Better Market Tone Than Earlier This Week
April 4, 2024
There’s an old adage not to bet against the central bank. Market participants earlier this week had been unnerved by fears that disinflation is stalling amid improving aggregate demand. Yesterday’s speech at Stanford University by Fed Chairman Powell depicted essentially unchanged forward policy guidance. The precise path of the federal funds target may be currently unknown, but officials remain quite confident that rate cuts will be done later this year. Today’s minutes from last month’s European Central Bank Governing Council meeting paints a similar picture. Disinflation is projected to continue. In neither case, a rate cut as soon as June is not being ruled out.
The dollar performed well so long as investment safety was paramount, but the current anticipation of a policy inflection point is making for a bumpier ride. The weighted DXY dollar index is 1.1% softer than on April 2nd. The greenback fell overnight by 0.7% against the Australian dollar, 0.5% versus the kiwi, 0.3% relative to the euro and loonie, and 0.2% vis-a-vis the Swiss franc and sterling.
The 10-year U.S. Treasury yield touched a 4-month high of 4.38% earlier today but now exhibits a 1-basis point net dip at 4.34%. Other sovereign debt yields are down more extensively, such as 10 bps in Italy, 6 bps in Spain, and 4 basis points in Germany, France and Great Britain. The Japanese JGB yield is up a basis point, in contrast.
Share prices closed up today by 0.8% in Japan, 1.2% in Indonesia, and 0.5% in South Korea and India. Markets were shut for the tomb-sweeping Qingming Festival in China, Taiwan, and Hong Kong. U.S., German, and British stock markets so far have risen around 0.5%.
Bitcoin’s 3% jump so far today has been a big mover, and gold keeps setting new record highs, rising as high as to $2,317 per ounce.
A planned meeting of OPEC and other key oil producers kept previously undertaken production cuts of over 2 million barrels per day through to midyear. WTI oil is holding above $85 a barrel.
The projection of ongoing disinflation was not contradicted by price data released today:
- Swiss CPI inflation fell to a 30-month low of 1.0% in March versus the peak of 3.5% in August 2022. Swiss core inflation was also at 1.0% versus its prior cyclical high of 2.4% in early 2023.
- CPI inflation in Cyprus of 1.2% last month constituted a 24-month low.
- Producer prices in Euroland sank 1.0% on month and 8.3% on year in February. Excluding energy, a 1.5% 12-month rate of decline was the lowest reading since end-2009.
- House prices in the euro area in 4Q23 were 0.7% below the prior quarter’s level and 1.1% weaker than in the final quarter of 2022.
Several more purchasing manager survey findings for March were reported this Thursday.
- Euroland’s composite and service sector PMI readings of 50.3 and 51.5 were their highest in 10 and 9 months, respectively, and a slowdown of inflation further buoyed confidence in the future. That said, the data are consistent with stabilization, not strong growth.
- Britain’s 52.8 composite PMI and 53.1 services component were each revised a tad lower and representing 3- and 4-month lows, but each has been above the 50 line separating expansion from contraction since November.
- India’ composite PMI of 61.8 was at an 8-month high and just south of its record 61.9 reading last July. India’s services PMI also exceeded the 60.0 threshold.
- Australia’s composite and services PMIs were revised somewhat higher to 23-month highs of 53.3 and 54.4.
- South Africa’s S&P Global-compiled PMI of 48.5, an 8-month low, was depressed by higher inflation and bad weather.
- Lebanon’s private PMI edged upward but at 49.4 was below 50 for an eighth month in a row.
Consumer confidence during March in Mexico edged up 0.1 point, its third increase in a row, and at 47.3 was the best score in 61 months.
Canada’s trade surplus of C$ 1.39 billion in February was considerably larger than forecast.
The U.S. goods and services trade deficit of $136.5 billion over the first two months was down from a gap of $140. 4 billion a year earlier.
A rise of 11k to 221k in new jobless insurance claims last week was also announced for the United States. From the standpoint of supporting the contention that Fed policy is not waiting for Godot, having somewhat more claims is not an unwelcome development.
Central Banks in Poland and Romania left their key interest rates unchanged today as analysts had been expecting. The National Bank of Poland’s interest rate has been at 5.75% since a cut last October and is a full percentage point down from the cyclical peak maintained for a year from September 2022 until last September. Polish consumer price inflation has cratered from 18.4% in February 2023 to a 5-year low of 1.9%, but a VAT hike this month gave monetary officials pause. Potential inflation-fueling measures in Romania were also an influence behind the decision to leave the National Bank of Romania’s policy interest rate at 7.0%. Romanian CPI inflation of 7.9% in February, though well below 16.8% in November 2022, represented a 3-month high. The Central Bank interest rate has yet to be lowered. A 25-basis point hike to 7.0% in January 2023 capped 500 basis points of tightening during 2022. The rate had been as low as 1.25% early in the pandemic.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: ECB minutes, Euroland and British composite PMIs, National Bank of Poland, National Bank of Romania, Swiss CPI, U.S. and Canadian trade balances
ShareThis
