Softer Dollar and Sovereign Debt Prices as Central Banks Not Rushing to Ease but Equities Showing Some Resilience
February 7, 2024
The dollar slid overnight by 0.3% against sterling and 0.2% relative to the euro, Canadian dollar and as measured by the DXY weighted index.
A further rise in sovereign debt yields today — 4 basis points in British 10-year gilts, 3 basis points in 10-year U.S. Treasuries, and 2 basis points in German, French, Italian and Spanis comparable assets — has depressed long-term fixed asset prices.
Equities so far in Europe are down 0.4% in the U.K., 0.2% in Germany and Italy, and 0.8% in Spain. But led by rises of 1.4% advance in the Shanghai Composite and 1.3% in the South Korean Kospi, Pacific Rim stock markets showed resistance to downward pressure, and U.S. major indices have held generally steady in pre-open trading.
The price of West Texas Intermediate oil climbed 0.8% overnight, while there’s been hardly any net movement in crypto or gold.
Central Banks in Iceland in Thailand left interest rate benchmarks unchanged. The more interesting of these cases involves the Central Bank of Iceland, where officials kept their 7-day deposit rate at 9.25%. This level still represents its highest since March 2010 and was reached a half year ago when a tightening sequence of 125 basis points in 2021, 400 bps in 2022, and 375 bps in 2023 was culminated. A statement explaining today’s rate inaction typifies the caution of many central banks around the world. Officials concede that Iceland’s growth has slowed faster than anticipated, note that inflation is slowing, and project a shrinking output gap. CPI inflation crested a year ago at 10.2% and has dropped so far to a 23-month low of 6.7%. However,
Long-term inflation expectations are virtually unchanged and remain above target. Although labor market tightness has eased somewhat, pressures remain. As a consequence, inflation could remain persistent. Furthermore, there is uncertainty about the results of the ongoing wage negotiations and about possible fiscal measures relating to the wage negotiations and the seismic unrest in the Reykjanes area.
The Bank of Thailand’s decision to retain a 2.5% interest rate benchmark had been expected. As in Iceland, there hasn’t been a rate cut yet in Thailand. From a pandemic low of 0.50% maintained from May 2020 until August 2022, the central bank key rate underwent eight 25-basis point rate hikes, the last of which was done in September 2023. Economic growth in Thailand slowed late last year due to slackening export demand, which prompted monetary officials to revise projected growth this year slightly lower. Year-on-year CPI inflation, which had crested at 7.9% in October 2022, has been negative since October 2023, and the latest reading of -1.1% was the biggest 12-month drop in 35 months.
Among data reported this Wednesday, German and Spanish industrial production each fell on month during December. Germany output dropped 1.6% (many times greater than forecast), while Spanish production eased 0.3%. Compared to December 2022, German production fell 3.0%, while Spain’s output edged 0.2% lower.
Italian retail sales dipped 0.1% in December and were only 0.3% above their end-2022 level.
The French current account deficit narrowed in 2023 to EUR 34.6 billion (or roughly 1.3% of GDP) from EUR 52.2 billion (2.0% of GDP) in the previous year.
Switzerland’s jobless rate rose from 2.0% in October to a 23-month high of 2.5% last month.
A 1.3% jump last month in Britain’s Halifax house price index lifted its 12-month change to a one-year high of 2.5%, 7 percentage points above the 4.5% on-year drop last September.
Austrian wholesale prices fell 3.8% year-on-year in January, while a 1.4% monthly surge in Estonian consumer prices raised the on-year inflation rate there by 0.7 percentage points to 4.7%.
Japanese and Chinese international reserves respectively fell in January by $2.8 billion to $1.292 trillion and by $19 billion to $3.219 trillion.
Led by EVs, Chinese on-year motor vehicle sales growth accelerated to 47.9% in January. Japan’s indices of leading and coincident economic indicators rose in December to 15- and 40-month highs.
The unemployment rate in New Zealand rose last quarter to a 10-quarter high of 4.3%. Wages and salaries were 4.3% higher than a year earlier.
Mexican consumer confidence rose 0.3 ticks to a 2-month high of 47.1 in January.
The U.S. goods and services trade deficit narrowed 18.7% last year to $773.4 billion from $951.2 billion in 2022. There was little change in the gap’s size between $61.9 billion in November and $62.2 billion in December. U.S. mortgage applications rose last week for the fourth time in five weeks and on balance have jumped 21% over that whole span.
Canada’s merchandise trade balance swung from a C$ 19.7% billion surplus in 2022 to a small deficit of C$ 1.4 billion last year as a result of exports shrinking 1.4% and imports rising 1.4%. The December balance was unexpectedly in deficit (-C$ 312 million) for the first time since July.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Thailand, Central Bank of Iceland, German industrial production, U.S. and Canadian trade balances
ShareThis
