Intensifying Equity Correction and Much Fresh Data to Absorb
January 17, 2024
The optimistic investor mood of late 2023 has evaporated. Hawkish central banker-speak has quelled hopes for an early start to the unwinding of tight monetary policy stances, and markets are also concerned about China’s economic performance, Former President Trump’s reelection prospects, and the risks of a full-blown multi-front war in the Middle East and rising tensions between Beijing and Taipei.
Share prices in the Pacific Rim closed this Wednesday with losses of 3.7% in Hong Kong, 2.5% in South Korea, 2.2% in India, 2.1% in China, 1.3% in Singapore, 1.1% in Taiwan. In Europe so far today, stock markets in Germany, Britain, France, Italy, and Spain range from -0.9% to -1.6%. By comparison, the 0.3-0.4% downtick in U.S. stock futures and the Japanese and Australian stock exchanges today were mild.
Propelled by an unexpected rise in British CPI inflation last month, the 10-year British gilt yield leaped 12 basis points. The 10-year U.S. Treasury yield moved another 2 basis points upward and, at 4.08%, bringing the rise since December 27th to 29 basis points. Comparable sovereign debt yield rises overnight in continental Europe amount to 4 bps in Italy, 3 bps in France and Spain, and 2 bps in Germany. Japan’s 10-year JGB yield is also two basis points higher.
The dollar appreciated overnight by 0.2-0.4% against the Japanese, Swiss, Australian, Japanese and Canadian currencies. Alternatively, the dollar is unchanged against the euro and 0.4% weaker against sterling, which got a boost from British price data.
Prices for Bitcoin and oil are down by 1.0% and 1.9% today, but gold is steady.
A 0.4% month-on-month increase in British consumer prices exceeded analyst expectations of +0.2%, resulting in a year-on-year inflation uptick to 4.0%, from the 20-month low of 3.9% in November. British core CPI inflation stayed at 5.1% instead of dipping under the 5% psychological threshold as had been anticipated. British producer price figures were more benign but disregarded by markets. The producer output price index fell more sharply on month (-0.6%) than anticipated, and producer input prices posted the largest on-year decline (-2.8%) last month since July.
Regarding Euroland, CPI inflation in December was unrevised from the preliminary estimates (+0.2% month-on-month and +2.9% year-on-year) reported early this month. 2.9% was a half-percentage point higher than November’s 2-year low and accompanied by a core CPI inflation reading of 3.4%, which remains well above the European Central Bank’s 2.0% objective. ECB President Lagarde, speaking at the World Economic Forum today, underscored that more progress in reducing inflation has to be achieved before Bank officials will be satisfied but also dangled the possibility of a rate cut by the second half of this year.
A bunch of Chinese economic data, including fourth quarter GDP (+1.0% versus 3Q and +5.2% year-on-year) failed to assuage investor concerns or clarify whether more monetary stimulus may be forthcoming. Chinese GDP grew 5.2% in 2023 as a whole, which was a bit less than the government had targeted. Among other reported data for December, on-year retail sales growth slowed to 7.4% from 10.1% in November and averaged just 7.2% in 2023 as a whole. Industrial production was 6.8% above December 2022’s level but posted a 2023 average increase of just 4.6%. Fixed asset investment increased 3.0% in 2023, down from 5.1% in the previous year. Capacity utilization last quarter of 75.9% was the most in two years but barely above 75.7% in the final quarter of 2022. Property prices recorded a 0.4% on-year slide in December, worst since March, and unemployment ticked 0.1 percentage higher in December, breaking a 3-month streak of 5.0% readings.
Price data other than those from the U.K. that were reported today include
- A reconfirmed 5.6% CPI inflation rate in Austria last month, up from November’s 27-month low of 5.3% but down from the record 11.2% last January.
- A two-year low in Slovakian consumer price inflation of 5.9%; such crested in December 2022 at a 279-month peak of 15.4%.
- A five-month low in Cypriot CPI inflation in December, down from a 491-month peak of 10.9% in July 2022.
- Czech producer prices fell 0.5% on month in December, but the 12-month rate of increase nearly doubled to a 4-month high of 1.4%.
- U.S. import prices recorded a 12-month drop for the eleventh straight month, and the decrease of 1.6% between December 2022 and last month was steeper than generally anticipated. Import price deflation has been fostered by lower energy prices and the buoyant dollar.
Other U.S. data releases this Wednesday included nominal retail sales, which went up 0.6% on month in December (about 50% faster than anticipated) and 5.6% on year, the most since last January and well above the 3.2% average increase in all of 2023. U.S. mortgage applications, which had swooned 10.7% in the final week of December, opened the new year with back-to-back weekly advances of 10.4% and 9.9%. Industrial production remained weak in December for a fifth straight month; an uptick from the prior month of 0.1% followed no change in both August and November, a 0.8% drop in October and a rise of 0.1% in September. Industrial production was just 1.0% higher than at the end of 2022, while the 78.6% rate of capacity utilization was unchanged from November and 0.9 percentage point less than in September.
Among central banking news other than ECB President Lagarde’s aforementioned speech, Bank Indonesia’s 6.0% benchmark interest rate was left unchanged at the first policy review of the new year. The last rate change was a 25-basis point increase in October. Such followed a 25-bp hike in January 2023 and 200 basis points of tightening during the second half of 2022. The pandemic era interest rate low of 3.5% was maintained for a year and a half from February 2021 to August 2022. Indonesian inflation is targeted at 1.5-3.5% and ended last year close to mid-range at 2.6%. Core inflation of 1.8% is even lower, the rupiah has been sufficiently stable, and the current account imbalance’s size is manageable.
The Fed’s Beige Book of recent regional economic trends will be published later today at 14:00 EST (19:00 GMT).
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, British CPI and PPI, Chinese GDP, Chinese retail sales and industrial output, U.S. retail sales and industrial production
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