U.S. CPI, Russian Capital Controls & Revealing Minutes From the ECB Governing Council Meeting
October 12, 2023
The dollar largely marked time prior to the 08:30 EDT release of U.S. consumer price data, losing 0.2% versus the Swiss franc, dipping 0.1% against the yen and as measured by the weighted DXY index, holding unchanged against the euro and sterling but advancing 0.1% against the Canadian and Australian dollars. The biggest move was a 0.5% against the Russian ruble following the imposition of some new Russian capital controls, which also resulted in a 1.0% drop of the Russia’s MOEX equity index.
On other stock exchanges, share prices climbed 1.9% in Hong Kong, 1.8% in Japan, 1.2% in South Korea, and 0.9% in China and Taiwan on continuing speculation about a coming Chinese infrastructure spending package. European share prices are up around a half percent, as were U.S. stock futures prior to the Labor Dept. release of CPI figures.
Prices for gold an oil had risen 0.5% and 0.2% overnight. Bitcoin was 0.2% softer.
U.S. consumer price figures, like yesterday’s PPI report, topped expectations slightly. Overall consumer prices went up 0.4% in September versus a 0.3% consensus forecast, and such left the 12-month rate of increase unchanged at August’s 3-month high of 3.7%. Inflation had previously receded from 9.1% in June 2022 to 3.0% one year later. Energy prices rose 1.5% on month in September, and non-energy services prices accelerated to a 0.6% monthly increase from 0.4% in both July and August. On a brighter note, food prices again were just 0.2% more expensive on month, and core consumer price inflation that excludes food and energy, fell to a 24-month low of 4.1% from the 40-year peak of 6.6% in September 2022. In a separate U.S. data release today, new jobless insurance claims in the first week of October stayed at the very low 209k level, which depressed its four-week average to an eight-month low.
The dollar and U.S. stock futures did have an immediate significant reaction to the CPI report. The 10-year Treasury yield, which previously had been hovering around Wednesday’s 4.56% closing level, rose four basis points after the CPI news. European 10-year sovereign debt yields essentially kept pace with that increase, but their Japanese counterpart earlier in the day had closed a basis point softer.
Monetary policymakers at the European Central Bank and the Federal Reserve face similar situations, but oftentimes minutes from the ECB can be more revealing (insightful) about what’s really cooking. Today’s minutes from the September ECB meeting indicate that the decision then to raise key rates another 25 basis points emerged from a closely contests weighing of pros and cons and was ultimately done in order not to convey the appearance of compromise in the mission to return inflation to target not later than 2025. Policy is supposed to be data-driven, and the data since the previous meeting had not made a compelling case to raise rates further in September. Released updated macroeconomic forecasts had similarly been consistent with the desired inflation path. There is evidence too that the transmission of monetary policy changes is occurring quite efficiently. But officials aren’t convinced that wage disinflation will be sustained, and it was noted that market interest rates showed expectations that the central bank rates would go higher. ECB officials worried about how not raising rates might affect disinflationary expectations.
Among data reported overseas before the U.S. open, Japanese core domestic machinery orders (-0.5% month-on-month and -7.7% year-on-year) were weaker than predicted, foreign orders for machinery sank 7.1% on month and 11.6% on year in August. A 0.3% drop in Japanese domestic private producer prices last month reversed the prior month’s advance and resulted in a 30-month year-on-year PPI low of 2.0%. Import price inflation swung from +48.7% a year ago to -14.0% last month.
British data releases today included a 14-year low in the Royal Institute of Chartered Surveyors’ monthly housing index, steeper-than-forecast monthly drops of 0.7% in industrial production and construction output in August, an as-expected 0.2% uptick in August GDP, the smallest merchandise trade deficit in two months (15.95 billion pounds in August, but a three-month high in the goods and services combined deficit of GBP 3.42 billion, which also was the ninth consecutive deficit result.
Reported price data besides the aforementioned U.S. CPI and Japanese PPI figures showed
- A 19-month low in Romanian CPI inflation of 8.8%, down from a 236-month peak of 16.8% last November.
- A 4-month high in Irish CPI inflation of 6.4% in September compared to June 17-month low of 5.8% and a peak of 9.2% last November.
- Portuguese CPI inflation slid 0.1 percentage point to a 2-month low of 3.6%, having peaked at 10.1% in October 2022.
- Serbian CPI inflation of 10.2% in September remained in double digits but fell to a 17-month low and six percentage point below the record high of 16.2% touched a half year earlier in March.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British trade and industrial production, ECB minutes, Japanese machinery orders and PPI, U.S. CPI
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