Seemingly Contradictory Themes
February 20, 2024
Contradictory financial news headlines this Tuesday do not paint a consistent story.
For a couple of months, Fed watchers with encouragement from top FRS officials have been trying to discern when and how quickly interest rates will be lowered. Out of the blue today, there’s a headline that the highly credentialed economist and former Treasury Secretary Larry Summer predicting a 15% risk that the next rate move is up, not down.
Equities are mixed, with gains today of 0.8% in Indonesia, 0.6% in Hong Kong, Taiwan and Singapore, 0.5% in India, and 0.4% in China, but losses of 0.8% in South Korea, 0.7% in New Zealand and 0.3% in Japan to 38,364. The Nikkei has traced a cautionary tale for investors convinced that equities always appreciate in value over the long run. At 38,364, the Nikkei still lies 1.4% below its all-time closing high, and when might that record mark have been set? Answer is on the final trading session of 1989, over a third of a century ago. European equities are mostly up slightly, but U.S. stock futures are poised to open lower, with markets awaiting the earnings results to be announced later today by the likes of Home Depot and Walmart.
Ten-year sovereign debt yields have dipped marginally. WTI oil is elevated at $79/barrel amid continuing naval warfare in the Red Sea. Bitcoin has risen 1.0%, and gold’s price is 0.7% higher.
The dollar has lost a little ground and is hovering around a 3-week low against the euro.
Although again failing to rule out the possible future need for additional monetary restraint, Board minutes from the Reserve Bank of Australia published overnight express confidence that inflation now appears on a path that should restore 2-3% in-target inflation by next year but argue for more time and more reassuring data before beginning to trim the degree of monetary restraint.
There have been dovish remarks, too, from several Bank of England officials, dangling the probability of rate cuts later this year. In the euro area, meanwhile, evidence of lessening wage pressure in the final months of 2023 has surfaced.
The biggest central banking development of the day was the decision by officials at the People’s Bank of China to lower their 5-year Loan Prime Rate by a record 25 basis points to 3.95%. Analysts had anticipated an easing gesture but were looking for a cut of only 15 bps to buoy the economy’s increasingly troubled housing sector. Other actions had been taken recently such as a drop in the required reserve ratio, and markets had also been anticipating a drop in the other key mortgage rate benchmark, the one-year LPR. That rate instead was again left unchanged at the 3.45% level prevailing since a 10-basis point cut last August. The PBoC’s predisposition to promote healthier economic growth seemingly continues to be tempered by worries that stimulus could subject the yuan to unwelcome selling pressure.
Euroland’s current account surplus widened from EUR 82 billion in 2022 (equivalent to 0.6% of GDP) to 260 billion euros last year, equal to 1.8% of GDP. December’s unadjusted EUR 42.7 billion surplus was the largest in 33 months. A separate release from the common European currency area also beat expectations, showing December construction output rising 0.8% on month and 1.9% on year. Both increases were their largest since February 2023.
Canadian seasonally adjusted consumer prices dipped 0.1% in January, marking their first monthly decline in 44 months and depressing the 12-month rate of increase to a 34-month low of 2.9%. The half percentage point decline from 3.4% in December was accompanied by a 32-month low 2.4% rate of core CPI inflation, which was down from 2.6% in December and 4.7% last February.
Danish real GDP grew 2.0% in the final quarter of 2023, the fastest quarterly pace in ten quarters. Compared to a year earlier, growth accelerated 3.1% in the quarter but averaged 1.8% for 2023 as a whole, down from 2.6% in 2022 and 4.9% in 2021.
Switzerland’s trade surplus widened to a 3-month high of CHF 2.835 billion in January. Malaysia’s trade surplus of MYR 10.1 billion in January was its smallest in 44 months and down from a monthly average in 2023 of MYR 17.8 billion.
Dutch consumer sentiment improved to a 26-month high in February versus the record lows of -59 in September and October of 2022, but being negative still signaled more pessimism than optimism. In South Korea, consumer confidence improved slightly to a 6-month high in February. Brazil’s business confidence index printed above the 50 neutral level for a ninth straight month in February, albeit not as much so as in January.
Producer prices in Poland were a record 9.0% below year-earlier levels in January, and PPI inflation that month in Georgia remained negative (-0.7%) as such has been for the past year.
Unemployment in January stayed at 2.9% in Hong Kong for the fourth month in a row.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canadian CPI, Euroland current account, Larry Summers, Peoples Bank of China
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