Choppy Markets and Only a Few Data Reports
October 17, 2023
Investors are sifting through cross currents, worried about what may evolve in the Mideast but heartened by early corporate earnings news and hopes that central bank interest rates may be close to peak. Philadelphia Fed District President Harker opined that an additional interest rate hike now would be ill-advised. Equities rose in the Pacific Rim in extension of Monday’s higher closings. But share prices turned lower today in European trading, and U.S. stock futures are down somewhat as well as investors await U.S. data.
The ten-year Treasury yield rose six basis points overnight, matching the size of upward movement in its German, French, British and Spanish counterparts. The 10-year British gilt and Japanese JGB yields have risen three and two basis points.
The dollar is mixed. It’s largest rise has been a move of 0.6% against the kiwi, but it also has dipped 0.2% against the Australin dollar and 0.1% relative to the euro and rouble. Gains of 0.3% have occurred against sterling and the Mexican peso. The yen continues to hover in a tight range just south of 150 per dollar, suggesting continuing intervention support from the Bank of Japan.
Prices for WTI oil and bitcoin slid 0.2% and 0.4% below Monday closing levels, while gold has ticked up 0.1%.
There’s been no ground invasion of Gaza yet, as President Biden plans his trip to Israel and then Jordan.
The latest monthly investor sentiment surveys from the ZEW Institute suggest an inflection point in Europe’s mood may be at hand. Investor expectations about Germany printed at a 6-month high in October of -1.1, up from -11.4 in September and May’s 7-month low of -14.7. The perceived current situation remains bleak at a 38-month low of -79.9 but was only a half point weaker than in September. Hope springs from the downtrend in inflation and a belief that monetary tightening is close to being finished. Regarding the whole euro zone, expectations about the future printed in the black for the first time since April with a reading of +2.3 after -8.9 in September. Current conditions did drop to -52.9 from -42.6 in the prior month, but the reading for expected inflation has leveled off since July.
Inflation has been settling back more slowly in the U.K. than in other major economies. On-year average wage earnings growth in June-August eased a tad further but remained above the 8% threshold at 8.1% versus 5.8% recorded six months earlier. Even excluding bonuses, regular pay continues to outpace price inflation, suggesting that inflation may not fall as quickly as hoped in coming months.
New Zealand consumer prices advanced 1.8% on quarter in 3Q 2023, the most in a year, but year-on-year inflation, which crested at a 32-year peak of 7.3% in 2Q 2022 slid by an additional 0.4 percentage points to 5.6%.
Japan’s tertiary index, a gauge of service sector activity dipped 0.1% in August. July’s increase was revised upward to 1.1% and followed a 0.6% average advance in the second quarter. Compared to August 2022, the tertiary index was 1.9% higher.
Minutes from this month’s Reserve Bank of Australia policy meeting express concerns that prices in the services sector are proving sticky in the face of tighter monetary policy and that a lengthy spate of above-target inflation readings risks upward drift in price expectations. On the other hand, officials believe that much of the effects of their monetary tightening moves taken already remain in the pipeline, so they again opted not to raise interest rates this month. Future policy will hinge on the evolution of inflation and measures of price expectations.
Today’s menu of U.S. data releases features retail sales and industrial production and includes the National Association of Homebuilders index and Treasury-compiled capital flows.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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