Quick Shift in Market Focus from U.S. Political Chaos to the Price of Oil and Tomorrow’s U.S. Jobs Report
October 5, 2023
The price of West Texas Intermediate crude oil plunged around 12% from last Friday’s high of $93.68 to an overnight low of $82.35. The much lower-than-presumed 89k estimated September rise in private U.S. jobs by ADP has raised concerns about U.S. and world demand. So has a surprisingly big increase in U.S. oil inventories last week. The monthly meeting of OPEC Plus oil ministers did not modify production plans.
In overnight currency market action the dollar settled back 0.5% against the kiwi, 0.3% versus the Swiss franc and Australian dollar, 0.2% relative to the euro and yen and 0.1% vis-a-vis sterling. The price of oil is currently 1.6% below Wednesday’s close, while bitcoin and gold are barely changed.
Ten-year German, British, and Japanese sovereign debt yields are likewise unchanged, while the 10-year U.S. Treasury yield as eased two basis points. Since briefly penetrating the 5.0% threshold 30 hours ago, the 30-year Treasury yield has retreated to 4.89%.
Chinese markets remain closed for the week’s National Holiday. Elsewhere in the Pacific Rim, Japan’s Nikkei closed up 1.8%, Taiwanese share prices climbed 1.1%, and the New Zealand and Indian bourses recovered 0.6%. The British Ftse and Spanish Ibex are 0.6-0.7% higher, but other European exchanges and U.S. stock futures are fairly steady.
The Central Bank of Sri Lanka has implemented its third interest rate cut since June. The first two reductions had totaled 450 basis points, and today’s percentage point cut depresses the rate benchmark to 10.0%, which still far exceeds current inflation. After cresting at a record high of 69.8% in September 2022, the 12-month rise in consumer prices has imploded to an 8-year low of 1.3%, and a released statement speaks of falling inflation expectations as well. Earlier, the central bank interest rate had risen from a pandemic low of 4.5% from July 2020 to August 2021 all the way to a peak of 15.5% from March-June of this year.
Rising CPI inflation has been reported today in Cyprus, Taiwan, the Philippines and South Korea:
- Cypriot consumer price inflation accelerated from 1.5% in July to a 6-month high of 4.0% last month, thanks to month-on-month CPI increases of 0.9% in August and 1.1% in September.
- Taiwanese CPI inflation of 2.9% in September represents the highest point since January and an acceleration from 2.5% in August, 1.9% in July, and 1.75% in June.
- Filipino September CPI inflation also surprised on the upside with a four-month high reading of 6.1% after 5.3% in August and 4.7% in July.
- South Korean CPI inflation rose to 3.7% in September, a 5-month high, from 3.4% in August and 2.3% in July.
- In Thailand, by contrast, CPI inflation dropped 0.6 percentage points to a 3-month low of 0.3% last month.
Among today’s batch of purchasing manager surveys,
- Hong Kong’s private PMI index slipped 0.2 points to a 2-month low of 49.6, indicating modestly slowing activity.
- India’s composite and service sector purchasing manager indices rose to 2-month highs of 61.0.
- The British and German construction PMI scores of 45.0 and 39.3 in September represent 40- and 41-month lows and signify sharply contracting construction activity in the face of high interest rates and weak demand.
- The Italian, French and whole euro area construction PMI readings recovered, in contrast, to 10-, 3-, and 3-month highs. But their levels of 49.8, 43.7, and 43.6 remained beneath the 50 threshold of neutrality between positive and negative growth.
Germany’s seasonally adjusted trade surplus of EUR 16.6 billion in August surpassed analyst expectations and July’s EUR 15.9 billion surplus, but only because exports (down 1.2%) fell more sharply than imports (-0.4%). The main takeaway, therefore, is the weakness of demand in Europe’s largest economy and mutually reinforcing softness in its surrounding trading partners. The unadjusted trade surplus improved from EUR 0.4 billion in August 2022 to EUR 14.4 billion in August 2023. Exports and imports posted on-year declines of 5.8% and 16.7%.
During August, industrial production in France fell 0.3% on month and 0.5% on year, while IP in Spain dropped by 0.8% on month and 3.4% on year.
Today’s latest weekly U.S. jobless insurance claims, a gain of 207k and 4-week average increase of just 208.75k, depicts a much tighter labor market than the aforementioned ADP-compiled jobs estimate announced yesterday. ADP, in theory, ought to be a pretty good leading indicator of the Labor Department figures that arrive two days later, but in practice there have been a number of times when the two disagreed sharply.
The U.S. goods and services trade deficit in August of $58.3 billion was its smallest shortfall in 35 months and below analyst forecasts. The average deficit over the first seven months of 2023 had been $67.1 billion. Export growth has been weak, but import growth has been negative 0.7% for August alone and -4.3% for January-August.
Canada had accrued trade deficits totaling C$ 8.0 billion in May-July but unexpectedly posted a C$ 720 million surplus in August. The year to date net deficit through August is 5.8 billion.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland and British construction PMIs, German trade balance, U.S. and Canadian trade balances
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