Asian Growth Concerns.. British CPI and Euroland GDP Figures Release.. And Waiting for FOMC Minutes Due Later Today
August 16, 2023
The Chinese economy remains a concern that weighing on its regional neighbors as well. Property prices in China were 0.1% lower in July than a year earlier. That’s follows zero percent in the second quarter and disappointing retail sales, industrial production, corporate investment, and unemployment data reported yesterday. Equity markets today tumbled 1.3% in South Korea, 1.5% in Japan and Australia, 1.4% in Hong Kong and 0.8% in China.
European stock markets and U.S. stock futures are narrowly mixed. 10-year sovereign debt yields slipped 0.3% in Germany and France but rose 0.3% in Great Britain.
Overnight changes in commodity prices and crypto were inconsequential.
British inflation remains comparatively high, putting Bank of England officials in a difficult spot. The 12-month rate of consumer price inflation, which crested last October at a 41-year high of 11.1%, fell 1.1 percentage points to 6.8% in July, but core CPI of 6.9% did not ease as predicted and remains close to May’s 31-year high of 7.0%. The 6.8% total CPI inflation rate in the U.K. compares unfavorably to inflation elsewhere in the G7 now running at 5.3% in Euroland, 3.0% in the United States, and 3.3% in Japan and Canada. British producer output prices posted a smaller-than-expected 0.8% on-year decline in July.
In overnight foreign exchange market action, the dollar pulled back 2.4% against the Russian ruble and eased by 0.3% versus the Mexican peso, New Zealand dollar, and sterling, but it also rose 0.2% against the Chinese yuan and Swiss franc and 0.1% relative to the Japanese yen. The Canadian dollar and euro remain steady.
GDP growth in the euro area last quarter of 0.3% compared to the first quarter and a nine-quarter year-on-year low of 0.6% were unrevised from preliminary indications reported on July 31. The quarterly growth rates among individual European economies ranged from contractions of 1.5% in Sweden, 0.6% in Latvia, 0.4% in Cyprus and Austria, and 0.3% in Estonia, Italy, Hungary and the Netherlands to zero change in Germany and Portugal and expansions of 0.1% in the Czech Republic, 0.2% in Belgium and Denmark, 0.4% in Spain and Slovakia, 0.5% in France, 0.9% in Romania and 3.3% in Ireland. Euroland’s 0.6% GDP rise from 2Q 2022 was considerably less than the 4.2% advance between the second quarters of 2021 and 2022.
Employment in the euro area decelerated to a quarterly advance of 0.2% last quarter from 0.5% in the first quarter and was associated with a year-on-year advance of 1.5%, down from 2.7% recorded in the year to 2Q 2022.
Industrial production in Euroland rose 0.5% in June but still contracted by 1.0% on average between the first and second quarters of this year and by 1.2% between June 2022 and June 2023.
A 5.4% upsurge in the utilities component related to oppressively high temperatures lifted U.S. industrial production by a much greater-than-assumed 1.0% in July, more than reversing June’s 0.8% contraction. It was the largest monthly advance in half a year and trimmed the year-on-year contraction of industrial output to a mere 0.2%. Other U.S. data releases this Wednesday revealed a 3.9% monthly jump in housing starts but just a 0.1% uptick in building permits. The 30-year fixed mortgage rate of 7.16% last week embodied a 30-basis point advance from just three weeks earlier to a 10-month high. Not surprisingly, mortgage applications continued to shrink and have dropped 8.4% over a four-week period.
The Reserve Bank of New Zealand‘s Official Cash Rate was again left unchanged at 5.5%. Three earlier increases in 2023 totaled 125 basis points and followed 350 basis points of tightening in 2022 and 50 bps of tightening late in 2021. During the pandemic, the OCR rate was 0.25% from March 2020 until October 2021. CPI inflation in New Zealand crested at 7.3% in the second quarter of 2022, but 6.0% one year later remained three times higher than the middle of the central bank’s medium-term target range of 1-3%. Forward guidance by monetary officials doesn’t rule out the possibility of a further tightening, but perceives the likeliest scenario being that the OCR stays at 5.5% for the coming two years.
South African retail sales increased 0.2% on month but fell 0.9% on year in June. That was the ninth year-on-year drop in the last ten reported months.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI and PPI, Euroland GDP and employment growth, Reserve Bank of New Zealand, U.S. housing starts and industrial production'
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