Disinflationary News from U.K. and Germany Ahead of FOMC Statement
September 20, 2023
The dollar slipped overnight by 0.4% against the Australian and New Zealand currencies, 0.2% versus the euro and peso, and 0.1% relative to the Canadian dollar and Swiss Franc. Equities closed down 1.2% in India, 0.7% in Japan, 0.6% in Taiwan and Hong Kong and 0.5% in China but are currently showing overnight gains of 0.5-1% in the U.K., Germany, Spain and Italy. U.S. stock futures are 0.2% firmer.
The ten-year British gilt yield retreated ten basis points, and comparable sovereign debt yields have dipped by two basis points in the U.S., Germany, Spain, France and Italy. But the 10-year Japanese JGB yield is a basis point higher. The price of bitcoin has slid 0.5%.
German producer prices recorded a record 12.6% year-on-year drop in August, double July’s 6% 12-month rate of decline. Energy tumbled 31.9%, and all other components of the PPI disinflated further to 1.2% from 2.0% in the prior month and 3.2% as recently as May.
British CPI inflation undershot market expectations, sliding to 6.7% in August from 6.8% in July, 7.9% in June, 8.7% in May, and a 41-year peak of 11.1% last October. Core CPI inflation of 6.2% was down 0.7 percentage points from July and a 31-year high of 7.0% in May. A 0.4% year-on-year drop in producer output prices was more deflationary than forecast and associated with a lower year-on-year pace of 1.6% versus the peak of +14.9% recorded in May 2022.
The price of West Texas Intermediate oil has settled back 1.0% to $90.31 per barrel.
The FOMC decision will be broadcast at 14:00 EDT (18:00 GMT) and accompanied by updated economic forecasts. While markets are discounting no further increase of the 5.25-5.50% federal funds target corridor at this time, a hawkish tone is anticipated at Chairman Powell’s press conference that begins at 14;30 GMT. A rate hike in November or December remains a distinct possibility. Labor market conditions haven’t loosened sufficiently, and oil price developments have been worrisome. Both total and core U.S. inflation measured by the PCE price deflator was higher in July than June.
Chinese economic data in August took an encouraging turn, sufficiently so for officials at the People’s Bank of China to forgo any additional cuts this month in the 3.45% one-year Loan Prime Rate or the 5-year LPR. The one-year rate had been cut 10 basis points in both June and August, but the 5-year rate was lowered similarly in June but not changed at last month’s fixing.
Japan’s customs trade deficit of JPY 931 billion in August exceeded expectations, but the seasonally adjusted deficit of JPY 556 billion was similar in size to its size in the previous two months. Imports posted their largest on-year decline in three years.
South African consumer price inflation ticked up 0.1 percentage point to a 2-month high of 4.8% in August, which is just a tad above the middle of the central bank’s 3-6% target range. The South African Reserve Bank is one among nine central banks around the world announcing its latest interest rate decision tomorrow.
Producer prices in Poland edged up 0.1% on month in August and recorded its biggest year-on-year drop (2.8%) in the last 95 months. South Korean producer price inflation returned to the black in August for the first time since May but, at 1.0%, remained far beneath the 163-month high of 9.9% in May-June of 2022.
Construction output in the euro area rebounded 0.8% in July. That was the largest monthly rise in five months, but the recent trend remains weak. Construction contracted 1.3% on average in the second quarter and posted an on-year rise in July of only 1.0% after being unchanged in 2Q from the year-earlier level.
Seasonally adjusted unemployment in Sweden increased 0.3 percentage points to a 1-year high of 7.6%.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI and PPI, German producer prices, Peoples Bank of China
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