Continuing Pivot Back Into Equities
December 19, 2023
Two themes are dominating financial markets today: 1) speculation that major central banks will cut interest rates next year sooner and by more than now signaled and 2) Chinese debt service strains.
Share prices in Japan on Tuesday rose 1.4% in Japan after the Bank of Japan Board unanimously agreed not to change its ultra-loose policy stance. The BOJ’s short-term interest rate has been at negative 0.1% since January 2016, and the target for the 10-year JGB yield was also left unchanged at “around 0%.” Wage growth hasn’t kept up with inflation, creating some doubt that core CPI inflation will sustainably stay at or above 2.0%. GDP is expected to growth only moderately. Housing has been weak, government spending has been flat, and exports and industrial production are also performing not as well as hoped.
Elsewhere in the Pacific Rim, share prices closed up 1.0% in Indonesia, 0.8% in Australia but just 0.1% higher in China and South Korea. The British Ftse and Paris Cac are unchanged, but the German Dax and U.S. stock futures have firmed 0.4% and 0.2%.
There is a report that a developer in the southern Chinese city of Shenzhen may be able to make a debt service payment due tomorrow.
Ten-year sovereign bond yields fell overnight by six basis points in Germany, five bps in Japan, four bps in the United States and three bps in Great Britain. Prices for Bitcoin and oil are down 0.8% and 0.4%.
Minutes from this month’s earlier Reserve Bank of Australia policy review, which left the Official Cash Rate unchanged, stress a desire to see more data before deciding if the interest rate needs to be hiked further.
Revised Euroland consumer price data changed the November month-on-month decline of the total CPI to 0.6% from 0.5% measured initially, but the year-on-year inflation rate held steady at +2.4%. That’s a half percentage point less than 2.9% in October and far below 10.1% in November 2022 and the crest of 10.6% in October of last year. Service sector prices slumped 0.9% below their October level. Energy prices were 11.5% below a year earlier, while food price inflation of 6.9% was just half as much as in November 2022.
The orders component of the CBI monthly survey of British industrial trends rose 10 points to a 3-month high in December but at -23 was negative in sign for the eighteenth straight time.
The Swiss trade surplus of CHF 2.014 billion in November was the smallest in a year. The year-to-date surplus of 34 billion francs was down from CHF 42.9 billion a year earlier and CHF 54.8 billion in the first 11 months of 2021.
Canadian consumer price inflation in November printed above expectations at an unchanged 3.1%. That’s above the recent low point of 2.8% in June but below 6.8% in November 2022 and the 39-year high of 8.1% in June 2022. Producer price inflation stayed in the red at -2.3% last month after -2.6% in October and its most negative reading of -5.7% this past May. Officials do not anticipate a drop to 2% for considerably longer.
U.S. housing starts leaped nearly 15% on month to a half-year high of 1.56 million at an annualized rate.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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