Perfect Storm of Dysfunctional Congress, Hawkish Fed, Elevated Oil Prices Depresses Equities and Bond Prices but Dollar Stays Well-Bid

September 26, 2023

The U.S. is careening toward a government shutdown that could tarnish its credit rating.

Kashkari and Bowman are the latest Fed officials to warn of likely interest rate hikes next quarter.

Although down 0.7% so far today, the high price of WTI oil, which touched $91.5 per barrel last week, remains a threat to the disinflationary process.

The equity market sell-off paused yesterday, but U.S. stock futures today are down about a half percent. Share prices dropped Tuesday by 1.5% in Hong Kong, 1.3% in South Korea, and 1.1% in Japan, Taiwan, and Indonesia. The German, French, and Italian stock markets show losses so far of 0.7-0.8% this Tuesday.

The 10-year U.S. Treasury yield leaped ten basis points on Monday and, although down a few basis points early Tuesday, remains above the 4.5% threshold.

Overnight dollar highs of  JPY 149.18 and 1.0570 per euro represent the U.S. currency’s 11 and 10-month highs. The weighted DXY dollar index is also at an 11-month high, and the Swiss franc slid to a 6-month low versus the dollar.

Among price data reported this week around the world

  • Lebanese CPI inflation of 230% in August was down from the 269% peak in April but continues a streak exceeding 100% that is now in its fourth year.
  • Japanese corporate service price inflation of 2.1% in August surpassed analyst forecasts and matched the highest level over the past 43 months.
  • Sweden’s producer price index experienced its largest year-on-year drop (-5.9%) in August, which contrasts with its record high positive PPI inflation of 25.6% reported in June 2022.
  • A 1.8% year-on-year slide in Malaysian producer prices was the smallest 12-month decline in six months but the seventh 12-month decrease in a row.
  • Spanish producer prices sank by a record low 10.0% in the year through August, extending the deflationary streak to a half year.
  • Finnish negative PPI inflation of -8.4% in August followed on-year drops of 10.0% in July and 9.5% in June. Record high PPI inflation of 33.9% was reached in June 2022.
  • Icelandic PPI inflation of -5.8% last month was the most deflationary since April.
  • Singaporean consumer price inflation receded to a 19-month low of 4.0% last month from 7.5% touched in August and September of last year.

Factory output in Singapore tumbled 10.5% on month and 12.1% on year in August, which constituted a 45-month low. A less dynamic Chinese economic engine is a problem for Southeast Asia.

Turkish business sentiment fell to a 7-month low this month.

Belgian business confidence printed in negative territory again but at -14.4 was its highest reading in September since June.

The German business climate index fell to an 11-month low in September, reflecting a 37-month low in perceived current economic conditions that outweighed a slight uptick in the one-year ahead outlook.

Czech business confidence fell from August’s 3-month high to a 30-month low in September.

South Korean and Czech consumer confidence fell in September to their lowest readings in four and eight months, respectively.

Great Britain’s monthly survey of distributive trades rebounded by a sharp 30 points to a 3-month high of -14 in September.

Investors now await today’s release of U.S. house price, consumer confidence, and new home sales data. The Richmond Fed manufacturing survey will also be reported.

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

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