Much to Absorb This Wednesday
March 6, 2024
Fed Chairman Powell’s semi-annual Humphrey-Hawkins testimony before the House Financial Services Committee begins today at 10:00 EST ((15:00 GMT). The Fed’s website already has published a summary of his opening statement.
We believe that our policy rate is likely at its peak for this tightening cycle… The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. ongoing progress toward our 2 percent inflation objective is not assured. Reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy to get inflation back to 2 percent. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.
Central banks in Egypt and Uganda raised their interest rates earlier today. Although Egyptian consumer price inflation decelerated from 38% in September to 29.8% four months later, officials at the Central Bank of Egypt raised their interest rate by 200 basis points in February and augmented that action at an unscheduled meeting today by a further 600 basis points to a record high of 27.25%. This new level is still a tad below year-on-year inflation and well above the medium-term inflation target range of 5-9%. The steepness of today’s increase underscores its preemptive nature and reflects concerns the price expectations would otherwise rise. The combined 800 basis points of rate tightening this quarter follows increases of 800 bps in 2022 and 400 bps last year. The Bank of Uganda’s rate increase today of 50 basis points was moderate by comparison and reverses a 50-bp reduction in August 2023. Also in contrast to Egypt, Uganda’s central bank rate is far above CPI inflation of 3.4% last month. But inflation in Uganda had drifted a percentage point upward since recording a 2-year low of 2.4% in October, and today’s move is also intended to lend support to the Ugandan schilling. From June 2021 to May 2020, the central bank had been just 6.5%.
World financial markets are also learning today the results of yesterday’s super Tuesday bloc of U.S. presidential primary elections and the precise details of British Chancellor of the Exchequer Hunt’s budget. As expected, Biden and Trump were big primary winners. Trump’s last Republican opponent, former South Carolina Governor Haley, is expected to withdraw from the race later today, and Biden has now captured over three-quarters of the delegates for his renomination. National polls nonetheless continue big disapproval ratings associated with each front-runner and dismay that America is facing a choice between someone who appears to old for the task and a challenging candidate who seems dangerously crazy.
The British spring budget includes a package includes a package of tax cuts. It is a pre-election budget and is meant to coax the U.K. economy out of a slump characterized by a succession of quarterly GDP changes from +0.2% in the first quarter of 2023, no change in 2Q, and back-to-back contractions of 0.1% in 3Q and 0.3% last quarter.
The prices of Bitcoin tokens and gold touched record highs yesterday of $69,200 and $2,143 per ounce. Bitcoin has settled back to just over $66k, and gold is hovering near its high.
The Japanese Nikkei-225 equity index held barely onto the 40k-plus beachhead attained yesterday, but one has to wonder if the curse of the Nikkei might be casting a shadow over the U.S. Dow Jones Industrials index. After closing at 38916 on the final business day of 1989, it took the Nikkei 34-plus years to eclipse that record. Since closing on February 23 at at a record 39,132, the DOW has struggled to extend its ascent, including a drop of more than 400 points yesterday. The Dow bounced up 250 bps at today’s open but remains shy of its recent high.
In other equity market action this Wednesday, Hong Kong’s Hang Seng rose 1.7% after the People’s Bank of China governor hinted of more monetary stimulus to come. Equities closed up 1.1% in Indonesia, 0.6% in India and Taiwan and 0.9% in Singapore. German, French and British stocks are little changed.
Ten-year sovereign debt yields rose two basis points in the U.K. and 1 basis point in Japan and Germany, but fell 2 basis points in the United States.
The dollar weakened overnight by 0.3% versus the yen and 0.1% relative to sterling, the Swiss franc and Canadian dollar. Bigger moves of +0.5% and -0.5% have occurred against the Turkish lira and Mexican peso.
Among economic data headlines, the ADP estimate that private U.S. jobs increased 140k last month was a tad lower than anticipated. Separately, U.S. mortgage applications rebounded 9.7% last week from a combined 17.5% plunge over the three prior weeks, and the 30-year fixed mortgage rate exceeded 7.00% for a third consecutive week.
The volume of retail sales in the euro area rebounded from December’s 0.6% drop by inching only 0.1% higher in January, and that resulted in the largest on-year decline (-1.0%) since a 12-month slump of 3.3% in September.
Germany’s seasonally adjusted trade surplus widened 18% on month in January to a record high of 27.5 billion euros. This compares even more favorably with a 2023 monthly average of EUR 17.4 billion.
Construction purchasing managers surveys for Euroland and the U.K. printed at a 2-month high of 42.9 and a six-month high of 49.7, respectively. Within the euro area, the German, French and Italian construction PMIs were their highest in 6, 2, and 5 months. Business confidence in this sector remains guarded.
Australian GDP last quarter posted its smallest quarterly rise since the third quarter of 2023. The rise of 0.2% was associated with a subdued 1.5% year-on-year growth rate.
Business confidence in South Africa this quarter was the second weakest level since the second quarter of 2020.
Consumer price inflation in South Korea, which peaked at a 283-month high of 6.3% in July 2022, accelerated from a 6-month low of 2.8% in January to a 2-month high of 3.1% in February.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British spring budget, Central Banks of Egypt and Uganda, Euroland and British construction PMIs, Euroland retail sales, German trade surplus, super Tuesday U.S. primary results
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