An Uneasy Mood
April 25, 2024
U.S. stock futures were down 0.5-1.0% just ahead of the release of U.S. first-quarter GDP. The data were expected to show strong enough and persistent demand to make Federal Reserve officials hesitant to cut interest rates. Elsewhere, a two-day meeting of the Bank of Japan began today, which while not expected to result in a further interest rate hike, is expected to produce hawkish comments and expressed concerns about recent yen weakness. An admonishment recently by the IMF urging Japanese officials not to resist downward pressure on the yen likely will go unheeded. Officials at the Peoples Bank of China also have shunned excessive growth support out of concern that doing such would hurt the yuan.
Three central banks did announce rate decisions today: Ukraine’s policy rate was slashed by 100 basis points to 13.5%, while key rates at the Central Bank of Turkey and Central Bank of Uzbekistan were left unchanged at 50% and 14%, respectively.
In financial markets overnight prior to the release of U.S. data,
- The dollar fell 0.2% against the euro, Swiss franc and Canadian dollar, 0.4% relative to sterling, and 0.5% relative to the Australian dollar but climbed 0.2% vis-a-vis the yen.
- Share prices fell 2.2% in Japan, 1.8% in South Korea and 1.4% in Taiwan.
- Share price lost 0.8% in France and 0.5% in Germany but rose 0.7% in the U.K..
- Ten-year sovereign debt yields edged down a basis point in the U.K. and Germany but up 0.1% in the United States.
- Prices for oil, gold and Bitcoin respectiviely rose 0.3%, edged 0.1% higher and fell by 0.4%.
Consumer confidence this past month improved to a 21-month high in Germany and a 26-month high in Sweden.
Britain’s distributive trades survey for April fell sharply backward to a 3-month low of -44 from +2 in the prior month and -7 in February.
French business confidence fell 1.3 index points to a 2-month low in April. Readings deteriorated for manufacturing, services and construction but improved among retailers. The employment climate also improved, reaching a half-year high.
Business confidence in April rose to a 10-month high in South Korea and a 19-month high in Sweden.
South Korean real GDP grew twice as rapidly (1.3% versus 4Q23) last quarter as was expected, resulting in a bigger year-on-year growth pace of 3.4% after 2.2% in the prior quarter and 1.4% between the first quarters of 2022 and 2023.
Malaysian consumer price inflation held steady in March at 1.8%, well below the 4.7% peak touched in August 2022. Core Malaysian inflation slid to a 26-month low.
Producer price inflation in South Africa edged 0.1 percentage point higher to 4.6% in March, still well below a peak of 18.0% in July 2022. During March in Spain and Sweden, producer prices continued to post year-on-year declines — -8.2% in the former and -0.6% in the latter instance.
Hong Kong’s trade deficit last quarter of HKD 83.0 billion was 25.4% narrower than a year earlier.
U.S. GDP growth last quarter of 1.6% at an annualized rates was a percentage point weaker than anticipated and down sharply from quarter-on-quarter gains of 3.4% in the final quarter of 2023 and 4.9% last summer. Personal consumption accounted for 0.6 percentage points of the slowdown in GDP growth from 3.4% to 1.6%. Consumption of goods actually contracted. Net foreign demand exerted a 1.1 percentage point drag on the GDP growth rate, reflected slower exports (+0.9% after +5.1%) and faster imports (+7.2% versus +2.2%). A rapid acceleration of inflation was masked in year-on-year comparisons, which slid to 2.6% from 2.8% overall and to 2.9% from 3.2% excluding food and energy. However, the PCE price deflator last quarter versus the final quarter of 2023 rose 3.4% at an annualized rate after 1.8% between the third and final quarters of 2023. And in contrast to a 2.0% annualized inflation pace in each of the final two quarters of 2023, the core PCE price deflator last quarter showed a 3.7% annualized pace.
The National Bank of Ukraine‘s policy interest rate was cut to 13.5% from 14.5%, having previously been reduced by 50 basis points in March and 10 percentage points in the second half of 2023. From June 2022 to July 2023, the rate had been held at 25.0%. A statement from the NBU explained that today’s interest rate reduction was made possible because inflation and projected inflation continue to recede but also in view of “lower risks to inflows of international financial support” from the United States and Europe. Inflation is expected to settle within the 4-6% target range by 2025.
Chasing an upwardly spiraling inflation, Turkey’s central bank interest rate was raised from 8.5% to 42.5% during the final seven months of 2023. In follow-up, the interest rate was lifted during the first quarter of this year by another 250 basis points in January and 500 bps in March. At 50%, the Central Bank of Turkey’s one-week repo rate still lies well below inflation, which in March climbed to a 16-month high of 68.5%. In a statement released today, officials observe that there is now a lot of recently imposed monetary restraint in the pipeline that going forward will exert downward pressure on inflation. Hence, no change in the rate was made today, but the statement underescores that “the tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range. Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”
At the Central Bank of Uzbekistan, the key 14.0% interest rate was also left unchanged after a policy review today. The rate was last changed in March from 15.0%. At 14%, all of a 300-basis point hike in March 2022 (just weeks after Russia’s invasion of Ukraine), has now been reversed. CPI inflation in Uzbekistan has retreated from 12.3% at the end of 2022 to 8.0% as of March 2024, but even that level is well above the desired pace, warranting an interest rate level in restrictive territory.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Turkey, Central Bank of Uzbekistan, National Bank of Ukraine, U.S. GDP in 1Q 2024
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