A Few More Central Bank Decisions, A Lot More Price Data, and A Possible U.S. Government Shutdown Is Looking More Likely – Currency Thoughts
A Few More Central Bank Decisions, A Lot More Price Data, and A Possible U.S. Government Shutdown Is Looking More Likely
December 20, 2024
The U.S. dollar fell overnight by 0.4% against the Japanese yen, Swiss franc, and British pound. Smaller dips of 0.2% and 0.1% happened versus the euro and Canadian dollar, while bigger slides occurred against the Mexican peso of 0.8% and Brazilian Real of 2.2%.
- The Bank of Mexico’s policy interest rate has been reduced by another 25 basis points to 10.0%. This was the fourth such cut since August and the fifth one since March. The rate had been at a peak of 11.25% for a year prior to that initial easing. The latest cut was made in reaction to a somewhat weaker prognosis for Mexican growth and despite an modest upward revision in the forecast path of inflation. “Headline and core inflation are still foreseen to follow a downward trend. However,
considering a greater persistence in services inflation, these forecasts were revised upwards,” according to the released statement. More rate cuts are envisaged in the future. - The Brazilian real’s rebound reflected central bank intervention support.
The 10-year U.S. Treasury yield fell back five basis points overnight. Personal income growth in the United States slowed sharply in November, personal consumption expenditures rose a tad less than forecast, and inflation measured by the core PCE price deflator stayed at 2.8%, defying expectations of a marginal further upward bump. The U. Michigan/Reuters revised measure of consumer sentiment matched the preliminary reading for December, which had risen 2.2 points to an 8-month high.
Ten-year sovereign debt yields elsewhere also fell five basis points in the U.K. as well as two bps in Europe’s four largest economies and by a basis point in Japan.
Prices for Bitcoin and oil are 1.8% and 0.5% softer, while gold has strengthened 1.3%.
Equity market volatility continues amid fresh uncertainty coming out of the U.S. Congress and the looming possibility of a government shutdown this weekend (social security and medicare payments will not be affected, regardless of the outcome). Major U.S. indices are currently showing green, with gains of around 0.7-0.8%. Share prices in Singapore, South Korea and India fell over 1.0%, and so do the stock markets of Spain and Italy.
Russia’s planned last central bank review of interest rate policy delivered the day’s biggest surprise, keeping such steady. The rate had been raised in three increments from July until October by a total of 500 basis points to 21%, and inflation is still climbing and believed this month to be close to 10% versus a target of 4% and a low of just 2.3% back in April 2023. Analysts had anticipated an additional 200-basis point hike in the policy interest rate, and a released statement concedes pro-inflationary risks such as Russia’s labor supply shortage, tariff threats, other geopolitical pressures, and a possible rise of price expectations as the interval of above-target inflation extends. Analysts suspect the central bank Board of Directors bowed to political interference in its decision, but the statement defends the action, citing a slowdown in credit growth and the lagged effect of previous rate tightening. The statement leaves open the possibility of a further interest rate hike but makes such conditional on lending heating up again as well as a failure of inflation to recede.
The People’s Bank of China 1- and 5-year loan prime rates that set borrowing costs for companies and mortgages were left unchanged at 3.1% and 3.6%, respectively. Each had been cut earlier this year by ten basis points in July and 25 bps in October. The Fed’s shift in forward guidance may have influenced today’s decision.
Several price reports today mimic the plateauing of disinflation that compelled the Fed’s shifting tone. For example, Japanese total and core consumer prices rose on month in November by a 13-month high of 0.6% and a 6-month high of 0.5%. The energy price component’s year-on-year increase went from just 0.1% in August to +12% in the latest month.
A 1.2% 12-month dip in Latvian producer prices was the smallest in a 17-month streak of negative readings. Likewise, Italy’s 0.5% on-year PPI drop was the least disinflationary in 22 straight negative readings. South Korean PPI inflation rose to a 1-year high of 0.5%, and Germany’s 0.1% on-year rate of PPI inflation was above zero percent for the first time in 17 months. Estonian producer prices were 0.1% lower than a year earlier in November versus a 4.4% on-year drop last December. Swedish PPI inflation of 0.3% was its highest since August. Portuguese PPI inflation jumped a full percentage point from 0.1% in October to 1.1% in November. French PPI disinflation narrowed to -5.2% last month from -6.0% in October, -6.9% in September and -8.2% last March. Icelandic PPI inflation accelerated to a 21-month high in November of 7.2%.
In other price news, consumer price inflation in Hong Kong last month matched October’s 5-month low, and South Korea’s PPI rise swelled to 1.4% from 1.0% in the two prior months.
Among other data releases out this Friday,
Consumer confidence slid this month to a 4-month low in Italy, while business sentiment there among manufacturers matched October’s four-year low.
Turkish consumer confidence improved in December to an 18-month high, while Danish and Brazilian consumer sentiment printed at a 19-month and 6-month lows.
The British distributive trades survey index of -15 this month was three points less negative than in November.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, Central Bank of the Federation of Russia, German PPI, Japanese CPI, Peoples Bank of China
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