Financial Markets Remain Unsettled in Wake of Powell and Biden Speeches
October 20, 2023
Despite conceding that officials are carefully monitoring the recent sharp increase in bond yields, Federal Reserve Chairman Powell’s message remained hawkish overall. Inflation is still too high, a restrictive stance will be needed for quite a while longer, and further rate hikes may be required. The U.S. economy has shown resilience in the face of tightening monetary conditions. That said, the Beige Book reported Wednesday had revealed only one of twelve districts (Dallas) to be growing solidly. Four districts experienced slight growth, four others saw modest weakness, and three stagnated.
President Biden delivered an impassioned speech that focused on the similarities between the Ukraine and Israeli geopolitical predicaments. He’s asking for the authorization of $100 billion of extra spending aid combined to support Ukraine, Israel, and address geopolitical tensions at the U.S. Mexican border and in East Asia. How Congress and the American people will react is muddied by the continuing failure of Congressional representatives to select a Speaker. A further wild card will be the unpredictable evolution of the Israeli-Palestinian conflict.
Share prices overnight fell 1.7% in South Korea, 1.2% in Australia and New Zealand, 0.7% in China, Hong Kong and Singapore, and 0.5% in Japan. Key European stock exchanges are down about 1%, and U.S. stock futures point to a drop at the opening.
Bitcoin’s price leaped 3.9% overnight, reflecting geopolitical tensions, and gold is hovering just $10 short of $2000 per ounce. With reduced Saudi and Russian production at least through yearend, WTI oil rose 0.5% and moved a tad above $90 per barrel.
The 10-year British gilt yield rose three basis points, but its U.S., German and French counterparts edged lower. The 10-year JGB yield stayed at 0.83%.
A slew of countries released price data today:
- Japanese consumer price inflation slowed slightly in September to a 1-year low of 3.0% overall, a 13-month low of 2.8% excluding fresh food, and a 3-month low of 4.2% when excluding costs for fresh food and energy. Energy posted the biggest 12-month decline in 87 months, but food price inflation was its highest in almost a half century.
- German producer prices dipped 0.2% on month, yielding a 14.7% 12-month rate of decline. That’s the most deflationary result in 74 years and represents a dramatic swing from +45.8% in August-September 2022.
- CPI inflation in Hong Kong rose 0.2 percentage points to a 3-month high of 2.0% last month.
- Producer prices became less deflationary in the Baltic countries last month, printing at a 2-month high of -7.9% in Latvia and a 3-month high of -2.6% in Estonia.
- Irish wholesale prices fell 0.9% on month and 2.6% on year in September.
- Having set a record high of 22.5% in May 2022, consumer price inflation in Slovenia continued to slow last month, halving to 1.0% from 2.1% in August and 4.1% in July.
- A 3.3% on-year drop in Georgian producer prices last month matched August’s result. A record high marginally above 20.0% was hit at the end of 2021.
- Moroccan CPI inflation edged 0.1 percentage point lower to 4.9% in September.
British consumer confidence sank nine index points to a 3-month low of -30 in October. British retail sales dropped by 0.9% on month in September, but a 1.0% decline from a year earlier was the smallest slide in 18 months. The British public sector deficit was smaller last month than analysts were anticipating.
Belgian consumer confidence this month remained unchanged from September’s 20-month high but still in pessimistic territory with a sub-zero reading of -5.
To the north of the United States, Canadian retail sales dipped 0.1% on month and rose by a diminished 1.6% on year in August, and preliminary indications point to more stagnation in September. In the U.S. southern neighbor of Mexico, retail sales also underperformed expectations, sliding 0.4% on month and rising 3.2% on year.
Companies are being discouraged from doing business in China by Xi’s increasingly nationalistic policies and by U.S. President Biden’s industrial policy of incentives to promote domestic manufacturing. Chinese foreign direct investment, which had been 25.6% greater than a year earlier in the first quarter of this year, posted an 8.4% on-year drop in January-September. In spite of drags from net exports and construction, Chinese data earlier this month surpassed market expectations for the most part. Consequently, markets were not surprised when officials at the People’s Bank of China decided to leave its 1-year and 5-year loan prime rates unchanged at this month’s fixing. the former has been at a record low of 3.45% since a 10-basis point cut two months ago, and the latter rate of 4.20% was last cut in June but 10 basis points.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales and consumer confidence, German PPI, Japanese CPI, Jay Powell speech, Joe Biden speech, Peoples Bank of China
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