Weak Yen, Better-Than-Expected Tech Earnings, and Bracing for U.S. PCE Data
April 26, 2024
The yen is currently trading near its overnight low of 156.86 per dollar, a trough not experienced since May 1990. The Bank of Japan’s Board meeting failed to raise interest rates further, kept planned monthly JGB purchases at around 6 trillion yen and failed to clarify a possible timetable for additional monetary policy normalization. Adding to the ambiguity, core consumer price inflation in Tokyo receded to a 25-month low of 1.6% in April.
Nasdaq futures posted a 1.0% advance after reported earnings from Microsoft and Google beat expectations. DOW futures are flat, in contrast, as the forthcoming U.S. personal income and spending data are expected to confirm resilient consumption and a rise of inflation.
In other stock markets today, share prices closed up 2.1% in Hong Kong, 1.2% in China, 1.1% in South Korea, 1.3% in Taiwan but down 1.4% in Australia, 1.7% in Indonesia and 1.1% in New Zealand. European share prices are higher, especially in Spain and Italy.
The dollar strengthened 0.7% overnight against the yen but is steady relative to the euro, loonie, Swiss franc and sterling. Gold and oil prices have risen 0.6%, while Bitcoin is down 0.5%. 10-year sovereign debt yields have fallen by 7 basis points in Italy, 4 bps in France and Spain, 3 bps in Germany, 2 bps in the United States, and a basis point in Great Britain and Japan.
The Bank of Japan had ended its negative short-term interest rate and yield curve control at its March policy meeting, but this week’s Board meeting did not make further policy revisions and issued a unusually brief explanatory statement.
At the Monetary Policy Meeting (MPM) held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
The Bank will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent. Regarding purchases of Japanese government bonds, CP, and corporate bonds, the Bank will conduct the purchases in accordance with the decisions made at the March 2024 MPM [which had said “The amount of JGB purchases is currently about 6 trillion yen per month. The Bank will continue to
announce the planned amount of JGB purchases with a range and will conduct the purchases while taking account of factors such as market developments and supply and demand conditions for JGBs.”]
This month’s BOJ Board meeting lasted five hours 25 minutes and coincided with the publication of the quarterly Outlook for Economic Activity and Prices including updated macroeconomic forecasts. Economic growth in fiscal 2024 has been revised 0.4 percentage points lower to 0.8%, reflecting subdued personal consumption. Core consumer price inflation is forecast at 1.9% in both fiscal 2025 and fiscal 2026. If these forecasts prove accurate, “the Bank will adjust the degree of monetary accommodation, while it anticipates that accommodative financial conditions will be maintained for the time being.”
Just In: In another sign that we’ll have to wait longer for a U.S. interest rate reduction, the most influential price guide on Fed policy exceeded expectations in March. The personal consumption price deflator (PCE) put inflation at 2.8% overall after 2.5% in both January and February and core PCE inflation unchanged at 2.8% as well. Nominal personal consumption expenditures rose 0.8% on month in both February and March, adding to a mounting picture that disinflation has stalled for an indeterminant time.
Australia also got some bad inflation news this Friday. Producer price inflation in 1Q 2024 accelerated for a third straight quarter to a one-year high of 4.3%, only 0.6 percentage points below the reading in 1Q 2023. Import price deflation shrunk to just -0.7% from -3.1% in the previous quarter.
The Bank of Russia also held a policy review today, and officials agreed to leave the the key central bank interest rate at 16.0%, while signalling that this peak is likely to be retained for longer than had been assumed previously. A slower pace of rate normalization stems from President Putin’s war that has created a shortage of workers and an imbalance of aggregate supply to meet aggregate demand. CPI inflation in Russia has accelerated from 2.3% in April 2023 to 7.8% as of last month, and measures of expected inflation have moved higher as well. The CBR’s interest rate had initially jumped upward when Russia invaded Ukraine in February 2022 but was back to 7.5% by the ensuing September and stayed there until July 2023. A peak of 16.0% was reached by last December and will need to be kept there longer so that inflation can drop to the central bank’s target of 4%.
Other data reported today include French consumer confidence, which unexpectedly slipped somewhat to a 2-month low in April.
Austria’s manufacturing purchasing managers index rose 1.3 points to a 13-month high in April but, at 43.5, remains well below the neutral 50 level and even more so from the 61.5 reading in January 2022 just before Russia’s invasion of nearby Ukraine.
British consumer confidence rose two points in April to a 3-month high, matching its best level since January 2022, -19.
Euroland’s M3 stock of money posted a depressed 0.4% year-on-year advance in the first quarter that was nonetheless better than the 0.6% on-year drop in the final quarter of 2023. Bank lending to households and non-financial firms grew 0.2% and 0.4% in the year ending March, while credit contracted 0.2% in the same span. These figures are consistent with a recession but suggest that the downturn may be bottoming. The early estimate of first-quarter GDP data will be reported for the EU and euro area next Tuesday.
Spanish unemployment unexpectedly rose last quarter to 12.3%. That’s still down from 16.3% in the summer of 2022. Spanish retail sales fell 0.5% on month, which also was worse than forecast and resulted in only a 0.6% year-on-year rise after February’s 1.8% on-year increase.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan, Bank of Russia, British and French consumer confidence, Euroland money and credit growth, Tokyo consumer price inflation
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