Extreme Stock Market Volatility in China, Central Bank News in New Zealand, India and the U.S., and Historic Storm Front Heading for Florida
October 9, 2024
The Shanghai Composite equity index tumbled 6.6% today, more than reversing yesterday’s 4.6% advance. China’s finance minister reportedly will announce a set of fiscal stimulus measures on October 12, but investors doubt such will amount to what that economy currently needs.
The Reserve Bank of New Zealand’s Official Cash Rate was cut at today’s scheduled Board meeting to 4.75% from 5.25%. A previous 25-basis point initial reduction at the prior policy review in August ended fifteen months of being kept at a peak of 5.5%. Noting in a released statement that economic activity is subdued in New Zealand and below trend in the global economy, members of the Monetary Policy Committee assert that the new 4.75% OCR level still represents a restrictive stance and “consistent with ensuring low and stable inflation.” Officials believe that “annual consumer price inflation is within its 1 to 3 percent inflation target range and converging on the 2 percent midpoint.” There was a discussion about whether to cut the rate by 25 or 50 basis points, resulting in a decision that favored the more forceful move. CPI inflation had dropped from 7.3% in the second quarter of 2022 to 3.3% two years later, and GDP had declined 0.5% between the second quarters of 2023 and 2024. From a pandemic floor of 0.25% maintained from March 2020 until October 2021, the OCR had been lifted 50 bps in 2021, 350 bps in 2022 and 125 bps during the first half of 2023.
Although the Reserve Bank of India‘s repo rate was left unchanged at 6.5% — the level since a 25-basis point hike in February 2023 — officials there just switched the stance from “disinflationary” to “neutral.” This important step before actually lower the interest rate was surrounded with great caution:
The prevailing and expected inflation-growth balance have created congenial conditions for a change in monetary policy stance to neutral. Even as there is greater confidence in navigating the last mile of disinflation, significant risks – I repeat significant risks – to inflation from adverse weather events, accentuating geopolitical conflicts and the very recent increase in certain commodity prices continue to stare at us. The adverse impact of these risks cannot be underestimated.
CPI inflation in India had fallen from a crest of 7.79% in April 2022 to a 59-month low of 3.6% this past July, this is slightly below the mid-point of the 2-6% target. Growth has slowed but remains robust.
Minutes from last month’s FOMC meeting will be published this afternoon.
The biggest Gulf of Mexico hurricane in two decades is headed for the middle of Florida’s west coast. Milton’s landfall is projected for late tonight or early Thursday. It will then rip across the state and exit into the Atlantic, leaving immense damage over much of the state. With the U.S. election now less than four weeks away, one can only imagine the predicament of Governor DeSantis had he won the Republican presidential nomination.
In overnight financial market action, the dollar’s most significant move was a 0.8% appreciation against New Zealand’s currency following the big central bank rate cut in that country. The dollar also gained 0.3% versus the yen, 0.2% against the loonie, and 0.1% relative to the euro, while dipping 0.1% vis-a-vis the Swiss franc.
Ten-year sovereign debt yields fell by two basis points in the U.K. but ticked a basis point higher in Japan and the United States. The German bund yield is a basis point lower, and the French, Italian and Spanish counterparts are steady.
Stock markets dropped 1.4% in Hong Kong, 0.7% in Indonesia, 0.6% in in South Korea, and 0.3% in India, but a 0.9% rise in Japan’s Nikkei trimmed Tuesday’s even biggest slide. There’s been scant net change in U.S. stock futures or the prices of Bitcoin and gold.
West Texas Intermediate oil is 0.8% higher in price.
On the data release front, the German trade surplus widened to a seasonally adjusted 3-month high in August of 22.5 billion euros, thanks to an unexpected 3.4% drop in imports. That was up from EUR 16.9 billion in July but similar in size to monthly averages of EUR 22.8 billion in the second quarter and EUR 23.6 billion in the first quarter.
Taiwanese consumer price inflation slowed to an 8-month low of 1.8% in September and was half the pace of the peak in June 2022 of 3.6%. Toward the other end of the spectrum, consumer price inflation in Egypt of 26.4% last month was closer to its peak of 38.0% a year earlier than its trough of 3.1% in October 2019.
Norwegian producer prices were 2.9% lower in September than a year earlier, ending a four-month streak of positive PPI inflation. Lithuanian PPI inflation was also subzero at -5.2% last month, down from +33.7% in mid-2022.
Japanese machine tool orders fell 6.8% year-on-year in September. That’s a steeper drop than the one of 2.8% in January-September.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German trade surplus, Reserve Bank of India, Reserve Bank of New Zealand
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