Growing Confidence that Central Bank Interest Rates Are Coming
March 22, 2024
Fed Chairman’s reassuring press conference, central bank rate cuts in Switzerland, Brazil, Mexico, and the Czech Republic, and a hint from the German Bundesbank president that the ECB Governing Council might consider easing by early summer have lifted the mood of investors.
The dollar has withstood this shift in sentiment. The weighted DXY dollar index is at its best levels since mid-February after overnight gains of 0.9% against the Australian dollar, 0.7% versus the k iwi, 0.6% relative to the British pound and 0.4% vis-a-vis the euro. The greenback also moved above 0.90 Swiss francs and 7.23 Chinese yuan for the first time since November.
Equities have experienced a very strong week in spite of overnight looses of 2.2% in Hong Kong and 0.9% in the Shanghai Composite Index. Chinese foreign direct investment in the first two months of 2024 posted a 19.9% year-on-year drop, their worst setback in around 15 years. U.S. stock futures are holding onto yesterday’s strong gain advance. Japan’s Nikkei closed in the black, and the British Ftse shows a rise this morning of almost 1%.
Ten-year sovereign debt yields are down today by 5 basis points in the U.K., 4 bps in Germany and 3 bps in the United States.
The price of Bitcoin dropped 0.9% but remains about four times stronger than late-2022 levels.
After surpassing $2,200 for its first time, gold slipped 0.8% overnight, while oil has firmed 0.2%.
Stronger energy prices were the driving force behind a 0.6 percentage point backing-up of Japanese consumer price inflation to a 3-month high of 2.8% in February. But excluding both perishable food and energy, the disinflationary trend extended to 3.2% from 3.5% in January, 3.7% in December, 3.8% in November and 4.3% last August.
German import prices were 5.9% below year-earlier levels in January, their least deflationary result in nine months. Energy posted a less steep year-on-year drop of 27.7%, but all other import prices fell by 2.5% after posting a 2.4% 12-month decline in December.
The monthly German business climate index compiled by the IFO Institute rose much more than forecast to a 9-month high in March, with all four broad categories of business (manufacturing, services, trade and construction) moving above their February readings. Perceived current economic conditions rose 1.2 index points to a 3-month high, while expectations regarding the future improved 3.1 points to a 10-month high. IFO officials summarized the findings, asserting that Germany’s “economy glimpses light on the horizon” and identifies expectations of ECB easing and the improved inflation as favorable developments.
British retail sales volume had leaped 3.6% in January, but the expected decline in February didn’t happen as such instead remained at January’s level. Nonetheless, sales in November-February were 0.4% softer than in the prior 3-month period and 1.0% lower than a year before.
The orders index in the CBI monthly survey of British industrial trends ticked two points higher to a six-month high in March but remained pessimistic at -18. British consumer confidence in March matched February’s soft reading.
South Korean producer prices went up 0.3% on month and accelerated by 0.2 percentage points to a 10-month high in February but of only 1.5%.
The Swiss current account surplus narrowed slightly last quarter to CHF 15.43 billion and totaled CHF 60.8 billion, which is close to 10% of GDP.
As analysts had expected, the Central Bank of Russia’s policy interest rate was left unchanged after this week’s policy review at 16.0%. The last change, a 100 basis point hike in December, culminated 850 basis points of tightening during the second half of 2023. A statement explaining today’s decision attributes elevated inflation to high growth in domestic demand and proclaims that “The return of inflation to target in 2024 and its further stabilisation close to 4% assume that tight monetary conditions will be maintained in the economy for a long period.” On-year CPI inflation of 7.7% in February was up from 7.4% in January and 2.3% last April, but officials believe such will drop to 4.0-4.5% by the end of this year.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, Central Bank of Russia, German business climate index and import prices, Japanese CPI
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