TGIF
December 15, 2023
After an exhausting but satisfying week that featured a more dovish message from the Fed, mounting hopes for a non-recessionary U.S. return to price stability from a high inflation, a slew of other central bank policy reviews, and a significant shift into riskier asset classes, Friday is a welcome site. The dollar rebounded more than 0.5% overnight against the euro and sterling but is flat against the yen. U.S. equities have steadied. In contrast to share price gains today of 2.8% in Hong Kong and 2.1% in Taiwan, the Shanghai composite index fell 0.6% fell 0.6% following softer-than-expected Chinese data for November.The ten-year U.S. Treasury index, which not long ago had touched 5.0%, dipped a basis point further to 3.91%, and even bigger yield drops occurred today in the U.K. and Germany. Oil relapsed 0.7%. Gold has firmed marginally.
Preliminary purchasing manager survey results for December out today put the U.S. economy in a favorable light, with a 5-month high of 51.0 and 51.3 in the composite and service sector indices offsetting a 4-month low of 48.2 in manufacturing. Euroland’s composite PMI fell to a 2-month low of 47.0, with the German and French readings of 46.7 and 43.7 representing 2- and 37-month lows, respectively. Japan’s composite PMI recovered to a 2-month low of 50.4 despite a further contraction in manufacturing whose index sank to a 10-month low of 47.7. The British composite PMI score of 51.7 beat expectations and constitutes a 6-month high. Australia’s preliminary composite PMI reading rose 1.2 points but was below the 50 threshold between expansion and deterioration for the fifth time in six months.
Among other data reports this Friday,
- U.S. industrial production rose by a smaller-than-forecast 0.2% in November after dropping 0.9% in October. A separate release of the Empire State manufacturing survey revealed a big adverse swing from +9.1 in September to -14.5 in October.
- In November, Chinese retail sales (+10.1% versus November 2022 and +7.2% in January-November), industrial production (+6.6% y/y and +4.3% year-to-date), and fixed asset investment (+2.9% ytd) undershot street expectations. A 0.2% year-on-year drop in Chinese property prices likewise underwhelmed investors and extended more than a half-year of listless results. A 5.0% jobless rate for a third straight month merely matched street expectations.
- Japan’s tertiary index of service sector activity fell 0.8% in October following a 1.2% drop in September. This resulted in the smallest year-on-year increase (1.3%) in ten months.
- French and Italian consumer price inflation slowed further last month to a 22-month low of 3.5% and a 33-month low of 0.7%, respectively.
- But labor cost inflation in the entire euro area reaccelerated from 4.5% in the second quarter to 5.3% in 3Q.
- Euroland’s seasonally adjusted surplus of EUR 10.9 billion in October exceeded the monthly average of EUR 7.8 billion in the third quarter. A EUR 27.6 billion January-October surplus compared to a EUR 308 billion deficit a year earlier.
In central banking news, the Bank of Russia lifted its benchmark interest rate by another full percentage point to 16.0% and predicted that a tight policy stance would be needed for quite a time longer. The rate has gone from 7.5% as recently as mid-2023. The war in Ukraine has gone from a series of early setbacks for Russian forces to a a stalemate that has stymied Ukraine’s counter-offensive, but the military improvement from Russia’s perspective has come at considerable economic cast. Russian consumer price inflation has accelerated from 2.3% last April to a 9-month high of 7.5% in November.
The Bank of Mexico late yesterday announced that its record high 11.25% interest rate since March would remain at that level. Such contrasts with the pandemic low of 4.0% maintained from January 2021 to June 2021. CPI inflation edged up to 4.32% in November. Although only half as much as the 22-year high of 8.7% posted in September 2022, monetary officials do not project inflation converging on the middle of their 2-4% target for about another year and a half.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, Bank of Russia, PMIs
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