Election Jitters in the United States and Japan – Currency Thoughts

Election Jitters in the United States and Japan

October 24, 2024

Japanese voters go to the polls this Sunday to choose all 465 members of parliament’s lower house. This earlier-than-required general election was called by Prime Minister Ishiba after he was the LDP party election to replace former PM Kishida, who had stepped down. It’s highly possible that Sunday’s vote will not leave Ishiba with a working coalition majority of 233 or more seats, and that possibility casts some further doubt over whether the Bank of Japan Board will proceed with a program of interest rate normalization.

The U.S. election on November 5 is fast approaching, and expectations are climbing that former President Trump will be returned to power, with plans to break up the federal bureaucracy, deport millions of non-citizens, realign American foreign policy alliances, and implement economic policies that experts fear will reignite inflation. That’s a lot of change to keep investors on edge.

The dollar had risen to a near 3-month high earlier this week but fell back 0.3% overnight on a weighed basis. It lost 0.6% against the yen, which benefited from feared intervention support spurred by comments from Japan’s deputy cabinet secretary that officials are watching yen movements very carefully now. The dollar also dropped 0.4% against the kiwi, Aussie dollar and sterling and 0.2% vis-a-vis the euro, loonie, and peso.

Ten-year sovereign debt yields settled back overnight by six basis points in the United States, five bps in France, Italy and Spain, four bps in Germany and two basis points in Japan, but the comparable British gilt yield ticked two basis points higher.

The drag on equities yesterday from rising interest rates and newfound signals of Fed caution lost momentum today after some better-than-expected third-quarter earnings reports, notably from Tesla whose share price is now trading around 12% above yesterday’s close. Futures trading has lifted the Nasdaq and SPX by 0.9% and 0.6%, and in Europe, the Paris CAC, German DAX and British FTSE are currently showing gains on the day of 0.8%, 0.6% and 0.6%. Earlier, stock markets in the Pacific Rim closed down 1.3% in Hong Kong, 0.9% in Indonesia, 0.7% in China and South Korea, 0.6% in Taiwan but 0.1% firmer in Japan.

Prices for WTI oil, gold and Bitcoin have risen 1.8%, 0.8%, and 0.4%, respectively.

Yesterday’s Fed Beige Book that documents business conditions around the United States said that activity since the September FOMC meeting grew modestly in the Dallas, Chicago and Richmond Federal Reserve districts but was flat or somewhat lower in the other nine districts around the country.

Today’s data menu mostly features preliminary purchasing manager survey results for October.

• Euroland‘s composite PMI edged 0.1 point higher to a 2-month high of 49.7. Readings below 50 in these diffusion indices signal deteriorating business conditions. The services index dropped 0.2 points to an 8-month low of 51.2 and the manufacturing index increased to a 5-month high of 45.9, still weighed down by declining orders and a shrinking work backlog. Within the services sector, prices remain sufficiently sticky to give central bank officials there some pause as they consider how quickly to reduce interest rates.
• Business conditions in Euroland’s two largest economies, Germany and France, continued to under-perform other euro zone members during October. The German manufacturing PMI rebounded from a a one-year low of 40.6 in the prior month to a 3-month high of 42.6, while services printed at a 3-month high of 51.4. In France, the composite PMI dropped 0.7 points to a 9-month low of 47.9. The services index also slid to a 9-month low (48.8), and manufacturing edged 0.1 point lower to 44.5.
• Business conditions improved in the U.K. this month but at a slower pace than in September. The composite PMI there fell 0.9 points to an 11-month low of 51.9, with manufacturing down to a 6-month low of 50.3 and services printing at a 4-month low of 51.8. Business optimism about the one-year outlook was also less than in September’s survey.
• Japan’s PMI surveys underwhelmed expectations. Services (a 32-month low of 49.3) and manufacturing (a 7-month low of 49.0) both contracted, sending the composite score below the 50 no-change line to a 23-month low of 49.4.
• Growth in India remains robust especially when compared to the above economies. Its composite, manufacturing, and services purchasing manager surveys in October printed at 2-month highs of 58.6, 57.4, and 57.9.
• Australia‘s preliminary composite PMI reading (49.8) was 0.2 points higher than September’s reading but nonetheless below 50 for the third time in four months. Manufacturing slipped to a 52-month low of 46.6, but services edged 0.1 point higher to 50.6.

South Korean real GDP grew a mere 0.1% last quarter after dipping 0.2% in the second quarter, and the year-on-year growth rate consequently halved to 1.5% from 3.2% in the first quarter of this year. A separate data release put October business confidence in South Korea level with September’s 11-month low.

Business confidence in France, which had ranged between 113.4 in October 2021 and 93.9 this past July, slid 0.6 points in October to a 2-month low of 97.3. The long-term average is calibrated to 100. Manufacturing, with a 47-month low reading of 92.4 has been considerably weaker than services, where confidence improved to a 4-month high of 100.8.

In the Czech Republic this month, consumer confidence improved to a 4-month high, while business confidence eased back to a 2-month low.

The index measuring Danish manufacturing sentiment had stayed below zero from May 2022 until April 2024 but has been above zero in five of the past six months including +2 in October.

Malaysian consumer price inflation, which peaked at 4.2% in November 2022, slipped 0.1 percentage point to a 5-month low of 1.8% last month.

Finnish producer prices, like Malaysian consumer prices, held steady between August and September. Finland’s PPI was also 2.3% below its year-earlier level. From a 32.5% peak in mid-2022, Finnish PPI inflation plunged to -10.0% by July 2023.

New U.S. jobless insurance claims unexpectedly dropped by 15k last week to a 3-week low of 227k. Alternatively, the Chicago Fed National Activity Index stayed below of zero reading in September for the fourth straight month and, at -0.28, was weaker than in August.

Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: French business confidence, preliminary October purchasing manager surveys, U.S. and Japanese elections

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on Thursday, October 24th, 2024 at 5:45 am and is filed under New Overnight Developments Abroad – Daily Update.
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