Ungovernable U.S. Congress Elevates Uncertainty But Dollar Softens Only Modestly
October 4, 2023
In a startling political development, the U.S. House of Representatives has no Speaker, and it could be quite a while before that critical vacancy is filled. Without that critical step, Congress will be rendered impotent.
Ordinarily such a crisis might be expected to weigh discernibly on the dollar, but the other force strongly at play in financial markets is the elevation of U.S. interest rates all along the maturity spectrum. In overnight trading, the 30-year Treasury yield crossed briefly above 5.00% to 5.01% for the first time since the onset of the subprime mortgage crisis over 15 years ago. Interest rates in other key economies have been pulled higher, notably in Japan, where the 10-year JGB yield increased four basis points to 0.80% and in the U.K. where the comparable yield increased by two basis points.
In overnight currency market action, the dollar rose 0.4% against sterling and 0.1% versus the yen, but fell 0.4% against the Australian dollar and 0.2% relative to the euro and Swiss franc.
Following large declines Tuesday in U.S. share prices, equities fell 2.4% in South Korea, 2.2% in Taiwan, and 2.3% in Japan. European stocks and U.S. equity futures have been pretty stable, by comparison.
Bitcoin has risen 0.6%, while prices for WTI oil and gold are trading 1.1% and 0.2% lower.
The central banks in island countries over 10,700 miles apart left their interest rate benchmarks unchanged after monetary policy reviews today. The Reserve Bank of New Zealand‘s Official Cash rate was left at 5.50%, having last been changed in May. From a pandemic low of 0.25% until October 2021, the OCR was lifted 50 basis points in 4Q 2021, 350 bps in 2022, and 125 bps earlier this year. CPI inflation in New Zealand decelerated from 6.7% in 1Q 2023 to 6.0% last quarter but is not seen returning to the 1-3% target for another year. “The Committee agreed that interest rates may need to remain at a restrictive level for a more sustained period of time.”
The Central Bank of Iceland key interest rate will remain at 9.25% at least until the next review. CPI inflation accelerated from 7.6% in July to 8.0% in September, but officials had raised their rate in August by 50 basis points to the current level. That move had been the fifth increase this year, totaling 325 basis points on top of 400 basis points of restraint imposed in 2022 and 125 bps of tightening in 2021.
Today’s data release menu overseas has featured retail sales and producer prices from Euroland and many composite and service sector purchasing manager surveys for September.
Euroland’s composite and services PMI readings were revised slightly higher but, at 47.2 and 48.7, remained below the 50 breakeven threshold. The orders sub-index dropped to a 39-month low, and pessimistic expectations attest to continuing weakness even though September PMIs were above August readings. France in particular in in the grip of a deepening downturn with both the composite and service sector PMIs at 34-month lows.
Japan‘s composite and service-sector PMIs fell to 3- and 2-month lows of 52.1 and 53.8 in September.
Britain‘s composite and service PMIs of 48.5 and 49.3 were their lowest since January and below 50 for a second consecutive time.
Russian composite and service PMI scores of 54.7 and 55.4 were at 2-month lows.
Sweden‘s services PMI dropped 2.1 points to a 3-month low of 46.3, and its composite PMI reading of 45.4 was at a 39-month low.
In Australia, the composite and service PMIs printed at a 4-month high of 51.5 and a 3-month high of 50.3, depicting weak but positive growth.
Singapore’s private PMI edged up 0.2 points to a 15-month high of only 50.1, whereas South Africa‘s private PMI dipped 1.1 points to a 2-month low of 49.9. Lebanon‘s private PMI also hovered near the 50 threshold at 49.1 but was almost 5 index points below July’s 10-year high.
South Korea’s manufacturing PMI of 49.9 was its highest reading in 15 months, and the non-oil PMI in the United Arab Emirates was at a 3-month high of 56.7.
Producer prices in the euro area jumped 0.6% in August, breaking a string of seven month-on-month declines, but year-on-year producer price deflation increased to -11.5%.
Retail sales volume in the euro area sank 1.2% in August and was 2.1% lower than a year earlier. Average sales in July-August were 0.6% softer than the second quarter mean.
The U.S. data menu today includes factory orders, ADP’s estimate of private employment growth last month, and September PMI surveys. Polish monetary policy is being reviewed.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Iceland, Euroland retail sales and PPI, Reserve Bank of New Zealand, Service-sector purchasing manager surveys
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