Future Monetary Policies in the Financial Market Forefront

September 11, 2023

The dollar opened the week on a softer note, dropping 1.0% against the yen and Australian dollar, 0.8% versus the Mexican peso, 0.7% relative to the kiwi and Chinese yuan, 0.5% against the euro, 0.4% vis-a-vis the Canadian dollar, and 0.2% against sterling. The greenback is 2.1% weaker against the ruble.

Share prices dropped by 0.9% in Taiwan and 0.6% in Hong Kong but closed up 0.4% in Japan and 0.8% in China. U.S. and continental European equities are modestly firmer.

The 10-year Japanese Government bond yield jumped six basis points to 0.705%, its highest level since 2014 following remarks by BOJ Governor Ueda that grounds for considering a further tweak away from the current ultra-loose monetary policy may be in place by early 2024. Among other 10-year sovereign debt yields, Monday has seen rises of 5 basis points in British gilts, 2 bps in German bunds and a basis point in U.S. Treasury bonds.

The price of Bitcoin tokens took a dive of 1.6%, whereas gold firmed 0.3%. Oil prices are steady.

Today’s Chinese price data releases won’t alleviate worries that its economy may be going down the same deflationary rabbit hole that Japan did a few decades ago. CPI inflation was 0.1% in August and has ranged from -0.3% to +0.2% for the past five months. Core CPI held unchanged at o.8%. Producer prices were 3.0% below their year-earlier level last month.

Among other price figures reported today,

  • Dutch CPI inflation softened to a 35-month low of 3.0% in August from 4.6% in July and a record high 14.5% in September 2022.
  • Czech CPI inflation dipped 0.3 percentage points to 8.5% in August, having crested at a 345-month high 11 months earlier.
  • Danish CPI inflation of 2.4% last month was down from 3.1% in July and at its lowest point in 23 months.
  • Norwegian producer prices were 37.4% lower than a year earlier last month.

The EU Commission released its summer 2023 update of macroeconomic forecasts. GDP, which advanced 3.3% in 2022, is now projected to grow by an even slower 0.8% this year, including a 0.4% contraction seen likely in Germany, and growth in 2024 was also downgraded by 0.3 percentage points to 1.3%. CPI inflation, which spiked 8.4% on average in 2022, is forecast at a 3.6% pace in 2023 followed by 2.9% next year.

In addition to the aforementioned CPI and PPI data, released Chinese figures today include a rebound in new yuan loans to CNY 1.36 trillion in August after 346 billion in July and 3.05 trillion yuan in June. M2 money growth slowed to 10.6% year-on-year from 10.7% in July and 11.3% in June. Motor vehicle sales had been 1.4% lower than a year earlier for the first time in six months but rebounded to an 8.4% August-over-August increase.

A few economies reported industrial production today. Output declines in Italy of 0.7% on month and 2.1% on year in July were weaker than forecast. Malaysian output was just 0.7% higher in July than a year earlier and accompanied by news of a 5.5% rise in retail sales. A 7.4% jump in Turkish industrial production was the sharpest on-year increase in 13 months, but the 12-month increase of 2.3% in South African factory output was considerably less than had been forecast. Mexican IP rose 0.5% on month and 4.8% on year in July.

By a 5:3 margin financial markets are discounting that the ECB policy review will not vote to increase interest rates later this week. There is also a hope that the FOMC meeting next week may also hold policy steady.

The Group of Twenty annual summit this past weekend in India failed to sanction Russia’s aggression against Ukraine.

Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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