Better Tone in World Equity Markets – Currency Thoughts
Better Tone in World Equity Markets
February 26, 2025
Equity markets in the Pacific Rim rallied 3.3% in Hong Kong, 1.2% in New Zealand and 1.0% in China. Stock markets in the euro area’s four biggest economies so far today are showing net gains of at least 1.0%, while U.S. stock futures and the British FTSE have risen around 0.5%.
Some of the relief may reflect a report overnight that Ukraine is prepared to accept Trump’s draconian demands of access to rare minerals found in Ukraine in exchange for some promised military support in a peace deal.
Meanwhile, U.S. President Trump gave seemingly gave the go-ahead for planned 25% tariffs against Canada and Mexico starting next week, and the House of Representatives approved a goal that calls for huge spending cuts without identifying explicit details of where such will be made.
Along with many equity markets, the dollar firmed overnight by 0.4% against the Japanese yen, Swiss franc and Australian dollar, 0.3% relative to the euro, 0.2% versus the Canadian dollar and 0.1% against the peso and sterling.
Bitcoin’s price has eased 0.5% farther, but gold rose 0.3%. WTI oil has dipped below $69 per barrel.
The better tone in financial markets seen overnight is not on particularly firm ground. U.S. economic and foreign policy plans remain in extreme flux from day to day. Measures of U.S. consumer confidence are reflecting buyer’s remorse. The Conference Board’s monthly consumer sentiment index reported yesterday fell sharply to an 8-month low of 98.3 this month from 105.3 in January, 109.5 in December and a 34-month high of 112.8 in November when Trump was elected. This further sign of economic retrenchment followed on the heels of a downward revision just before the weekend in the University of Michigan’s U.S. consumer sentiment measure to a 15-month low of 64.7 from a preliminary estimate of 67.8 and final readings of 71.1 in January and 74.0 in December.
Investors fear the United States might be steering into a bout of stagflation and are now directing their attention to U.S. data later this week, such as GDP, durable goods orders and pending home sales on Thursday and even more importantly Friday’s release of personal income, personal spending and the PCE price deflator, which is the Fed’s favorite inflation guideline. After gravitating toward a consensus that the Fed would only cut its interest rate target once this year, financial markets are now set up for a likelihood of two 25-basis point moves but see such happening late in the year.
Germany’s consumer sentiment index fell 1.9 index points to a 10-month low of -24.7. Averaging between -21.3 and -24.7 over the last four monthly readings, however, the extent of pessimism hasn’t shown the kind of rapid acceleration that the aforementioned U.S. readings suggest. Moreover, French consumer pessimism has lessened, printing at 93 in February versus readings of 92 in January, a 1-year extreme of 89 in January and 90 in November (France’s long-term average is calibrated to an index reading of 100).
Swiss investor sentiment settled back to a 2-month low of 3.4 in February after spiking from -20 in December to +19.7 in January.
Japan’s latest indices of leading and coincident economic indicators from December were each revised slightly downward, but each remained at 2-month highs.
Producer price inflation in Spain rose to a 23-month high of 2.6% in January from 2.3% in December and 1.2% in November. Sub-zero readings had been sustained from March 2023 until October 2024, with the largest drop (-9.9%) occurring in the twelve months ending August 2023.
Swedish PPI inflation jumped to a 22-month high of 3.5% in January from 2.0% in December. November’s pace of +0.3% had followed a string of negative readings bottoming at -7.7% in December 2023.
Finnish producer prices posted their biggest monthly increase (1.5%) in 17 months, but January’s year-on-year increase was only 0.4%. The respective high-water marks of Spanish, Swedish, and Finnish producer price inflation during 2022 had been at 47.0%, 25.6% and 32.5%.
Consumer price inflation in South Africa rose to a 4-month high of 3.2% in January from 3.0% in January and a 52-month low of 2.8% in October.
Austria’s manufacturing purchasing managers index climbed 1.0 point to a 24-month high in January of 46.7 but remained below the 50 level of neutrality.
Analysts were not expecting a change from today’s Bank of Thailand review of monetary policy, but by a 6-1 vote officials there agreed to cut the key interest rate to 2.0% from 2.25%. This was the second reduction since a similarly sized drop made last October. From a pandemic low of 0.5%, the rate had been raised in the second half of 2022 to 1.25% and doubled during the first three quarters of 2023 to a peak of 2.5%. The single dissenting vote today favored leaving the interest rate unchanged at 2.25%. In the Monetary Policy Committee’s released statement of their latest thinking,
The prevailing monetary policy framework seeks to maintain price stability, support sustainable growth, and preserve financial stability. The Committee deems that the lower policy rate is consistent with the current assessment of the economic outlook and remains robust to risks going forward. . The Committee judges that the lower policy rate helps ease financial conditions without affecting long-term financial stability risks. Meanwhile, the volatility of baht against the US dollar increased mainly due to uncertainties in policies of major economies.
Although at an 8-month high, Thai consumer price inflation of 1.3% last month was still closer to the 1% target floor than the 3% ceiling, and officials project that such is likely to remain in the target range’s lower half.
U.S. mortgage applications fell 1.2% last week as the 30-year fixed mortgage rate slipped further to a 10-week low of 6.88%.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express press permission.
Tags: Bank of Thailand, U.S. and German consumer sentiment
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