European Price Data Released And Now Awaiting the Fed’s Opening Rate Cut Move
September 18, 2024
Fed officials have already signaled a readiness to begin a cycle of interest rate cuts starting today but the size of this opening gambit will only then be disclosed. Investors are also hoping to get a better sense of the likely path rates take during the coming 6-12 months. The rate change’s size and updated macroeconomic forecasts are due at 14:00 EDT (18:00 GMT) and, as always, will be followed 30 minutes later by the chairman’s press conference.
The dollar fell overnight by 0.4% against the Swiss franc, pound sterling, and Australian dollar, 0.3% versus the Japanese yen, but just 0.1% vis-a-vis the euro and Canadian currency.
Ten-year sovereign debt yields are higher in advance of the Fed’s announcement. Increases range from six basis points in Italy and the U.K. down to five bps in France and Spain, four bps in Germany and three basis points in the United States.
U.S. stock futures show hardly any net change. Some Asian stock markets stayed closed for holiday, including those in Hong Kong and South Korea. Share prices closed up 0.5% in Japan and China but down 0.5% in Taiwan and 0.2% in India. European equities are showing a slight downward bias.
Prices of oil and Bitcoin have declined 0.8% so far, while gold is 0.4% firmer.
U.S. data reported early this Wednesday show more activity than imagined:
- Housing starts rebounded from a 6.9% drop in July with a 9.6% jump last month that catapulted their level to a 4-month high and to 3.9% above their year-earlier level.
- A 4.9% advance in building permits last month also surpassed analyst expectations after a 3.3% drop in July. Unlike starts, however, permits were 6.5% lower than a year earlier.
- Mortgage applications soared 14.2% last week following small upticks in each of the previous three weeks. A 6.15%, the 30-year fixed mortgage rate in the latest week was 14 basis points lower than in the prior week and down from 7.29% in the week of April 26th and a high of 7.90% touched in the week of October 20, 2023.
The monthly rise in euro area consumer prices during August has been revised downward to 0.1% from 0.2% estimated initially, but the common currency bloc’s on-year rates of inflation remain at 2.2% overall and 2.8% excluding food and energy. Energy prices (down 1.1% on month and 3.0% on year) were the main price depressant, whereas an increase in service sector prices of 0.4% from July and 4.1% from August 2023 remained problematic. The ECB’s deposit rate has been already cut twice this summer (25 bps each in June and September), and monetary officials are projecting that CPI inflation this year will average 2.5% overall and 2.9% for the core index before dropping to 2.2% and 2.3% next year and 1.9% and 2.0% in 2026.
British consumer price inflation of 2.2% in August matched July’s reading. A slightly lower 2.0% in May-June had been the lowest since July 2021 and down from a peak of 11.1% hit in October 2022. Core CPI in the U.K. rose from a 34-month low of 3.3% in July to a 4-month high of 3.6% last month. British producer prices, meanwhile, stayed very quiescent. The PPI-output index fell 0.3% on month and was just 0.2% above its year-earlier level, while the PPI-input index dropped 0.5% on month and 1.2% year-on-year. At their peaks in 2022, producer output and producer input price inflation reached 19.6% and 24.4%.
Among other data reported today,
South African consumer price inflation slowed to a 40-month low of 4.4% in August from 4.6% in July and a crest of 7.8% in 2022. Core CPI was even lower now at 4.1%. South African retail sales unexpected fell 0.2% in July, halving their year-on-year rise to 2.0%.
Portuguese producer prices stagnated last month; their 2.0% year-on-year pace was 0.1 percentage point above July’s reading but well under the 2022 high of 22.4%.
Construction output in the euro area was unchanged in July and 2.2% weaker than a year earlier. That’s the sixth straight 12-month drop.
Japan’s seasonally adjusted trade deficit of JPY 596 billion in August was its smallest since May, and the unadjusted JPY 695 billion shortfall was 26% narrower than the deficit in August 2023. Core private domestic machinery orders in Japan, a leading indicator of future business investment, underperformed expectations with a 0.1% dip in July. Public sector machinery orders fell, too, but foreign orders increased another 8.0%.
Consumer confidence in New Zealand improved this quarter, but that economy’s current account deficit/GDP ratio between mid-2023 and mid-2024 was significant at -6.7%.
There’s already been one central bank interest rate cut today. Officials at Bank Indonesia reduced their policy rate by 25 basis points to 6.0%, reversing the final piece of a tightening cycle that culminated this past April. A low of 3.5% had been maintained from February 2021 until August 2022. Juxtaposed against a target band of 1.5-3.5%, consumer price inflation in Indonesia has dropped to a 30-month low of 2.12% from 3.05% in March and 5.95% in September 2022. A statement of explanation lays out the following forward guidance:
Going forward, Bank Indonesia will continue to monitor the room for lowering the policy interest rate in accordance with the low inflation forecast, the stable and strengthening Rupiah exchange rate, and economic growth that needs to be continuously encouraged to be higher.
The Central Bank of Azerbaijan also held at scheduled review of monetary policy at which officials interrupted a series of prior cuts begun last November from a peak of 9.0% to the current level of 7.5%, which happens to be its lowest level since December 2021. CPI inflation in Azerbaijan jumped from 1.1% in June to a 9-month high of 2.7% in July. Hence, the policy interest rate was left unchanged at 7.5%.
Copyright 2024, Larry Greenberg. All rights reserved.
Tags: Bank Indonesia, Central Bank of Azerbaijan, Euroland and British consumer prices, U.S. housing starts and building permits
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