Move Out of Equities Drives Back Long-Term Interest Rates
August 18, 2023
Ten-year sovereign debt yields dropped overnight by 11 basis points in Italy, 10 bps in Germany, France and Spain, 7 bps in Great Britain, 4 bps in the United States and 1 basis point in Japan.
Global equity markets experienced their most difficult week in five months. The tide didn’t turn as the week draws to a close. In the Pacific Rim, share prices closed down 2.1% in Hong Kong, 1.0% in China, and 0.6% in South Korea, India and Japan. The French, German and British stock exchanges are so far showing 0.8% losses today, and U.S. stock futures are somewhat lower as well.
The dollar retains a firm tone, rising today by 0.3% against the Swiss franc and sterling, 0.2% relative to the Australian dollar, and 0.1% versus the euro, yuan, kiwi, and Turkish lira. There’s been a 0.2% downtick against the yen, which has found support just north of 146/USD, the level where the Bank of Japan intervened almost a year ago. Time will tell if officials have been again doing that.
The price of bitcoin fell 0.7%, while gold and oil show marginal price gains.
Japanese July consumer price data out today surprised on the upside. Overall inflation remained at 3.3%, whereas analysts had been projecting a decline, and the index that excludes both energy and perishable food ticked up 0.1 percentage point to May’s 42-year peak of 4.3%. Food price inflation of 8.8% was the most in 562 months, offsetting an enlarged year-on-year drop in the energy component.
The July consumer price inflation report for the euro area was not revised from earlier preliminary estimates. There was a 0.1% month-on-month dip both in the total index and the core inflation index. The 12-month rate of total inflation slid 0.2 percentage points to 5.3%, but cor inflation remained steady at 5.5%. Service sector price inflation accelerated another 0.2 percentage points to a record 5.6% versus 3.7% in July 2022. The food component, +10.8%, was down from 15.0% last February but still above its year-earlier pace in July 2022 of 9.8%. At -6.1%, energy has been the main disinflationary factor, but the 6.7% on-year collective rise of all other items in the CPI remains more than three times above the ECB’s goal. In Euroland’s largest economy, Germany, consumer prices rose 0.5% on month in July, and the 12-month inflation rate of 6.5% was only two percentage points lower than a year earlier.
Austrian CPI inflation of 7.0% in July was its lowest in 16 months.
Portuguese producer prices recorded their fifth straight month-on-month drop in July, and the 6.7% decline from a year earlier represents a big deceleration from +24.6% in July 2022.
The intent of tightening monetary policies in Europe is to slow economic activity and thereby reduce inflation. So far, a reverse causation has been more apparent. The persistence of inflation is depressing personal consumption and business spending, but inflation remains well above target.
Construction spending in the euro area dropped 1.0% in June and 1.1% in the second quarter. Construction in the latest reported month was also 0.3% lower than a year earlier.
The volume of British retail sales fell 1.2% on month and 3.2% on year in July. That’s weaker than forecasters were predicting.
Swiss industrial production contracted 3.3% in 2Q, its largest quarterly decline in three years. There was also a 0.8% drop relative to 2Q 2022, the largest year-on-year drop in ten quarters.
Polish industrial production rose 0.4% in June but fell 1.4% compared to a year earlier.
Chinese foreign direct investment, which increased 6.3% in 2022 and was 6.1% higher than a year earlier in the first two months of this year, showed a 4.0% year-on-year decline in January-July.
Malaysian on-year GDP growth of 2.9% last quarter was the slowest in seven quarters. Malaysia’s current account surplus of MYR 13.4 billion in the first half of 2023 was 56% wider than a year earlier.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, Euroland CPI, Japanese CPI, Swiss industrial production
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