Chinese Trade Data and Central Bank News
May 9, 2024
U.S. stock futures point to a 0.2% dip at the open, led by a sizable slump in AirBnb. Share prices closed higher in China, and Hong Kong but lower in Australia, South Korea, Taiwan, Indonesia, and Mexico. The German Dax, British Ftse and Paris CAC are moderately firmer. Ten-year sovereign debt yields climbed overnight by four basis points in Italy, France and Spain, 3 bps in Germany and Japan, 2 bps in the United States, and a basis point in Great Britain.
The dollar has strengthened 0.2% against the euro, Swissy, yen and sterling but is flat versus the yuan, kiwi and loonie. The price of oil is 0.7% higher, but Bitcoin has edged lower in price.
Federal Reserve District President Susan Collins (not to be confused with Maine’s Republican senator of the same name) believes somewhat softer demand will be needed to fully achieve the central bank’s inflation target.
A summary of last week’s Bank of Japan Board meeting reveals that support is strengthening for additional interest rate hikes. For now, an easy policy stance is being maintained, but yen weakness and a string of inflation numbers above target are being watched more closely.
Central interest rate decision have been announced today in Brazil, Malaysia, and the U.K., and ones from the Bank of Mexico and Poland will come late in the day.
The Central Bank of Brazil’s Selic interest rate has been cut for a seventh time since August 2023 but by a smaller increment of 25 basis points. The first six reductions were twice that size. A more gradual easing is now warranted in spite of March’s 9-month CPI inflation rate low of 3.9% because of a slowdown in the rate of disinflation and due to “deanchored inflation expectations and a challenging global outlook,” according to a statement from the monetary policy committee known as COPOM. The Selic rate had been as low as 2.0% from August 2020 until an initial hike in March 2021 but was subsequently raised a dozen times by a total of 1,175 basis points and then maintained at 13.75% for a full year between August 2022 and August 2023.
The Central Bank of Malaysia’s policy interest rate has been kept at 3.0% for a full year so far and is widely expected to stay at that level at least that long going forward. There are downside growth risks and inflation was only 1.8% in February-March. However, policymakers caution against over complacency in a released statement. They observe risks of a “further escalation of geopolitical tensions” and note that “the pace for disinflation has slowed in some advanced economies. This increases the prospect of interest rates to remain high for longer, particularly in the US.” The more hawkish rhetoric from Fed officials is thus constraining the scope for monetary easing by other central banks.
The Bank of England’s Monetary Policy Committee voted 7-2 to leave the British Bank Rate unchanged at 5.25%, its level since August 2023. Members Dhingra and Ramsden wanted to cut now by 25 basis points, and Governor Bailey struck a dovish tone in the ensuing press conference, ruling an initial easing at the next meeting in June as neither “in or out.” British CPI inflation has slowed to 3.2% and is anticipated falling further in the very near term to the vicinity of the 2% target. However, service sector inflation is proving sticky, and wage increases have been faster than desired. The Bank rate dwelled at a lowly 0.10% from March 2020 until a 15-basis point hike December 2021, then was lifted 325 basis points in 2022 and by another 175 bps in 2023. If growth and inflation evolve as expected, monetary officials imagine the Base Rate getting lowered to about 3.75% two years from now.
China’s trade surplus rebounded from $58.55 billion in March to $72.35 billion last month, thanks to exports that after dropping 7.5% year-on-year in March returned to a positive 1.5% 12-month rate of change. Even so, the surplus was smaller than the $86.46 billion surplus in March 2023. A big objective of Chinese President Xi’s recent trip to Europe was to lessen trade hostility from that region.
South Korea’s current account swung from a $5.96 billion deficit in the first quarter of 2023 to a $16.8 billion surplus last quarter.
Japanese international reserves contracted $11.6 billion in April and have shrunk by $16 billion so far this year. Intervention this month will escalate that rate of decline. Average cash earnings, a barometer of wage growth, slowed to a year-on-year pace of only 0.6% in March. That was the smallest advance in six months and translates to an inflation-adjusted 2.5% contraction. More sustained wage growth is believed necessary to snap the economy out of its decades-long propensity to slip into deflation. In yet another Japanese data release today, the index of leading economic indicators slid to a 2-month low, whereas the index of coincident economic indicators in March rose to a 3-month high, suggesting a possible turning point.
Irish CPI inflation slowed to a 33-month low in April of 2.6%, having crested at 9.2% back in October 2022.
Mexican CPI inflation of 4.6% last month rose to a 3-month high of 4.65%, having crested at 8.7% in September 2022.
Egyptian CPI inflation edged down to a 3-month low of 32.5% last month, still far above the central bank’s single-digit target range.
Greater-than-expected new U.S. jobless insurance claims of 231k last week were 22k more than in the prior week and the most since the week of August 26, 2023.
Copyright 2024, Larry Greenberg. all rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Bank of Japan Minutes, Central Bank of Brazil, Central Bank of Malaysia, China trade balance
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