Discerning the Future Path When the Choices Are Finely Balanced
May 17, 2024
Investors remain unsure when the Federal Reserve will cut interest rates and wonder also whether other major central banks will follow their own compass or take their cue from the Fed.
The Bank of Japan faces starkly conflicting priorities. Japan’s economy remains fragile, as attested by first quarter GDP contracting at a 2.0% annualized pace versus the previous quarter and by 0.2% compared to the first quarter of 2023. With the yen hovering around a multi-decade low of 156 per dollar and inflation above the 2.0% target for the past two years, a case is building for the Bank of Japan to lift interest rates further. BOJ daily operations early this week suggested officials were leaning that way, but more recent behavior by the Bank suggests otherwise.
The U.S. economy continues to outperform others, and relatively high U.S. interest rates suggest that recent dollar strength will continue. Then again, U.S. political trends point to an enormous train wreck that’s coming closer by the week. The Trump reelection campaign continues to out-game the Democrats. An America First agenda has dire implications for the United States such as the erosion of first amendment rights and a more inflationary long-term economic outlook, as well as for the world, such as a return to the 1930’s and lost hope that catastrophic climate change will be averted. It’s inconceivable that the current international monetary system with a dollar linchpin at its core could survive such a transformation, but forecasting the tipping point between current norms and the brave new world to follow is awfully difficult to handicap.
These dilemmas are promoting very choppy financial market conditions, with momentum often shifting on a day to day basis. The dollar nonetheless rose overnight after another piece of bad U.S. inflation data from Thursday’d elevated import and export price figures, climbing 0.4% versus the Swiss franc and Australian currency, 0.3% relative to the yen and euro and 0.2% versus the Canadian dollar and sterling. Ten-year sovereign debt yields rose by four basis points in Germany, France, Spain, Italy and the U.K. and by two basis points in the U.S. and Japan. The price of Bitcoin jumped 1.5%, and gold firmed 0.3%. Stock markets groped for a sense of directions, but moved both up and down. U.S. stock futures are little changed, but share prices closed down 1.0% in South Korea and 0.9% in Australia, while ending with gains today of 1.0% in China and Indonesia and 0.9% in Hong Kong. In Europe, stocks have lost 0.4% so far this Friday in the U.K., Germany and France.
Today’s main data release event involves China.
- Retail sales in April were just 2.3% above a year earlier, their smallest 12-month increase in 15 months and only about half what analysts were projecting. Sales in the first four months of this year show an on-year advance of 4.1%, down from 7.2% in full-2023.
- On-year industrial production growth accelerated to a 2-month high of 6.7% in April, topping market forecasts, from 4.5% in March.
- Fixed asset investment in January-April slowed 0.3 percentage points to 4.2% from the 4.5% year-on-year rise in the first quarter of this year.
- A 3.1% year-on-year drop in property prices was the steepest decline in 105 months.
- But China’s jobless rate unexpectedly also fell 0.2 percentage points to a 5-month low of 5.0%.
Among other data reported today in the Pacific Rim, Malaysian GDP rebounded from a 1.0% quarterly drop in 4Q 2023 with a greater-than-expected 1.4% advance in the first quarter of this year, which was associated with the largest year-on-year growth rate (4.2%) in a year. 4.2% also surpassed the average growth rate in 2023 of 3.7%. Meanwhile, Malaysia’s current account surplus widened sharply to a 5-quarter high of MYR 16.2 billion in the first quarter of 2024.
Real GDP growth in Hong Kong of 2.3% on quarter and 2.7% on year was unrevised from earlier estimates of the first quarter 2024 results. In 2023, GDP in the former British colony rose 3.2%.
Producer input prices in New Zealand last quarter rose 0.7%, down from quarterly increases of 0.9% and 1.2% in the previous two quarters, while producer output prices accelerated to an quarterly 0.9% increase from 0.7% in the prior quarter. Producer input and output inflation each printed at 2.6% last quarter, down from 4.5% and 5.2% in the initial quarter of 2023.
South Korean unemployment in April matched March’s reading of 2.8%.
Turning to Europe, consumer price figures in the euro area during April matched the flash report’s findings of a 0.6% monthly increase after 0.8% in March and 0.6% in February and an unchanged year-on-year pace of 2.4%, which was a half percentage point below the end-2023 level and well below a peak of 10.6% touched in October 2022. Core Euroland CPI inflation printed at 2.7%, down from 2.9% in March and 5.6% in April of 2023. Among Euroland’s larger economies, inflation has dropped between April 2023 and April 2024 to 2.4% from 7.6% in Germany; to 2.4% from 6.9% in France; to 0.9% from 8.6% in Italy; to 3.4% from 3.8% in Spain; and to 2.6% from 5.8% in the Netherlands.
Austrian CPI inflation of 3.5% last month was down from 4.6% in March and 11.2% at the start of 2023. Croatian CPI inflation of 3.7% in April represented a 31-month low and a drop from 13.5% in November 2022. CPI inflation in Malta of 2.4% was at a 29-month low.
A 1.0% quarter-on-quarter drop Swiss industrial production last quarter was the third decline in four quarters, and its 3.1% decreases from a year earlier constituted the biggest slide in 14 quarters.
French unemployment of 7.5% last quarter matched the prior quarter’s level but exceeded street expectations.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese retail sales and industrial production, Chinese unemployment and property prices, Euroland CPI
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