Mideast Tensions Flare and Long-Term Interest Rate Spreads Widen
January 12, 2024
As warned previously, U.S. and British retaliatory air strikes on Houthis targets in Yemen were carried out to avenge previous Houthis attacks on commercial ships in the Red Sea. The price of WTI oil leaped 3.6% overnight on fears of a widening war in the Middle East.
While the 10-year U.S. treasury yield climbed three basis points overnight, such sovereign debt yields in Germany, France, Spain and Italy fell by three basis points, and comparable yields in Japan and Great Britain dipped by 2 basis points.
U.S. stock futures were about a half percent lower shortly before today’s release of U.S. producer price figures. Share prices closed up 1.5% in Japan and 1.2% in India, but fell by 0.6% in South Korea, 0.4% in Hong Kong, and 0.2% in China and Taiwan. In Europe, equities have risen 0.6-0.7% so far in Germany, Spain, Italy and Great Britain.
The price of gold has risen 1.7%, but bitcoin tokens cost 1.4% less.
The dollar remains narrowly mixed, having risen 0.3% euro and 0.2% versus the Swiss franc and sterling overnight but edging 0.1% lower against the yen, peso, and kiwi. The Turkish lira touched a new record low of 30.4031 per dollar.
China, Japan, and the U.K. each released several economic indicators today.
Chinese consumer price inflation failed to be positive for the sixth time in the past 7 months. The 12-month 0.3% rate of CPI decline in December was not quite as steep as November’s -0.5%, which had been the most in about 3 years. CPI inflation averaged 0.2% in 2023, down from 2.0% the year before.
Chinese producer prices dropped 2.7% on year in December, similar to the 2023 average PPI decline of 3.0%.
New yuan loans in China of CNY 1.17 trillion were fewer than forecast but the most since September. On-year growth in the stock of M2 money slowed further to a 21-month low of 9.7%.
China’s trade surplus widened in December to a 3-month high of $75.34 billion and totaled $823 billion last year.
Japan’s current account surplus of 1.926 trillion yen in November was 8.7% wider than a year earlier but the seasonally adjusted JPY 835 billion surplus was substantially less than the JPY 2.622 trillion surplus in October.
Although Japan’s economy watchers index rose above the 50 neutrality level in December for the first time since August, the forward-looking outlook indicator slipped 0.3 points to 49.1 in the final month of 2023.
Bank lending growth in Japan slowed marginally to 2.9% last quarter from 3.0% on year in the third quarter.
British monthly GDP growth accelerated to 0.3% in November but the 3-month average year-on-year pace was -0.2% versus +0.2% in June-August. British industrial production rebounded just 0.3% in November after four consecutive negative month-on-month readings and was 0.1% below its year-earlier level. Construction output fell 0.2% on month and posted the smallest year-on-year increase (0.9%) since May. Britain’s merchandise trade deficit of GBP 14.2 billion in November was its smallest in eight months, and the goods and services deficit narrowed sharply to GBP 1.408 billion from GBP 3.998 billion in the prior month.
Whereas the U.S. December CPI report yesterday revealed a slightly greater-than-forecast inflation rate, producer prices out a short while ago unexpectedly posted a third straight monthly decline (-0.1% as in November and after -0.4% in October). The year-on-year PPI inflation pace of 1.0% was consequently lower than forecast and just 0.2 percentage points above November’s 5-month low of 0.8%. Excluding food, energy and trade, PPI inflation ticked only 0.1 percentage point higher to a benign 2.5%.
Among other data reported this Friday,
- Turkey’s current account deficit of $2.722 billion in November was the widest since July, and on-year retail sales growth in Turkey fell to a one-year low of 12.8%.
- Final estimates for French and Spanish consumer price inflation last month was left unrevised at 3.7% and 3.1%, respectively.
- French household spending (+0.7%) posted its largest rise in November since June.
- Consumer price inflation in India accelerated slightly to a 4-month high of 5.69% in December but still below last July’s 15-month high of 7.44%. On-year growth in Indian industrial production dropped to 2.4% in November from 11.4% in October.
The Central Reserve Bank of Peru implemented a fifth straight 25-basis point cut in its interest rate benchmark which now stands at 6.5%, but the released statement explaining the action once again warned that “this decision does not necessarily imply a sequence of interest rate reductions.” CPI inflation in Peru has decelerated from a 299-month high of 8.81% in June 2022 to 3.24% last month. Official policy targets inflation at a narrow band around 2.0%. Future decisions will hinge on “new information about inflation and its determinants.” The interest rate’s pandemic low of 0.25% was maintained from April 2020 to August 2021 but followed by increases totaling 225 basis points in 2021, 500 bps in 2022, and a culminating 25-basis point hike in January 2023.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British industrial production and trade balance, Chinese CPI, Japanese current account, PPI and trade balance, U.S. producer prices
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