China and Japan Grab the Early Focus, but U.S. Personal Consumption and PCE Deflation Are Now On Deck
September 27, 2024
China’s previously announced 50-basis point cut in the required bank reserve ratio and several interest rate cuts took effect today, lending further support to that country’s stock market. The Shanghai Composite index and Hang Seng index of Hong Kong closed 2.9% and 3.6% higher today. The need for policy stimulus was underscored by the release of Chinese corporate profits data, showing a 17.8% year-on-year plunge in August (worst result in 16 months and leaving profit growth in January-August up just 0.5%.
A reported 0.5% monthly drop in Tokyo core consumer prices this month depressed its year-on-year pace to 2.0% from 2.4%. This leading indicator of national inflation raises doubt about how soon the Bank of Japan will raise its interest and how quickly. Some BOJ Board members remain unconvinced that inflation is going to stay at the 2.0% target or above such. Indeed, Tokyo CPI excluding energy as well as fresh food is already significantly below 2.0%. Japan’s Nikkei jumped 2.3% on this report, and the yen recovered more than 1% against the dollar.
China’s stimulus did not provide coattails for other Asian stock markets. South Korea’s Kospi index, for example dropped 0.8%. European stocks were in the black just before the release of key U.S. data, led by a 0.9% advance in the German Dax, while U.S. stock futures were merely treading water, holding onto recent gains but not extended such.
The dollar aside from the aforementioned sharp setback against the yen, rose 0.2% overnight against sterling and 0.1% versus the loonie and euro but also had fallen 0.2% against the Swiss franc. Bitcoin and oil prices was 0.4% and 0.3% higher, while gold had edged down 0.2%.
Ten-year sovereign debt yields had fallen three basis points in Germany, the U.K., Italy and Spain, four bps in France and two bps in the United States. The Japanese 10-year JGB yield, by contrast, was two basis points higher.
U.S. personal income, personal consumption, and the PCE price deflator in September printed a tad below expectations. One would expect that to reinforce risk-on investor behavior, but the instant reaction of U.S. stock futures has been modest. Personal income and spending each grew 0.2%, and real personal consumption went up just 0.1%. All of those advances was smaller than the August results. On-year inflation measured by the overall PCE price deflator slowed 0.3 percentage points to a 42-month low of 2.2%, having peaked in mid-2022 at 7.1%. Core PCE inflation edged up 0.1 percentage point to a 3-month high of 2.7% but matched analyst forecasts and was roughly half its peak pace of 5.6% in February 2022. Fed officials consider the restoration of in-target inflation mostly attained and have turned their attention to ensuring that the employment situation doesn’t soften significantly further.
Since the onset of the Covid pandemic almost five years ago, inflation’s rise and fall has been a global phenomenon. Political leaders around the world have borne the brunt of the blame for price elevation, when in truth the virus, not fiscal or monetary policies, were largely responsible for what happened. And it is not surprising given the confluence of inflation cycles that the Fed is hardly alone in now being able to return interest rates to more normal levels.
The Bank of Mexico‘s policy rate was cut late yesterday to 10.5% from 10.75%. That was the third reduction following others of 25 bps done in August and March of this year. A peak of 11.25% had been maintained for a full year from March 2023 until March 2024. Core Mexican CPI inflation is now at 4.0%, down from 8.5% in November 2022. But at 10.5%, the central bank interest rate remains far above the pandemic trough of 4.0% abandoned in mid-2021. Mexican officials remained concerned that measures of expected inflation remain quite elevated and are proceeding cautiously.
At the Central Bank of Sri Lanka, officials did not cut their 8.25% policy interest rate at this month’s scheduled review, but reductions totaling 75 basis points in 2024 (including a move at the prior meeting) and 725 basis points since mid-2023 had been done earlier. CPI inflation in Sri Lanka had imploded from 67.4% in September 2022 to just 0.5% this past August.
European data reports today did nothing to dissuade speculation that the ECB will cut its rate again soon.
Spanish CPI inflation declined 0.8 percentage points to 1.5% in September, having peaked in July 2022 at 10.8%. Core inflation is at a 32-month low of 2.4% versus 7.6% in February 2023.
In France, consumer prices recorded their largest monthly drop in three decades, falling 1.0% on month in September and posting the smallest 12-month increase (just 1.2%) in 32 months. French producer prices in August were 6.3% lower than a year earlier. A third piece of French data out today showed household consumption rising 0.2% for a second straight month in August.
Belgian CPI inflation ticked up to 3.1% in September from the 7-month low of 2.9% in August but remained far down from a peak of 12.3% in October 2022.
Irish wholesale prices sank 4.3% on month and 1.7% on year in August.
A monthly measure of expected inflation out a year in the euro area eased to a 35-month low of 2.7% in August.
Italian producer prices were 0.8% lower in August than a year earlier, extending the streak of producer price deflation that began in April 2023. Italian industrial sales fell 0.4% on month and 4.7% on year in July.
Icelandic CPI inflation of 5.4% in September was its lowest in 33 months.
Latest readings of consumer confidence were at at 4-month low in Finland, a 35-month high in Portugal, a 7-month low in Slovakia, a 54-month high in Taiwan, and a 32-month high in New Zealand.
Economic sentiment in the euro area during September was at a 2-month low and slightly below analyst expectations. Sentiment in the industrial sector was at a 50-month low, and the retail component also lost more ground. The service and construction sector components were higher than in August, however.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, Central Bank of Sri Lanka, Chinese corporate profits, French and Spanish consumer prices, Tokyo CPI, U.S. personal spending and PCE price deflator
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