In 2020, the rate had been lowered by a full percentage point to 1.5%, and 2021 began with a further 25-basis point reduction to 1.25%. By the end of 2021, the rate was back to 1.75%, and a total additional tightening of 500 basis points occurred in 2022 to counter accelerating inflation. With inflation still rising, a last hike of 25 bps was administered this past January. From 14.5% in March, CPI inflation has since receded to 10.6%. A return to the 1.5-3.5% target is envisaged by the end of next year.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China trade surplus, German CPI, Japanese current account, Moody's downgrade of U.S. small bank credit rating, National Bank of Romania, U.S. and Canadian trade deficits
ShareThis
