Lower Bond Yields Takes Some Shine Off Dollar and Lends Stocks a Respite
October 24, 2023
Ten-year sovereign debt yields slid overnight by four basis points in Germany and Spain, three bps in Great Britain, France and Italy, and two basis points in Japan. The 10-year Treasury yield is holding onto yesterday’s closing level of 4.85%, 14 bps below last Thursday’s close.
The weighted DXY dollar index and bilateral dollar value against the euro slipped 0.3% overnight, while the yen is unchanged.
U.S. stock futures have recouped about a half percent in overnight trading. Share prices closed mixed in Asia, dropping 1.3% in India and 1.1% in Hong Kong (whose market was shut Monday) but advancing by 0.8% in China, 1.0% in Singapore and Indonesia, 1.1% in South Korea and 0.2% in Japan. Stock markets have recovered 0.7% in France and 0.3% in Germany and Italy. The ECB Governing Council meeting later this week is not expected to result in a further interest rate hike, especially after weaker-than-anticipated October purchasing manager indices reported overnight.
The strongest asset class overnight has been crypto. Bitcoin’s price jumped 4.6% on balance and got as high as $34,903 per token, which represents an 18-month high.
Israel still hasn’t launched its promised ground attack on Gaza, and developments in the U.S. House of Representatives have cast Republicans in an even more dysfunctional light than before. The lack of a House Speaker creates an extra dimension of uncertainty surrounding the various geopolitical flash points around the world.
Preliminary purchasing manager survey results have been reported for Japan, Euroland, Germany, France, Great Britain, and Australia. France among those reports was the only economy with a better composite PMI reading than expected. However, at 45.3 in October after a 34-month low of 44.1 in September and a score of 46.0 in August, the French survey still depicts a recessionary state. While French service sector activity printed at a 3-month high of 46.1, manufacturing dropped 1.6 additional points to a 41-month low of 42.6.
Germany’s composite and service-sector PMI readings of 45.6 and 48.0 fell to 2-month lows. Germany’s PMI among manufacturers rose to a 5-month high in October of 40.7, representing a severity of deterioration that was almost as great as July’s 38-month low of 38.8 reading.
For the entire euro area, this month’s preliminary composite PMI printed at a 35-month low of 46.5 and embodied sub-50 readings of 43.0 in manufacturing and 47.8 in service sector activities.
Great Britain‘s composite PMI score of 48.6 was at a 2-month high but below the 50 no change threshold for a third consecutive month. A service sector reading of 49.2 constitutes a 9-month low, and manufacturing posted an even lower score of 45.2.
Japan‘s composite PMI dropped 2.2 points and marginally below the 50 level to a 10-month low of 49.9 in October. Manufacturing remained at September’s 7-month low of 48.5, and services dropped to a 9-month low of 49.2.
The Australian composite PMI in October, a 21-month low of 47.3, further enhances to gloomy global economic picture. Manufacturing and services fell to 6- and 10-month lows of 48.0 and 47.6.
Purchasing manager surveys provide considerable information on inflation as well as economic activity. Inflation is receding. Euroland’s output price index, for example, dropped to a 32-month low. But inflation hasn’t returned to target, and labor markets lack the extent of slack needed to complete the mission of restoring price stability quickly particularly in a dangerous geopolitical environment that is ripe for further supply shocks.
Among other economic data reported this Tuesday, consumer confidence fell to a 7-month low this month in Germany but bounced off September’s six-month low in the Czech Republic to a 3-month high in October. Likewise, the Czech business sentiment index swung from a 30-month low of 89.4 in September to a 2-month high of 92.8 in October, which is still below the peak 2023 level of 98.0 recorded in April.
British labor market statistics for September revealed a much larger-than-forecast 20.4 thousand increase last month in jobless insurance claims, a 4.2% average jobless rate in June-August versus 3.8% in February-April, and slower but high rates of wage growth. Full compensation grew by 8.1% on year in June-August and by 7.8% excluding bonuses. The prior report released last month had put average weekly earnings growth at record highs of 8.5% overall and 7.9% for just regular pay. A 0.7% quarter-on-quarter rise in British labor productivity in the second quarter followed a 1.2% contraction in 1Q and was the biggest increase since +1.3% in the final quarter of 2021.
The Confederation of British Industries monthly industrial trends survey revealed the weakest orders index (-26) since February 2021.
South Korean producer price inflation rose to a 3-month high of 1.3%. Such had been as high as 10.0% in mid-2022.
South Africa’s leading business cycle index posted its largest month-on-month increase (0.4%) in 20 months. The index failed to rise between October 2022 and May 2023.
Still to come: Preliminary S&P Global U.S. purchasing manager survey results.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German consumer confidence, preliminary October 2023 purchasing manager survey results, South Korean PPI
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