Spotlight on Middle East Tensions and Fed Policy Intentions
April 19, 2024
As promised, Israel responded to Iran’s prior missile attack, but the retaliation thus far has been tempered — just a few drone attacks against an Iranian military base near Isfahan that were shot down. Damages were light, and neither Israeli nor Iranian media are fanning the incident, which provoked initial financial confusion that helped depress the Japanese Nikkei-225 equity index by 2.7% this Friday. Other stock markets in the Pacific Rim closed down 1.7% in Taiwan, 1.6% in South Korea, 1.0% in Hong Kong and Australia, but just 0.3% in Shanghai. Major European stock markets and Nasdaq futures are about 0.5% lower, while DJIA and SPX are little changed.
The latest hawkish remarks by a Fed official came from NY District President Williams, who not only confirmed a lack of hurry to start cutting interest rates but also indicated that a rate hike is conceivable if forthcoming data suggest that such a move is warranted.
The weighted DXY dollar index is holding onto recent gains as this week draws toward its end. While sliding 0.4% overnight against the Swiss franc and 0.1% versus the euro, the U.S. currency has jumped 1.7% relative to the Mexican peso and remains steady relative to sterling, the yen and Canadian dollar.
Ten-year sovereign debt yields fell overnight by four basis points in the United States and two bps in Great Britain, Japan, France, Italy and Spain.
The downplayed Israeli retaliation against Iran helped depress the price of oil by 1.6%. Gold is 0.4% lower today. But Bitcoin rebounded 2.3%.
Chinese foreign direct investment (FDI) continues to be scared off President Xi’s prioritization of national security over economic growth. From a year-on-year advance of 39.9% in the first quarter of 2022, growth in net FDI inflows slowed to 4.9% in the first quarter of 2023 and fell 26.1% on-year during 1Q 2024.
Japanese core consumer price inflation, which excludes fresh food, settled by from a 4-month high of 2.8% in February to a 2-month low of 2.6% last month, which was a tad below analyst expectations of 2.7%. Energy prices jumped 0.5% last month, cutting their year-on-yer decline to 0.6% from 1.7% in February and 12.1% in January.
A measure of service sector worker sentiment in Japan advanced by a robust 1.5% in February, more than doubling their 12-month increase to 2.5%.
Australian unemployment rose 0.1 percentage point to a 2-month high of 3.8% in March.
Turning to Europe, British retail sales flat-lined on month in March and rose 0.8% on year during March.
German producer prices posted another 12-month decline in March, but the drop of 2.9% following ones of 4.1% in February and 9.2% last September was the smallest since July 2023.
Construction output in the euro area jumped 1.8% in February but still posted their largest year-on-year decline (-0.4%) in 14 months. Euroland’s collective current account surplus swung from a deficit of EUR 95 billion over the twelve months through February 2023 (equal to -0.7% of GDP) to a surplus totaling EUR 288 billion (or 2.0% of GDP) in the ensuing one-year period.
The Swiss trade surplus of CHF 7.97 billion last quarter was slightly less than 8.76 billion francs recorded in the first quarter of 2023.
Spanish consumer confidence printed at a 7-month high of 82.5 in March, up from 78.5 in February and 70.6 last October but still well under 94.4 in August 2023.
A key issue to be decided in November’s U.S. presidential election is whether Americans are willing to de-prioritize democratic traditions for a top-down autocratically-run government. A year from today will mark the Sestercentennial of the “shot heard round the world,” that was the Battle of Concord MA on April 19, 1975 that began the American Revolution.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, German PPI, Israel versus Iran, Japanese CPI
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