Second Quarter Euroland GDP Growth and Some Central Bank Rate Announcements
July 30, 2024
A 0.6% rebound of the dollar against the Japanese yen was the singular significant movement overnight in the U.S. currency.
The 10-year Japanese JGB yield fell two basis points, moving through 1.0% to 0.99%. Comparable U.S. and British sovereign debt yields didn’t change, but the German counterpart edged a basis point higher.
More troubling Chinese data ( a 29.1% on-year plunge in foreign direct investment) set the stage for softer Asian equities, including drops of 1.4% in Hong Kong, 1.0% in South Korea, and 0.4% in China. Japan’s Nikkei-225 index closed 0.2% firmer, and share prices are up 0.4% in Germany, France and Spain.
Despite former President Trump’s endorsement of oil and crypto, Bitcoin’s price is down 0.9%, and the WTI oil price fell by 0.7%. Gold is 0.3% higher.
The initial estimate of quarterly GDP growth in Euroland last quarter of 0.3% matched the first-quarter pace and lifted the on-year comparison to a five-quarter high of 0.6%. This somewhat better-than-expected outcome was led by Spain (+0.8% on quarter and +2.9% on year) but masks quarterly GDP contractions of 1.1% in Latvia and 0.1% in Germany. German GDP also was 0.1% lower than in the second quarter of 2023.
Swedish GDP in 2Q 2024 fell by 0.8% on quarter and was unchanged from a year earlier. Hungary also experienced a quarterly GDP dip of 0.2%.
Economic sentiment in the euro area for July also has been reported, showing a five-month low of 95.8. Sentiment in the industrial sector and services declined to their lowest levels in 49 and 10 months, respectively. Labor market conditions and inflation expectations softened in the joint currency bloc.
A trio of central banks (Armenia, Kyrgyzstan, and Georgia) have served the role of warm-up act to more eagerly awaited central bank news later this week.
The Central Bank of Armenia’s reference interest rate was reduced by a quarter percentage point to 7.75%. This cut hadn’t been anticipated and brings the cumulative decline in 2024 to 150 basis points thus far. At peak the rate had been 10.75%% from December 2022 until June of 2023. Inflation currently in Armenia is comfortably below the 4% target, but officials are staying cautious because of perceived geopolitical uncertainties.
The National Banks of Georgia and Kyrgyzstan left their policy interest rates unchanged at 8.0% and 9.0%, respectively. Georgia rate was lowered by 150 basis points last year and by an equal amount again during the first half of this year. Georgian CPI inflation has risen from zero percent in January 2024 to 2.2% at midyear but remains below the target of 3%. In Kyrgyzstan, the central bank interest rate crested at 14% from August 2022 to November 2022 but was cut twice by 200 basis points each time earlier this year. CPI inflation has slowed to 4.2% as of this month from a peak of 16.2% right after Russia initially invaded Ukraine.
German CPI inflation ticked up to 2.3% in July, according to a preliminary estimate out today. Spanish consumer price inflation slowed to 2.8% from 3.4% in the previous month and 10.8% in July 2022.
Japanese unemployment slid 0.1 percentage point to a 5-month low of 2.5% in June.
U.S. data reported later this morning tell a story still consistent with a possible Fed rate cut in September.
- The Conference Board consumer confidence index recovered to a 2-month high but, at 100.3, remained depressed in July at 100.3 versus the 110.9 reading six months earlier.
- The June JOLTS figures compiled by the Labor Dept revealed the second fewest job openings since the Trump years and a 43-month low among job quits.
- May measures of house price inflation dropped to a 5-month low in the Case-Shiller composite index and a 10-month low in the FHFA indicator.
Today is the start of a 2-day FOMC meeting that almost certainly will not change policy settings but may send a more forceful signal for the possibility of a rate cut in September. Neither U.S. share prices nor the dollar nor the 10-year Treasury yield reacted much to today’s U.S. data reports.
But the Mexican peso lost some ground following Mexican economic reports showing only half as much GDP growth last quarter as was expected and a $1.03 billion trade deficit when analysts were expecting a surplus.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland GDP and economic sentiment, German CPI, Mexican GDP, National Bank of Armenia, National Bank of Georgia, National Bank of Kyrgyzstan
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