Debate Night and So Much More
June 27, 2024
Tonight’s first of two scheduled prime-time debates between Joe Biden and Donald Trump has financial market participants on edge. So do upcoming releases of U.S. GDP, personal consumption, and and the PCE price deflator as well as French parliamentary elections this weekend.
Japanese Finance Minister Suzuki protested the yen’s further drop to 160.8 per dollar, a 38-year low, and doubled down on earlier threats of more intervention support for the currency. His warning helped lift the yen but only by 0.2%. Unilateral intervention often fails.
The dollar also fell overnight by 0.2% against the euro, sterling and kiwi and by 0.1% relative to the Australian dollar, Mexican peso, and Canadian dollar.
Asian stock markets fell in today’s session, led by a 2.1% plunge in Hong Kong and including share price drops of 1.0% in New Zealand, 0.9% in China and 0.8% in Japan. Italy’s Milano stock index is down 0.7%, the Paris CAC and Spanish IBEX are 0.6% lower, and the British FTSE has lost 0.3%. U.S. stock futures are 0.2% softer.
Risk aversion has lifted ten-year sovereign debt yields by five basis points in Japan, four bps in Italy, three bps in France and Spain, and two basis points in the U.K.. The 10-year U.S. Treasury yield is unchanged.
Prices for Bitcoin, oil and gold have strengthened 0.4%, 0.4% and 0.5%.
Monetary policy reviews unveiled today in the Philippines, Sweden and Turkey left key interest rates unchanged at 6.5%, 3.75% and 50.0%, respectively. Monetary policy is also undergoing a scheduled review at the Czech National Bank and Bank of Mexico.
The Filipino policy interest rate has been at 6.5% since a 25-basis point hike last October culminated 350 basis points of tightening in 2022 and 100 bps in 2023. A released statement revised projected inflation in 2024 and 2025 downward and, if correct, anticipates “more scope to consider a less restrictive monetary policy stance. This guidance is tempered, however: “uncertainty in the external environment calls for some caution against potential spillovers, including those in the financial markets.”
From zero percent maintained from October 2019 through April 2022, officials at the Swedish Riksbank progressively tightened monetary policy, raising their interest rate by 250 basis points in the rest of 2022 and to 4.0% by September 2023. An initial cut from that peak was made in March, and a statement released after today’s policy review strikes a somewhat more dovish tone because “inflation is fundamentally developing favorably, economic activity is assessed to be somewhat weaker, and the krona exchange rate is a little stronger.” This baseline prognosis comes with a caveat, stressing uncertainties linked “to inflation abroad, geopolitical unease, the krona exchange rate and the recovery in the Swedish economy,”
Turkey’s key one-week repo rate had been as low as 8.5% just a year ago, but that loosey goosey stance became untenable in the face of accelerating inflation that has kept soaring to 75.5% last month. 34 percentage points of tightening during June-December of 2023 was augmented by a further 750 basis points in this year’s first quarter to 50%. Today’s decision not to lift the interest rate even higher given how much below the rate of inflation that it remains is justified in large part by the lagged effect of monetary policy and the belief therefore that inflation will decelerate as a result in future months.
Among data released earlier today, Japanese retail sales growth beat expectations in May, rising 1.7% on month and 3.0% on year. By contrast, Spanish retail sales disappointed analysts, falling 0.6% below April’s level and posting only a 0.2% year-on-year increase.
Icelandic consumer price inflation slid to a 29-month low of 5.8% in June. But in Belgium, CPI inflation rose 0.4 percentage points to a 10-month high of 3.7%.
A 3.5% year-on-year drop in Italian producer prices was the smallest 12-month rate of decline in 13 months. Malaysian producer price inflation decelerated half a percentage point to a four-month low of 1.4% in May. South African PPI inflation of 4.6% was a half percentage point lower in May than April’s 6-month peak of 5.1%.
Painting a broadly stable pattern in the first half of 2024, Euroland’s economic sentiment index dipped 0.3 points to a 2-month low of 95.9. But the labor market sub-index deteriorated more discernibly. and the price expectations of consumers accelerated to a 4-month high. Also in the euro area, bank loans to households and firms each grew at an anemic 0.3% in the 12 months through May, and credit to the private sector went up just 0.6%.
Consumer confidence this month in Italy, Sweden, Portugal rose to the best level since the Russian invasion of Ukraine in February 2022. Business confidence strengthened to an 8-month high in Portugal, a 21-month high in Sweden, and a 25-month high in the Netherlands.
Business confidence in Italy weakened, however, to a 43-month low and fell to 9-month low in New Zealand. Turkish economic sentiment dropped 2.5% below May’s level to a 7-month low this month.
The annualized quarter-on-quarter U.S. GDP growth rate in 1Q 2024 was revised upward by 0.1 percentage point to 1.4%. Year-on-year growth is now estimated at 2.9%, same as in the prior report. Personal consumption growth of 1.3% was lower than thought previously, the drag from net exports was smaller.
Other U.S. data reported today put new jobless insurance claims at 233k last week, down from 239k and 243k in the previous two weeks. Non-defense orders for capital goods ex-aircraft sank 0.6% in May, defying expectations of a marginal uptick. The early bird estimate of the U.S. goods trade deficit ($100.2 billion) was 2.2% wider in May than April and topped $100 billion for the first time since May 2022.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of The Philippines, Central Bank of Turkey, Euroland economic sentiment, Swedish Riksbank, Trump-Biden debate
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