Little Doubt that ECB Will Be Cutting its Interest Rate Today. Also Awaiting Turkish Central Bank Decision and Several U.S. Data Releases
October 17, 2024
Consumer price inflation in the euro area last month was just revised downward by a tenth of a percentage point to a 41-month low of 1.7%. That’s below target and down from the October 2022 peak of 10.6%. Between June and September, consumer prices were unchanged on balance. With today’s revision, service sector revision has finally edged under 4.0%, and energy costs were 6.1% lower than a year ago.
Euroland growth has remained soft as well, providing even more impetus for an expected ECB rate cut later today. Trade data out today are the latest evidence of sluggish growth. A seasonally adjusted of EUR 11.0 billion surplus in August represents a 10-month low, as exports unexpectedly dipped 0.1% below July’s level. On an unadjusted basis, the surplus of EUR 4.6 billion was only a quarter the size of what analysts had been anticipating and down from a January-July average surplus of EUR 17.9 billion.
Switzerland’s trade surplus of 3.9 billion francs in September was its smallest in five months.
Japan’s trade balance swung from a JPY 61 billion surplus in September 2023 to a deficit of JPY 294 billion last month, as exports declined 1.7% year-on-year. September coincides with the end of the first half of fiscal 2024, a period in which exports climbed 6.6% and and the trade deficit was JPY 3.107 trillion. On a seasonally adjusted basis, Japan’s deficit last month narrowed to JPY 187 billion from JPY 472 billion in August. A separate Japanese release this Thursday showed a 1.1% monthly drop in the tertiary index that left such only 0.7% above its year-earlier level.
In forex trading overnight, the dollar stayed unchanged against the euro and yen but dipped 0.4% versus the Australian dollar and 0.1% relative to sterling.
Australia experienced another robust rise in jobs (64.1k) last month, but the unemployment rate printed at 4.1% for the fifth time this year.
Investors conveyed an unimpressed reaction to the latest effort by Chinese government officials to promote faster growth through making credit more available for property developers. Share prices today closed down by 1.1% in China, 1.4% in Hong Kong, 0.7% in Japan and 0.6% in India. European and Australian equities and U.S. stock futures are in the black, in contrast.
Ten-year sovereign debt yields have risen two basis points in the U.S., Germany, France and Spain and by a basis point in the U.K. and Japan.
The price of bitcoin retreated 0.8%, while those of oil and gold are up 0.3%.
Portuguese producer prices fell 1.0% last month, halving the 12-month rate of increase to a 4-month low of 0.9%. PPI inflation in Portugal crested in mid-2022 at 22.4%.
As was expected, the Central Bank of Turkey’s one-week repo rate was left unchanged at 50.0%. It’s been at that level (its highest since April 2002) since hikes of 250 basis points and 500 basis points last January and March. Those increases in turn followed a series of steep increases from June through December 2023 that lifted the key rate from 8.5% to 42.5%. A statement from Turkey’s Monetary Policy Committee concedes that a slight increase in underlying trend of consumer price inflation occurred in September and warns that “nflation expectations and pricing behavior continue to pose risks to the disinflation process.” A promise is repeated that a tight monetary stance will be maintained “until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range.” 49.4% CPI inflation in September was a bit higher than analysts had been anticipating.
A decision to cut European Central Bank interest rates by 25 basis points has now been confirmed, bringing the deposit, refinancing and marginal lending facility rates to 3.25%, 3.40% and 3.65%. Rates were also reduced at the previous monetary policy review on September 12, making this the first pair of consecutive cuts since ones at the final two governing council meetings in 2011. While decisions remain data dependent and meeting-to-meeting, the data conditions made today’s decision appropriate. Inflation fell below the 2.0% target last month to 1.7%, and there have been “recent downside surprises in indicators of economic activity,” according to today’s statement. Officials want to see wage growth slow further and expect inflation to edge back over 2.0% this quarter before settling back to target in 2025. Overall policy remains restrictive, and balance sheet reduction continues. PEPP-acquired asset holdings have been dropping EUR 7.5 billion per month, and that pace will increase next quarter.
U.S. weekly jobless claims, September retail sales and the October Philadelphia Fed survey of manufacturers in their district were all better than expected. A 19k decline in new claims last week didn’t prevent their 4-week average from rising to an 8-week high. Nominal retail sales went up 0.4% last month followed a 0.1% rise in August. Sales increased 1.3% for the quarter and were 2.3% higher than in 3Q 2023. The Philly Fed index rebounded to a 3-month high of 10.3 from readings of 1.7 in September and -7 in August.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Turkey, Euroland and Japanese trade balances, Euroland CPI inflation, U.S. retail sales
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