Third Night of RNC Convention Goes Well, Japanese Ministry of Finance Likely Intervened Again, Chinese Economic Plenum Winds Up and ECB Decision Arrives Momentarily
July 18, 2024
By most accounts, the third night of the Republican Party National Convention in Milwaukee was highly successful. Vance did well, and all in all the likelihood of a Trump victory and Republican control of both congressional houses was enhanced.
China’s Third Plenum, which maps out a five-year economic plan, wrapped up. Few details are known yet beyond the approval of Xi’s proposed continuing stress on high tech industries.
The dollar hit a new air pocket against the Japanese yen overnight, falling to a new low of JPY 155.39, representing a 4.1% cumulative slide from last week’s 38-year high. Direct currency market intervention at the direction of the Ministry of Finance is strongly suspected.
The imminent decision of the European Central Bank is expected to keep interest rates unchanged but hint of a possible September move, by which time more inflation information will be known and the political situations faced by the United States, France and NATO may been better clarified.
Interest rate decisions are also awaited from monetary authorities in South Africa and Egypt.
In overnight financial market action,
- The dollar ticked 0.1% higher on a weighted basis, including gains of 0.2% against sterling and 0.1% versus the euro.
- Ten-year sovereign debt yields remained flat in Japan and Great Britain but rose by three basis points in the United States, two bps in Germany, France and Spain.
- Japan’s Nikkei-225 index tumbled 2.4%. Stock markets in other Asian geopolitical pressure points also lost ground, falling 1.6% in Taiwan and 0.7% in South Korea. An isolationist U.S. foreign policy is a central and proposal of the Republican Party this year and highly popular, given the long string of expensive and failed forever wars that includes Vietnam, Iraq, Iraq and Afghanistan.
- European stock markets are moderately firmer, and Nasdaq and SPX futures are up modestly.
- Bitcoin rose 1.1% overnight. The Republican presidential ticket is fond of crypto currencies, especially Vance who reportedly has some personal skin in that market.
- Another safe haven, gold, rose 0.3%, while oil is essentially flat in price.
The Governing Council of the ECB left its key refinancing rate unchanged as expected at 4.25% and reaffirmed a measured and predictable draw-down of the central bank balance sheet. An initial 25-basis point rate cut was undertaken after the prior scheduled meeting in June. The rate’s peak of 4.50% had been maintained from October 2023 until June 2024 and contrasted with 0.0% from March 2016 until July 2022. A released statement characterizes the current policy stance as appropriately restrictive, attributes an upward hiccup of inflation in May to one-off factors, opines that high wage growth is being “buffered by profits,” but identifies sticky service sector prices as a continuing problem. Overall, CPI inflation, which stood at 2.5% in June, is not expected to return to the 2% target in a sustainable way until sometime next year.
Today’s economic data menu included British labor statistics that showed another sizable 32.3k rise in new jobless claims on top of May’s jump of 51.9k; an unemployment rate of 4.4% in March-May, up from 4.2% in the previous 3-month period and 3.9% in September-November 2023; but also further deceleration in the growth of average weekly earnings to 5.7% in March-May from 6.1% in December-February and 7.9% in May-July 2023.
Japan’s seasonally adjusted customs trade deficit widened 27% on month to JPY 817 billion last month. The unadjusted trade balance swung from a JPY 1.220 trillion deficit in May to a JPY 224 billion surplus in June. the surplus’s increase from JPY 37 billion in June 2023 mainly reflected much weaker-than-expected 3.2% import growth and helped to shrink the quarterly deficit from JPY 1.767 trillion in 1Q 2024 to JPY 1.467 trillion last quarter.
Australian labor market data for June were mixed. While the jobless rate returned to April’s 4.1% from 4.0% in May, employment growth of 50.2k in June after 36.2k in April and 39.4k in May was the third outsized advance in a row.
Reflecting the long stretch of tight ECB policy, construction output in the euro area contracted 0.9% in May. The last monthly increase occurred in January, and a 2.4% 12-month rate of decline was the weakest result in 39 months.
Switzerland’s CHF 4.9 billion trade surplus during June was its widest in nine months. The surplus of CHF 21.4 billion in the first half of 2024 was 18% larger than a year earlier.
Polish producer prices ticked up 0.1% last month, shrinking the rate of PPI deflation (i.e. in subzero territory) to -6.1% from -7.0% in May and a record -10.6% in January. That’s still a huge transformation from +25.3% in July 2022.
The Philly Fed manufacturing index improved to a 3-month high of 13.9 in June from 1.3 in May. U.S. jobless insurance claims jumped 20k to 243k last month, and its four-week moving average exceeded 230k for a fifth straight time. By comparison, the 4-week average in late February/early March had been a tad below 210k.
The South African Reserve Bank’s repo rate was left unchanged at the 8.25% peak first reached after a 50-basis point hike in March 2023. The rate had earlier been as low as 3.50% from July 2020 until November 2021. Inflation had peaked at 7.8% in July 2022 and was almost as low as the 4.5% target at 4.7% a year later. However, inflation as of this past May was at 5.2%, and measures of expected medium-term inflation also exceed 4.5%. While two policymakers were prepared to cut the repo rate now by 25 basis points, the policy-making committee majority opted for continuing patience.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor market statistics, European Central Bank, Japanese and Swiss trade balances, Republican National Convention, South African Reserve Bank
ShareThis
