Continuing Worry about China’s Economy and an Equivocal Remark from the President of the N.Y. Federal Reserve
September 8, 2023
Equities fell on Friday by 1.3% in Hong Kong, 1.2% in Japan, 0.8% in New Zealand, 0.4% in Indonesia, and 0.2% in China. Japanese GDP growth between the first and second quarters was revised downward from 6.0% at an annualized rate to 4.8%. Compared to 2Q 2022, however, GDP rose just 1.6%, little better than the 1.1% increase on average in 2022. The new 4.8% figure exaggerates the compositional strength of the recovery. Personal consumption, inventories, and non-residential business investment exerted drags on 2Q GDP growth of 1.4, 0.6, and 0.7 percentage points, and the 7.1 percentage point positive contribution of net foreign demand mainly reflected a 16.5% plunge in imports. A problem for Japan and other neighbors of China is the latter’s disappointing pace of recovery. A 2.0% on-year slide in total Australian exports in July, for example, was mainly driven by weaker shipments to China. Chinese foreign exchange reserves tumbled $44 billion last month, and Japanese reserves fell by $2.5 billion.
Other Japanese data releases today showed
- A wider JPY 2.772 trillion current account surplus in July versus JPY 889 billion a year earlier, thanks to a 13.3% dive in merchandise imports.
- A 33-month low in Japan’s index of leading economic indicators in July. The index of coincident economic indicators fell also to a 3-month low.
- On-year growth in Japanese average wage earnings slowed a percentage point in July to 1.3% and were 2.5% lower than a year earlier when adjusted for inflation.
- The economy watchers index, which gauges sentiment among service sector workers, dropped back in August to June’s 3-month low level.
Recent dollar strength was tempered overnight after President Williams of the New York Fed stressed the data dependency of future policy decisions and said that further hikes in the central bank’s interest rate are not a foregone conclusion. Unlike the other Federal Reserve district presidents, New York’s representative on the Federal Open Market Committee always participates in votes on interests rates.
The dollar so far today is down by 0.7% against the Mexican peso, 0.4% versus the Russian ruble, 0.3% relative to the Canadian and Australian dollars, and 0.1% vis-a-vis sterling and the euro. The price of bitcoin tokens, off 1.7%, have done even worse.
The potential difficulty of returning inflation to a state of sustained price stability was underscored by an 0.8% additional rise in the cost of WTI oil, which now hovers above $87.5 per barrel. Ten-year U.S. Treasury, German bund and Japanese JGB yields are each unchanged from Thursday closing levels. Gold has firmed 0.3%. U.S. equities opened mixed, while European share prices show marginal upticks.
Hungarian consumer price inflation declined in August to a one-year low of 16.4%. Inflation there crested six months earlier at a 27-year peak of 25.7%.
Latvian CPI inflation of 5.4% in August was its lowest in 23 months and down from a record high of 22.2% last September.
Chilean CPI inflation of 5.3% last month was also at a 23-month low and down from a 30-year high of 14.1% touched in August 2022.
German CPI inflation in August was confirmed at the preliminary estimate of 6.1%. That is down from 6.2% in July and 6.4% in June but only matches the 14-month low touched initially in May. Core inflation in Germany of 5.5% replicated July’s reading and thus remained well above the ECB objective of 2%. The energy component reaccelerated to 8.3%. A 9% food inflation rate also remains highly elevated.
Spanish industrial production printed below its year-earlier level for a fourth straight month in July, this time by 1.8%. In Sweden, industrial production went up 4.0% but posted a larger year-on-year decline of 4.0%. French industrial production rose 0.8% in July following a 0.9% decline in June and also recorded its biggest year-on-year increase (2.7%) in 23 months. In Ireland, industrial production sank 6.6% on month and 4.0% on year in July.
Canada’s jobless rate had been 5.0% from December 2022 through April 2023 but then rose to 5.5% by July and remained at that level in August. Employment climbed by a significantly greater-than-forecast 39.9K in the latest month but continues to be outpaced by growth in working age population. On-year wage growth held steady at 3.6%.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian labor market data, German CPI inflation, Japanese current account, Japanese GDP, John Williams
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