Investors Reacting to Several Different Factors
April 22, 2024
The International Monetary Fund gave a thumbs down to the growing consideration by Japanese officials of implementing currency market operations to blunt yen weakness. Japan’s currency is hovering at its weakest levels against the dollar since 1990, and Japanese CPI inflation has exceeded the 2.0% central bank target since April 2022. Nonetheless, the IMF warns against undue haste in reversing monetary support, since some measures of expected inflation remain below 2.0%. IMF officials, who project only a 0.9-1.0% per year growth in real Japanese GDP this year and next, are urging Japanese officials to let market forces determine the yen’s value and believe that further yen depreciation on balance would be a positive development for the economy.
U.S. Fed officials continue to pound the view that in view of stalled disinflation that a cut in the federal funds rate is likely to be delayed further and that the overall path of rates will be above what had been imagined just a few months ago. The 10-year U.S. Treasury yield rose two basis points overnight. Comparable German and Japanese sovereign debt yields are four bps higher.
The monthly fixing of the People’s Bank of China’s 1- and 5-year loan prime rates left such unchanged at 3.45% and 3.95%. Although meeting analyst expectations, the market reaction has been one of disappointment that not more monetary support has been forthcoming in light of significant growth risks from the depressed property sector and high rate of youth unemployment. Share prices this Monday closed down 0.7% in China and 0.6% in Taiwan in contrast to gains of 1.8% in Hong Kong, 1.0% in Japan, 1.5% in Singapore and South Korea and 1.1% in Australia. Stock markets in Europe are mixed, with gains of 1.6% and 1.0% in Great Britain Spain but rises of just 0.5% in Germany and 0.1% in France, as well as a 0.8% drop so far in Italy. U.S. stock futures suggest a rise of 0.5% at the open.
The dollar remains buoyant, rising overnight by 0.4% against sterling and 0.1% relative to the euro and Swiss franc. There’s been a 2.2% decline so far today in the dollar price of gold, and oil is 0.6% softer. But Bitcoin jumped 1.6%.
Recent policy guidance from the European Central Bank and Bank of England, in contrast to Fedspeak, has not quelled rate cut hopes. ECB President Lagarde expects an initial rate cut soon unless there is an unforeseen shock that warrants more delay. Bank of England Deputy Governor Ramsden perceives a lessening risk of excessive inflation persisting and thinks it even possible that inflation could drop below the 2% target.
Today’s data menu has been dominated by inflation reports and consumer confidence, but investors are looking ahead to U.S. releases of GDP, personal consumption and income, and tech company earnings reports.
Lebanese consumer price inflation, which had exceeded 100% since mid-2000, plunged to 70.4% last month from 123.1% in February, 192.3% at end-2023, and 268.8% in April 2023.
Irish wholesale price inflation was above zero percent for a fifth straight month but, at 2.0%, was 1.3 percentage points less in March than February’s year-on-year pace and its lowest since November.
Polish producer price inflation of negative 9.6% in March remained near January’s record low of -10.6% and well down from a crest of 25.5% hit in July 2022.
Latvian producer prices in March dropped 0.4% on month and by 7.2% from a year earlier. The 12-month rate of rise had peaked in August 2023 at 37.7%.
Canadian producer price inflation in sub-zero percent territory for a sixth straight month in March, but the reading of -0.5% was the smallest dip in that streak following drops of 1.7% in February and 2.9% in January.
The British Rightmove house price index was 1.7% higher in April than a year earlier. That’s the largest 12-month rise since April 2023.
Consumer confidence readings improved this month in the Netherlands to a 29-month high of -21 versus a nadir of -59 in October 2022 and in Turkey to a 10-month high of 80.5 although that was barely better than January’s 80.4 level.
Belgian consumer confidence readings worsened in April to an 8-month low of -6 in April from back-to-back -5 readings in February and March. Denmark also experienced softer consumer sentiment in April (-8.6) than in March -7.6).
Ratios of Euroland fiscal deficit-to-GDP and debt-to-GDP were reported today. The deficit ratio of 3.6% in 2023 was marginally down from 3.7% in 2022. Among the four largest economies using the euro, the deficit averages in Spain matched the full-Euroland result last year, while Germany’s ratio of 2.5% was better than the mean. Larger ratios occurred in Italy of 7.4% and Spain of 3.6%. Euroland debt fell to 88.6% of GDP in 2023 from 90.8% in 2022 and 97.2% in 2020.
Indonesia experienced a $7.31 billion trade surplus last quarter, down from $12.1 billion in the first quarter of 2023.
Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese loan prime rates, Euroland debt and deficit as a percent of GDP, IMF and Japanese Intervention
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