Rout of Stocks and Bonds Intensifies, Sending the Dollar to Fresh Two-Decade High
September 1, 2022
Manufacturing purchasing manager surveys for August showcased real-sector pain from elevated inflation and supply delays. Such also reveal some progress on the inflation front (but not enough so for central bankers to halt their counter-attack to restore price stability).
Equity markets in the Pacific Rim fell by 2.3% in South Korea, 2.0% in Australia, 1.9% in Taiwan, 1.8% in Hong Kong, 1.5% in Japan, 1.3% in Indonesia but only 0.5% in China. The British, German and French stock exchanges are down over 1.0%, and so are the SPX and Nasdaq in futures trading.
The 10-year U.S. Treasury, British gilt, and German bund yield uptrends have been extended by nine, eight, and five basis points, and even their Japanese counterpart went up two bps today.
Prices for WTI oil, Bitcoin, and gold fell so far this Thursday by 1.8%, 1.4% and 1.2%, proving that commodities even in times of very elevated inflation offer no refuge for investors seeking a haven from risk.
The weighted DXY dollar index hit its strongest level today since 2002. Overnight dollar gains currently amount to 1.2% against the euro, 1.0% versus sterling, 0.7% relative to the Japanese yen, Australian dollar, New Zealand dollar and Mexican peso and 0.5% vis-a-vis the Canadian dollar.
The U.S. manufacturing S&P Global purchasing manager index dropped 0.7 points in August to a 25-month low of 51.5. The ISM manufacturing PMI matched July’s 25-month low of 52.8. New U.S. jobless insurance claims last week totaled 232k, down 5k compared to the prior week. Analysts were expecting a rise in such claims. Meanwhile, revisions were announced in last quarter’s slide of labor productivity, now estimated to have dropped 4.1% at an annualized rate, and unit labor costs, which soared 9.3% year on year. And U.S. construction spending fell 0.4% further during July.
Euroland’s manufacturing PMI reading for August was revised down 0.1 point to a 26-month low of 49.6. That represents a 5-point drop since May. One silver cloud in the survey was that subindices for input and output price inflation were at 19- and 16-month lows.
Individual factory PMI readings for Euroland’s member countries ranged from a 26-month low of 48.0 in Italy to a 22-month low of 52.6 for the Netherlands.
Britain’s manufacturing PMI printed at a 27-month low of 47.3 in August compared to 54.6 as recently as May.
The Swiss manufacturing PMI reading of 56.4 in August was its lowest in 21 months and down from 60.0 in May.
Sweden‘s manufacturing PMI of 50.6, represents a 40-month low, and Norway‘s 52.3 PMI score indicates the weakest growth in 19 months. Denmark‘s manufacturing PMI had dived from 71.3 in June to 38.1 in July. A rebound to 48.0 in August left the value below the key 50 threshold that delineates deterioration from show but positive growth.
Among Eastern European August PMI surveys, Hungary’s index edged down 0.2 points to a 2-month low of 57.8. Poland’s reading of 40.9 was weaker than projected and represents a 27-month low. The Czech PMI remained unchanged from July’s 23-month low of 46.8. But in Russia, and despite western sanctions, the PMI rose to a 7-month high of 51.7 and exceeded 50 for a fourth straight time.
Moving on to the Pacific Rim, Japan’s manufacturing PMI for August was revised up 0.5 points above the initial estimate but, at 51.5, was still the weakest level in 11 months. And in China, whose factories have been contending with Covid disruptions and power shortages, the PMI index fell to a 3-month low and back below the 50 no change threshold to a weaker-than-forecast 49.5.
The Indian PMI slid to a 2-month low of 56.2, while the Filipino PMI scores rose to 2-month high of 51.7. The South Korean PMI reading of 47.6 (a 25-month low) and Taiwanese reading of 42.7 (a 27-month low) were significantly in contractionary territory. But Thailand’s PMI, a series dating back only to 2016, rose to a record high of 55.7.
Among Australia’s two manufacturing purchasing manager surveys, the AIG index fell three points to a 7-month low of 49.3, while the S&P Global index dropped 1.8 points to a one-year low of 53.8.
Canada’s manufacturing PMI sank 3.8 points and swung from 52.5 in July to a 26-month low of 48.7 last month.
Brazil‘s PMI reading of 51.9 was the lowest since 51.8 scored in April, and Mexico‘s index held steady at July’s 5-month low of 48.5.
The Absa-compiled South African manufacturing PMI recovered almost all of its July plunge, rising from 47.6 in the earlier month to 52.1 in August.
Other data highlights today featured a 0.1 percentage point dip in Euroland’s unemployment rate to 6.6% in July from 6.7% in June and 7.7% in July 2021.
German retail sales posted a volume increase of 1.9% in July, reversing June’s drop of 1.5% and slashing the 12-month rate of decline to 2.6% in July from 9.6% in June.
Swiss consumer prices rose 0.3% in August, nudging the 12-month inflation rate to a 29-year high of 3.5%.
Indonesian consumer price inflation settled back from a 21-month high of 4.94% in July to 4.69% in August. Core inflation was only 3.0%, however.
Italian GDP growth last quarter was revised up 0.1 percentage point to show gains of 1.1% from 1Q and 4.7% from 2Q 2021.
Austrian second-quarter GDP growth was revised higher to 1.5% versus 1Q and 6.0% from the same quarter a year earlier.
The British Nationwide house price index recorded the smallest year-on-year increase (10.0%) in August since November 2021.
Business confidence in Mexico weakened to a 9-month low in August.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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