Renewed Financial Market Volatility
July 17, 2024
World financial markets are operating under the presumption that former President Donald Trump will be returned to the White House in this November’s election. Trump leads with a style that creates a steady diet of news feed headlines, not always in the some direction, and that has the habit of accentuating day-to-day and intra-day financial market headlines.
Yesterday was a steady session for the dollar, a banner day for equities and drops in long-term interest rates. The second day of the Republican Party national convention in Milwaukee fleshed out the policy agenda of a second Trump presidency and included a headline that Trump wants Taiwan’s government to pay the bill for its defense as well as the usual threat to lift import tariffs.
The dollar fell 0.5% on a trade-weighted basis overnight, led by losses of 1.2% against the Japanese yen and 0.9% relative to the Swiss franc. Stock markets closed lower this Wednesday by 1.0% in Taiwan and 0.8% in South Korea, and key European bourses are mostly in the red, including drops so far of 0.6% in the German DAX and 0.5% in the Paris CAC. Given the importance of Taiwan to the Tech sector, it’s not surprising that Nasdaq futures are 1.4% lower in pre-open U.S. trading or that the SPX has lost 0.9% after hitting a record high on Tuesday. The DOW’s gain yesterday exceeded 700 points, but it’s somewhat lower in after-hours trading.
Other market forces are notably at play, notably the increasing probability that traders are attaching to a Federal Reserve interest rate cut in September. That’s accentuated by speculation that Bank of Japan officials are becoming more amenable to a rise in long-term interest rates in their economy. The yen has rebounded from a 38-year trough of 162 per dollar last week to a 3-month high of 156.1 touched overnight.
Alternative monies are expected to flourish if Trump gets elected. The price of gold hit a record high of $2,476 per troy ounce overnight, and bitcoin tokens that went for less than $56,000 on July 7 are now worth over $64k.
Quite a few countries reported price data earlier today. CPI inflation during June in the euro area was confirmed at the preliminary pace of 2.5%, a 2-month low. The core rate held steady at May’s 2.9% and has hovered narrowly between 2.7% and 2.9% for four straight months.
British consumer prices edged only 0.1% higher on month in June but their 12-month rate of increase stayed at 2.0%, a 35-month low, rather than dipping to 1.9% as analysts had been anticipating. Core British CPI inflation likewise matched May’s result, a 32-month low of 3.5%.
British producer output price inflation slid back 0.3 percentage points to 1.4% from May’s 1.7% one-year high. Producer input prices fell 0.8% on month and 0.4% on year in June.
Czech producer price inflation held steady in June at just 1.0%, while a 2.0% year-on-year rise in Portuguese PPI inflation was the most in 15 months but still far beneath the peak of 22.4% hit two years earlier.
Austrian consumer price inflation dropped 0.4 percentage points to a 35-month low in June of 3.0%.
New Zealand consumer price inflation slowed to 3.3% last quarter from 4.0% in the first quarter, 6.0% in the second quarter of 2023, and a peak of 7.3% in the second quarter of 2022.
U.S. economic data reported today highlighted
- Three-month highs in housing starts and building permits, which respectively exceeded May levels by 3.0% and 3.4%.
- A 13-basis point drop last week in the 30-year fixed mortgage rate that was associated with 3.9% revival in mortgage applications after back-to-back declines of 2.6% and 0.2% in the prior two weeks.
- A 0.6% on-month increase in industrial production last month, twice market expectations and resulting in the largest year-on-year advance (1.6%) in a year and a half.
- Capacity usage improved half a percentage point to a 9-month high of 78.8% in June.
In other data news, South African retail sales fell 0.4% in May but were still 0.8% above their year-earlier level. Singapore’s trade surplus in the first half of 2024 was 26% smaller than a year earlier. A tepid reading in a leading Australian economic indicator points to continuing soft growth the rest of this year.
Officials at Bank Indonesia left their policy interest rate at 6.25%, which represents its highest point in a bit over eight years. It’s been at 6.25% since a 25-basis point hike in April that culminated a tightening cycle begun in August 2022. From February 2021 to then, the rate had been at 3.5%. Indonesian CPI inflation of 2.5% in June was aligned with the center of the central bank’s medium-term target and its lowest point in nine months. Growth looks solid, and the policy focus remains on maintained a stable currency and consistently low inflation.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Euroland and British CPI inflation, Trump and the dollar, U.S. industrial production and housing starts
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