Reevaluating Scope for Lessening Monetary Restraint
January 9, 2024
Ten-year sovereign debt yields climbed five basis points overnight in Germany, France and Spain and by four bps in the United Kingdom. The 10-year Treasury yield is unchanged from Monday’s 4.03% closing level but 24 basis points higher than its close on December 27th.
Inflation around the world has fallen significantly below peak, but doubts keep percolating about whether and when price targets will be fully restored. U.S. December consumer and producer price data will be reported later this week. Compared to a Fed target of 2.0%, the November core PCE price deflator was 3.2%. U.S. core consumer price inflation has leveled off at 4.0%, and the disinflationary base effect of lower energy prices is fading. Euroland core CPI inflation is even further from target at 3.4%. December consumer price inflation in Tokyo excluding food and energy, which was released today, printed at 3.5%, bringing the Bank of Japan closer to the start of policy tightening. This has lifted the Nikkei-225 stock index which gained 1.2% today after being closed yesterday.
But elsewhere, Monday’s rise in equities around the world has been shortlived. The Dow opened 200 points lower, and share prices in Europe are down particularly in Madrid where the drop so far today totals 1.9%.
The price of bitcoin is marginally higher, and those of oil and gold are up 2.3% and 0.5%.
The dollar was narrowly mixed in overnight trading.
U.S. small business sentiment improved to a five-month high last month. The U.S. goods and services trade deficit of $64.26 billion in November was similar to shortfalls of $63.31 billion in October, $64.48 billion in September and $63.82 billion in November 2022, but the year-to-date $718 billion gap was 18.4% smaller than in the first 11 months of 2022.
Among other data announcements, Canada’s trade surplus in November of C$ 1.566 billion was less than forecast and only half the size of October’s C$ 3.197 billion. France posted a EUR 2.778 billion current account deficit in November, bringing the January-November gap to EUR 32.4 billion compared to EUR 44.6 billion a year earlier.
The unemployment rate in Euroland unexpectedly returned to June’s record low of 6.4% in November after four straight months at 6.5%.
German industrial production dropped again in November, this time by 0.7% compared to analyst prediction of a slight uptick. Not since April 2023 has a monthly rise in production occurred in Europe’s largest economy, and November’s year-on-year 4.8% slide was the most in 33 months.
Swiss retail sales rose 0.7% both on month and year-on-year in November. That was the first 12-month rise since June.
Overall and core consumer price inflation in Switzerland printed at 1.7% in December. That marked a 2-month high in total CPI and a 5-month high in the underlying data series.
Same-store sales in the U.K. slowed to a 5-month low 1.9% last month, according to the British Retail Consortium.
Japanese household spending dropped 1.0% on month and 2.9% on year in November, exceeding street forecasts.
Mexican consumer price inflation rose 0.3 percentage points to a 3-month high of 4.66% last month. That’s still down from 8.7% in September 2022, and core inflation in Mexico continued to ebb, reaching a 27-month low of 5.1% in the final month of 2023.
The National Bank of Poland‘s policy interest rate was left unchanged at 5.75% at the January review. From a pandemic low of 0.1% through October 2021, the rate was hike 165 basis points to 1.75% during the last quarter of that year and to a peak of 6.75% by September 2022. Easing began in September 2023 with a 75-basis point reduction and followed a month later by a further 25 basis points to the present level. Polish CPI inflation of 6.1% current remains well above a target centered on 2.5%, and policy easing has been on hold in recent months.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland unemployment, National Bank of Poland, U.S. and Canadian trade balances, U.S. small business sentiment
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