Dueling U.S. Economic and Political Concerns
February 29, 2024
Markets today are most focused upon inflation, with investors and analysts expected the U.S. PCE price deflator due shortly to arrive on the high side.
For political wonks, however, the paramount issue involves America’s failed immigration system and the dysfunctional Congress that won’t address the problem. Migration favors Trump’s quest for reelection, which if successful has profound policy implications and therefore would become the paramount driver of global financial markets.
In overnight market action, the dollar advanced 0.2% against the Swiss franc and 0.1% relative to the euro, Swiss franc and sterling. Bitcoin’s value is 5.3% stronger than 24 hours ago and just 9% from the all-time high in November 2021. The price of oil rose 0.4% overnight, while gold dipped by 0.2%.
Ten-year sovereign debt yields are higher in anticipation of the U.S. release of personal spending and the PCE price deflator, not just in the U.S. Treasury (+4 basis points) but also in the U.K. (+7 bps), Italy (+6 bps), France (+5 bps), Germany (+4 bps) and Japan (plus one basis point).
U.S. stock futures have traded 0.3% lower in pre-open action. In the Pacific Rim, share prices declined 0.4% in South Korea and 0.1% in Japan but rebounded 1.9% in China. European stock markets are narrowly mixed.
Among other price data already reported today,
- French consumer price disinflation extended to a 25-month low in February of 2.9%, but the monthly 0.8% rise of consumer prices was the most in a half year. French producer price deflation of -5.1% in January, however, was its most pronounced since 2009.
- German CPI inflation of 2.5% this month printed slightly below expectations and constitutes a 32-month low. Food prices were just 0.9% above February 2023’s level, and energy recorded a 2.4% year-on-year drop. Core consumer price inflation of 3.4% matched January’s 18-month low but remained well above the inflation target of 2.0%.
- Spanish consumer price inflation fell back 0.6 percentage points to a half-year low of 2.8% but, like Germany, was associated with 3.4% core inflation.
- Sri Lankan consumer price inflation, which soared to a record high of 69.8% in October 2022 but then plunged to as low as 1.5% a year later, had rebounded to 6.4% by January 2024 but settled back to 5.9% this month.
- Over the 12 months between January 2023 and last month, producer prices fell 14.2% in Bulgaria, 7.2% in Austria, and 1.5% in Estonia, while rising 4.7% in South Africa and 2.0% in Singapore.
Just In: U.S. January personal income, personal spending & PCE price deflator (the week’s most eagerly awaited economic data release): The biggest surprise in this report from the Commerce Dept Bureau of Economic Analysis was a 1.0% leap in personal income, more than twice above analyst forecasts. Personal spending growth slowed sharply, however, to an as-expected 0.2% (-0.1% when adjusted for inflation), and the price data also matched expectations. The PCE price deflator went up 0.3% in January, most since September, but its 12-month change fell 0.2 percentage points to a 36-month low of 2.4%. The core PCE price deflator, although recording the largest month-on-month advance (0.4%) in a year was associated with a 34-month low year-on-year 2.8% pace, which met analyst expectations.
U.S. jobless insurance claims last week increased 13k to a 3-week high of 215k.
Fourth-quarter GDP data were reported by a number of countries today:
- Swiss GDP grew by a faster-than-presumed 0.3% quarterly and not annualized, but last quarter’s level was only 0.6% higher than in 4Q 2023. That helped depress average growth to 0.8% in 2023, down from 2.7% in 2022 and 4.2% in 2021.
- Turkish real GDP advanced 1.0% on quarter and 4.0% on year, both exceeding analyst expectations. GDP growth averaged 4.5% in 2023.
- Swedish GDP recorded a third straight quarterly decline, resulting in year-on-year declines of 0.2% in both 4Q and 2023 as a whole.
- Austrian GDP flat-lined last quarter, its fourth time in five quarters to not show any positive growth. GDP was 1.7% below the level in 4Q 2022 and also posted negative 0.8% for full 2023, down from 4.8% in 2022.
- Finnish GDP fell 0.7% on quarter and 1.8% on year. Average growth last year was -1.0% after +1.3% in 2022 and +2.8% in 2021.
- French GDP growth got revised up 0.1 percentage point to +0.1% in 4Q, but year-on-year growth of 0.7% that quarter and 0.9% in 2023 were each less than 1.0%.
- Portuguese GDP rebounded 0.8% last quarter, lifting the year-on-year advance to 2.2% in line with an average 2023 growth rate of 2.3%.
- Icelandic GDP rose 0.9% in 4Q after tumbling 2.5% in 3Q. Year-on-year growth last quarter was only 0.6%, down from 2.1% in 3Q and 4.5% in the final quarter of 2022.
- While the once-envied Chinese economy is no longer experiencing stratospheric economic growth, rival India picked up more momentum last quarter. GDP was 8.4% above a year earlier, its fastest pace in a year and a half and up from 7.6% in 3Q and 4.5% in the final period of 2022.
Several key Japanese economic indicators got reported on this bonus day of leap year 2024. Retail sales trimmed part of December’s 2.9% plunge, bouncing back 0.8% to post a 2.3% year-on-year increase in January. However, industrial production plummeted by a 44-month high of 7.5% last month and was 1.5% below its year earlier level. Housing starts were down 7.5% year-on-year, while construction orders exceeded their January 2023 level by 9.1%.
The appetite for spending of German consumer again proved disappointing in the first month of 2024. Retail sales posted a third straight monthly slide, this time of 0.4%. But the year-on-year decline of 1.4% was well below the average 3.3% drop in full 2023. A separate German data report on its labor market revealed a bigger-than-anticipated 11k increase in the number of jobless workers and an unchanged 5.9% unemployment rate, match the most in 33 months.
Canadian GDP expanded 0.2% (1.0% annualized) between the third and fourth quarters of 2023. That was the fourth weak quarter in the past five and resulted in year-on-year growth of 0.9%, down from 2.2% in the final quarter of 2022. Monthly Canadian GDP measured from the supply side was unchanged in December and just 1.1% above its year-earlier level. Within that report, industrial production fell 0.3% on month and recorded only a 0.6% rise compared to the final month of 2022.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German CPI and retail sales, India GDP, Japanese retail sales and industrial production, Swiss and Swedish GDP, Turkish GDP, U.S. PCE price deflator
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