Central Banks and U.S. Data Setting the Tone
September 14, 2023
The European Central Bank will announce its interest rate decision and revised macroeconomic forecasts within the hour. Expectations are narrowly divided between a rate hike to counter inflation and leaving policy unchanged in light of recessionary conditions and monetary restraint in the pipeline. Growth and inflation projections are apt to be respectively upward and downward.
Even before the ECB announcement, investors will get news on U.S. producer prices, retail sales and jobless insurance claims. Yesterday’s CPI release proved a touch above expectations but didn’t elicit significant market movement.
In overnight financial market action,
- The dollar remained unchanged against the euro, rose 0.2% versus sterling, and dipped 0.1% against the yen and Swiss franc.
- U.S. stock futures firmed modestly.
- Share prices rose 1.4% in Japan and Taiwan, 1.3% in South Korea, and so far 1.1% in the U.K.. But Russia’s MOEX has slumped 1.2%.
- 10-year sovereign debt yields dropped 3 and 2 basis points in the U.K. and Germany but firmed a basis point in the United States.
- WTI oil jumped another 1.2% in moving a tad above $89.50 per dollar. Bitcoin rose 0.4%.
In other central bank news, easing steps were unveiled in China and Ukraine, but the Central Bank of Uzbekistan left its key interest rate unchanged at 14.0%. From 17.0%, the rate had earlier been cut by 200 basis points during 2022 and 100 bps further this past March. 14% was the pandemic low and matches its lowest level since 2017. CPI inflation in Uzbekistan has declined from 12.3% last December to 8.96% as of August.
There’s been a second reduction this year of the People’s Bank of China’s bank reserve ratios that will go into effect tomorrow. The size of the move is a quarter percentage point and will leave the weighted reserve ratio at 7.4%. Monetary and fiscal policy moves so far in China have failed to lend the faltering economy discernible support.
In Ukraine, where the paramount inflationary risk stems from a continuing full-scale and unpredictable war, officials at the National Bank cut their benchmark interest rate to 20% from 22% today. That move follows a 300-basis point reduction in July from 25% where the rate had been since 15 percentage point hike in June 2020. Although total inflation has receded more quickly than anticipated, core CPI has proven stickier, and officials caution that a rapid additional decline is unlikely.
Looking ahead, the NBU plans to continue its key policy rate cutting cycle, while balancing the cuts against the need to maintain the attractiveness of hryvnia assets, which is key to a sustainable FX market and a steady decline in inflation.
Indian wholesale price inflation remained negative for a fifth straight time in August, but at -0.5% was considerably less so. the manufacturing and fuel components were the least deflationary in 5 and 4 months, respectively.
The combined Swiss producer price and import price index was 0.8% lower than a year earlier in August, constituting a 23-month low and the fourth consecutive sub-zero percent reading. Domestic PPI inflation slid to 1.0%, and import prices were 4.1% below year-earlier levels.
Consumer price inflation in Sweden and Finland slowed to 15- and 18-month lows in August of 7.5% and 5.6%, having crested last December at 12.3% and 9.1%.
Hyperinflationary Argentina experienced a 12.4% month-on-month surge in consumer prices in August, lifting their year-on-year increase to a whopping 124.4% compared to 78.5% in August 2022.
The monthly plunge in Japanese industrial production in July was revised to 1.8% from 2.0% estimated initially but still warrants a trend characterization of “fluctuating indecisively.” Production was down 2.3% year-on-year after being 1.1% lower on average in the first half of 2023. Capacity utilization dropped 2.2% on month in July.
Core private domestic Japanese machinery orders, which fell by a greater-than-forecast 1.1% in July, was another piece of disappointing news. Orders were 13% lower than in July 2022. Export orders rose 1.6% on month but tumbled 16.2% on year.
Australian labor market statistics for last month were mixed. The jobless rate remained at July’s 3-month high of 3.7% despite a much larger-than-forecast 64.9 thousand jump in employment.
News late yesterday from the United States of an $89 billion federal budge surplus last month was unexpected. Deficits of 221 billion and $220 billion had been experienced in July and August 2022.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australia employment and unemployment, Central Bank of Uzbekistan, India wholesale prices, Japanese machinery orders and industrial production, National Bank of Ukraine, Peoples Bank of China, Swiss PPI and import prices
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