Monetary Policy Announcements from India and Russia and Awaiting U.S. Jobs Report – Currency Thoughts
Monetary Policy Announcements from India and Russia and Awaiting U.S. Jobs Report
June 7, 2024
The dollar marked time overnight and is currently unchanged against the euro and Swissy, down 0.1% relative to sterling and the yen but up 0.1% vis-a-vis the Canadian and Australian dollars. The Mexican peso extended yesterday’s rebound.
U.S. stock futures are steady. Overseas, share prices closed down 1.0% in New Zealand, 1.1% in Indonesia, 0.6% in Hong Kong, 0.1% in Japan, and equities are so far down by 0.4-0.8% in key European markets.
Ten-year German, British and U.S. sovereign debt yields have risen 3, 2, and 1 basis points.
The price of gold fell back 1.5%, while those of Bitcoin and oil are up 0.7% and 0.4%.
U.S. May Labor Department figures are expected to resemble April results, with unemployment and on-year average wage earnings growth staying around 3.9%, and nonfarm payroll employment probably rising between 150k and two hundred thousand. The report will be released at 08:30 EDT (12:30 GMT). Next week’s FOMC meeting is not expected to yield an interest rate change.
The same cannot be said about the Bank of Russia, where officials left the interest rate benchmark today unchanged at 16.0% and delivered the following warning after today’s policy review:
Growth in domestic demand is still outstripping the capabilities to expand the supply of goods and services. The Bank of Russia holds open the prospect of increasing the key rate at its upcoming meeting. Furthermore, returning inflation to the target will require a significantly longer period of maintaining tight monetary conditions in the economy than it was forecast in April.
President Putin’s war is straining the supply of workers for non-military purposes and has elicited Western sanctions that disrupt input supply chains. The Bank of Russia’s interest rate was catapulted from 7.5% at the end to May 2023 to the current 16.0% by the end of the year. But between April 2023 and April 2024, total and core consumer inflation accelerated from 2.3% and 2.4% to 7.8% and 8.3%. The bank’s latest statement goes on to state that measures of expected inflation have risen and that, all in all, price risks have become increasingly skewed to the upside.
At the Reserve Bank of India, a country where voters handed Prime Minister Modi a significantly softer election mandate than had been expected, monetary officials also opted for caution. Their statement after the latest policy review does not dwell on politics but kept interest rates at their cyclical peaks, noting service sector price inertia, food price elevation, volatile global financial markets, and geopolitical tensions. On-year CPI inflation of 4.85% in April remained above the 4.0% center of the central bank’s target range, and officials did not cut their 4.5% projected rate of inflation in fiscal 2024-25. The Bank’s repo rate was increased from 4.0% in May 2022 to 6.5% by February 2023, and officials agreed to leave such at that cyclical peak at this week’s concluded policy review.
Among economic data already reported today, Japanese real household spending in April fell by 1.2%, reversing the rise in March but still associated with the first year-on-year rise (0.5%) since February 2023. Japan’s index of leading economic indicators edged down to a 3-month low in April, but the index of coincident economic indicators improved to a 4-month high and led officials to again characterized the recent trend and possibly signalling a turning point.
A 0.1% monthly dip in German industrial production during April was a weaker outcome than had been forecast and associated with a 3.9% decline from April 2023’s level.
The German seasonally adjusted trade surplus equaled EUR 22.1 billion in April. The year-to-date EUR 92.5 billion surplus was roughly six times wider than a year earlier.
Euroland’s estimated growth of GDP last quarter was left unrevised at the earlier estimate of 0.3%. On-year growth was 0.4%. Activity in the first quarter was powered by a 1.4% jump in exports. Net foreign demand was responsible for 0.8 percentage points of GDP growth, more than offsetting drags of 0.3 percentage points from both inventories and business spending. Tepid personal consumption growth of 0.2% contributed 0.1 percentage point of the GDP growth last quarter. The increase of Euroland employment of 0.3% versus the final quarter of 2023 and 1.0% from the first quarter of last year were the same as estimated earlier.
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