Far-Right Political Ascendance Around World Freaking Out Financial Markets – Currency Thoughts
Far-Right Political Ascendance Around World Freaking Out Financial Markets
June 14, 2024
The relationship between investors and left-right political balance is complicated. On the one hand, the very, very rich enjoy the tax policies favored by far-right politicians. At the same time, all market participants acting in concert are clearly unsettled by the swing of voters toward extreme-right politics. The biggest political event of 2024 will be the U.S. presidential election in November, but right now the spotlight is shining on Europe where far-right candidates did much better than predicted in this months EU parliamentary elections and where French President Macron is widely thought to have committed a huge miscalculation by calling snap parliamentary elections in France. Over the weekend, attention will be broadly fixated on headlines emanating from the Group of Seven annual summit in Italy and hosted by Prime Minister Georgia Meloni, who head the country’s politically right government.
Share prices in Europe so far today today have tumbled 3.0% in Italy, 2.5% in France, 1.5% in Germany, and 1.6% in Spain, capping off the region’s worst weekly losses in seven months. There have also been some Asian market declines of, for example, 0.9% in Hong Kong, 1.4% in Indonesia, and 0.5% in Singapore. U.S. stock futures are down as well.
The exodus from stocks depressed 10-year sovereign bond yields overnight by 11 basis points in Germany, 8 bps in the U.K., 5 bps in France, 4 bps in the United States and Spain and 3 basis points in Japan.
The dollar has attracted funds in search of safety, touching a six-week trade-weighted high and coming within 1.5% of the DXY index’s 52-week peak. Against individual currencies, the dollar has risen today by 1.4% relative to the Mexican peso, 1.0% versus the Turkish lira, 0.6% vis-a-vis the kiwi, 0.4% against sterling, and 0.3% versus the euro and Australian dollar.
The case of dollar/yen suggests possible Japanese forex intervention. At its low overnight, the yen touched 158.25 per dollar, very near its 34-year trough of 158.4 hit in April 1990. The yen’s rebound to a net dip of just 0.1% also may have reflected the Bank of Japan’s statement released by the Board. While not raising its short-term interest rate additionally, the Board agreed by an 8-1 margin to begin lessening monthly asset purchases beginning after its next meeting in July and to give market forces a greater influence in determining Japanese long-term interest rate movements. The short-term interest rate of -0.1% since January 2016 had been increased by the Board in March to 0.0-0.1% and was not expected to be lifted further at this time. Meantime, the BOJ has continued to buy around JPY 6 trillion of JGB bonds per month, limiting upside pressure on long-term interest rates but also bloating the bank’s balance sheet. Details of how quantitative monetary policy will be lessened will be revealed after the Board next policy review.
The released Bank of Japan statement is reasonably upbeat about Japan’s economic outlook, citing the resilience shown by consumer spending as well as improving corporate profits and confidence, and it projects “medium- to long-term inflation expectations
will rise with a virtuous cycle between wages and prices continuing to intensify.” All in all, confidence has risen among bank officials that 2-2.5% CPI inflation will ensue.
Among released Japanese data today, industrial production’s monthly decline in April has been revised sharply to -0.9% from -0.1% estimated initially. Compared to a year earlier, production dropped 1.8% in April after on-year declines in the three previous quarters including of 4.8% in first quarter of 2024. Capacity usage in April was 6.6% lower than a year earlier after a 2.7% drop in the first quarter. The tertiary index that measures the service sector activity rebounded 1.9% in April from a 2.3% drop in March and was 1.4% higher than in April 2023.
Chinese motor vehicle sales growth slowed to just 1.5% year-on-year in May, down from 9.8% in April and 9.9% in March. Bank lending and money growth also slowed in Asia’s largest economy. New loans averaged CNY 840 billion per month in April-May versus CNY 3.15 trillion per month in the first quarter, and the M2 stock of Chinese money expanded just 7.0% on year in May, least since at least 1998.
Wholesale price inflation in India accelerated in May to a 15-month high of 2.6%, still well below the 16.6% peak in May 2022.
JUST IN: Like the previously released U.S. May CPI and PPI data, U.S. import prices exhibited less inflation than anticipated, falling 0.4% on month, their most in five months and easily undershooting the expected 0.1% uptick. This left import prices just 1.1% above year-earlier levels in May. Imported fuel cost 2.0% less than in April, but all other items in the index also slid below April’s reading, a drop of 0.3%.
French CPI inflation in May has been revised to 2.3% from 2.2% reported initially. Slovakian consumer price inflation in May also printed at 2.2%. Swedish CPI inflation in May of 3.7% was down from 3.9% in April and 12.3% in December 2o22, making such the lowest reading in 28 months. Polish CPI inflation edged 0.1 percentage point higher in May but, at 2.5%, was well down from 18.4% booked in February 2023. Portuguese CPI inflation rose 0.7 percentage points to an 8-month high in May of 3.1%, but Bulgarian consumer price inflation slid to 2.3% from 2.4% in the prior month and 18.7% in September 2022.
Euroland’s seasonally adjusted trade surplus widened EUR 1.8 billion to EUR 19.4 billion in April, making such the largest in three months. The unadjusted surplus in the first four months of 2024 of EUR 72.8 billion contrasts with a deficit of EUR 20.4 billion a year earlier.
India’s January-May trade deficit of $94.7 billion was 6% wider than a year earlier.
New Zealand’s manufacturing purchasing managers index has been below the 50 neutral level for 41 straight months and fell to 47.2 in May from 48.9 in April.
The Central Reserve Bank of Peru’s policy interest rate of 5.75% was left unchanged after this month’s policy review. Although at its lowest level since July 2022, the decision was somewhat surprising. There already been four 25-basis point reductions earlier this year on top of a similar cumulative easing during the second half of 2023. Plus, CPI inflation in May of 2.0% was 0.4 percentage points below April’s level and right in the middle of the central bank’s 1-3% target range.
Today is Donald Trump’s 78th birthday, underscoring that the liability that a candidate’s advanced age might present is more a matter of appearance than reality.
Copyright 2024, LarryGreenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan, Central Reserve Bank of Peru, Chinese money and lending growth, Euroland trade balance, India wholesale prices, Japanese industrial production and tertiary index, U.S. import prices
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