Averted U.S. Government Shutdown Hasn’t Changed Financial Market Dynamics
October 2, 2023
The approved continuing resolution to keep the U.S. government running is only a temporary 48-day remedy. Moreover, it removes a downside short-term risk to U.S. growth and therefore a potential deterrent to Fed officials raising interest rates additionally this quarter.
Ten-year sovereign debt yields rose overnight by six basis points in the United States, four bps in the U.K. and Switzerland, two bps in France and Germany, and a basis point in Japan.
China’s stock market will be shut all week for the National Holiday commemorating the Communist Party’s ascent to power in 1949. Hong Kong, whose sovereignty reverted to China on July 1, 1997, is also closed today. Elsewhere, share prices slipped 0.3% in Japan and Singapore, and are so far down 0.4% in Germany, France and Italy. U.S. stock futures have dipped 0.2%.
The dollar opened the new quarter on its front foot with gains of 0.6% against the Australian dollar, 0.4% versus the euro, and 0.3% relative to the yen, loonie, kiwi, sterling and on a weighted basis.
Prices for bitcoin (+1.1%) and gold (-0.7%) again moved in opposite ways. WTI oil rose 0.5%.
The Bank of Japan’s just-released quarterly Tankan survey of corporate conditions and economic perceptions reveals an improved landscape for both big manufacturers and non-manufacturers, and planned investment spending growth in the current fiscal year of 13.6% for all large companies and 13.0% for all 9,111 firms that participated in the latest survey. A summary of the September 20-21 Bank of Japan Board meeting identifies the coming six months (representing the second half of the fiscal year) aa likely to be crucial to answering the question about whether upwardly creeping indications of expected inflation are a harbinger of returning core inflation to a sustainable 2.0% trajectory. Only then can officials begin to decide timing and specifics of an exit from the ultra-loose monetary policy that for the time being remains necessary.
The Vice-President of the European Central Bank made some atypically hawkish remarks about interest rate policy. Japan’s finance minister made a subtle promise to use intervention in support of the yen.
Data released today has been dominated by September manufacturing purchasing manager surveys for a slew of countries.
Euroland’s PMI matched its preliminary estimate of 43.4, 0.1 point below August but above July’s 38-month trough of 42.7. The data paint a pronounced factory sector recession, with orders and order backlogs slumping sharply, job losses quickening but inflation lessening. Among countries using the euro, PMI readings in September ranged from Germany’s 3-month high of 39.6 to Greece’s 8-month low of 50.3. The French PMI score of 44.2 after 46.0 suffered a particularly big drop.
British manufacturing also stayed very depressed, attested by a 2-month high of 44.3 after August’s 39-month low of 43.0. The PMIs are diffusion indices in which 50 represents a stagnant state where conditions neither improved not deteriorated,
Elsewhere in Europe, sub-50 PMIs in September were recorded for Sweden (a 4-month low of 43.3), Switzerland (a 3-month high of 39.9), Hungary (a 4-month high of 47.4), the Czech Republic (a 2-month low of 41.7), Turkey (a 2-month high of 49.6) and Poland (a 3-month high of 43.9). Oil producers like Norway (a 2-month high of 52.5) and Russia (an 80-month high of 54.5) did better.
Australia’s manufacturing PMI fell to a 3-month low of 48.7 last month, and South Africa’s Absa-compiled PMI sank to a 26-month low of 45.4.
Japan‘s PMI also remained south of the 50 threshold, sliding to a 7-month low of 48.5. Among other Asia countries, manufacturing PMI indices below 50 last month include Malaysia (an 8-month low of 46.8), Vietnam (a 2-month low of 49.7), Taiwan (a 5-month high of 46.4), and Thailand (a 28-month low of 47.8). Indonesia’s index dropped to a 4-month low but stayed above 50 at 52.3. The Filipino PMI had slipped below 50 to 49.7 in August but rose to 50.6 last months.
Before going on holiday, China managed to release its PMI results. The government’s NBS-authorized manufacturing and non-manufacturing purchasing managers indices rose to a six-month high of 50.2 and a 3-month high of 51.7, respectively. The composite Caixin-compiled PMI fell to an 8-month low due mainly to a 9-month low services reading of 50.2 but also a 2-month low manufacturing score of 50.6.
Canada’s manufacturing PMI dropped half a point and at 47.5 was below 50 for a fifth consecutive time and signaled the most rapid contraction of activity in 40 months.
Euroland’s unemployment rate returned to a record low of 6.4% in August after ticking 0.1 percentage point higher to 6.5% in July. In August 2022, the jobless rate had been 6.7%.
Great Britain’s Nationwide house price index was unchanged on month in September. This left the 12-month change at August’s 169-month largest decline of 5.3%. But contrast, the index posted on-year increases of 9.5% in September 2022 and 14.3% at its apex in March 2022.
Consumer price inflation in Indonesia fell to a 19-month low of 2.28% in September and was associated with a 20-month low core inflation rate of 2.0%.
Mexican business confidence improved to a 5-year high in September.
Just In: The S&P Global U.S. manufacturing purchasing managers index improved 1.9 points to a 5-month high of 49.8. That was well above consensus but still represented the tenth sub-50 reading in 11 months.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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