Central Bank Decisions and Price Data – Currency Thoughts
Central Bank Decisions and Price Data
June 13, 2024
The FOMC‘s June interest rate decision, updated forecasts, and press conference yesterday left an impression that was not quite as hawkish as feared. The likelihood of three rate cuts that had been signaled as recently as March is now remote, but the possibility of one cut before yearend is still clearly in play, and even two reductions by then are considered possible. The dot-plot graph of individual committee member expectations was pretty evenly divided between one and two cuts. The message conveyed by Chairman Powell was helped by U.S. May consumer price data released earlier in the day that showed no increase from April and a lower-than-forecast 3.3% year-on-year comparison. Core CPI inflation (+0.2% on month and 3.4% on year) fell more than forecast as well.
Several central banks have chimed in today with their own interest rate announcements, including a cut by the National Bank of Ukraine to 13.0% from 13.5%. In the early months after Russia first invaded Ukraine in February 2022, the interest rate had been catapulted from 10% to 25% and then kept at that level from June 2022 until a reduction in July 2023. Ten percentage points of reduction were done in the second half of 2023, and today’s announcement brings the cumulative decline during the first half of this year to another two percentage points. Today easing was prompted by the “balance of price risks, still subdued inflation, and ongoing improvement in inflation expectations.” CPI inflation in Ukraine has retreated from 26.6% at end-2022 to a 38-month low of 3.2% as of April, and May’s reading of 3.3% was also well within the 4-6% target range.
In overnight financial market action, stock markets have exhibited a wide divergence of reactions following yesterday’s Federal Reserve decision. European share prices continued to be dominated negatively by the strong gains of far-right parties in European Union parliamentary elections. Stock markets so far are down 1.1% in Germany, 1.3% in Italy, 1.0% in France, 0.9% in in Spain but just 0.5% in Great Britain. In the Pacific Rim, stock markets closed somewhat lower in Japan, China and Indonesia but also advanced by 1.2% in Taiwan, 1.0% in Hong Kong and South Korea, 0.5% in Singapore and 0.4% in Australia. Prior to the U.S. open, DJIA futures had dipped 0.3%, but the Nasdaq had risen 0.7%.
European 10-year sovereign debt yields have climbed five basis points in the U.K. and Italy, four bps in France and Spain and two bps in Germany. The 10-year Treasury yield of 4.32% matches yesterday’s closing level but is 15 basis points lower than where such closed on Monday.
The U.S. dollar had initially dipped during Powell’s press conference but overnight strengthened by 0.3% against the Japanese yen, 0.2% versus the Swiss franc and Canadian, New Zealand and Australian dollars, and 0.1% versus sterling and the euro.
Prices for gold, WTI oil and Bitcoin fell overnight by 1.1%, 0.7% and 0.6%.
In order to maintain the Hong Kong dollar per U.S. dollar peg of 7.8 since 1983, the Hong Kong Monetary Authority left its interest rate at 5.75%, keeping the premium of 25 basis points relative to the similarly unchanged ceiling of the federal funds rate corridor of 5.25-5.50%.
The Central Bank of Uzbekistan’s 14% policy interest rate was also not changed at today’s scheduled review. Year-on-year CPI inflation of 8.1% in April — although down from 10.4% in May 2023 and 20.1% at the start of 2018 — is still above the central bank’s medium-term target of 5.0%. The policy interest rate was increased by 300 basis points to 17% in March 2022 and later cut by a full percentage point each in June 2022, July 2023 and August 2023. This puts such back to the level before the aforementioned March 2022 increase but retain a restrictive bias in monetary policy.
At the Central Bank of the Republic of China (Taiwan), monetary policy is review on a quarterly basis, and the previous decision, a 12.5-basis point hike to 2.0% in March, had surprised many analysts, but officials this time agreed unanimously to leave their discount rate unchanged at 2.0%. They expected lessening inflation during the second half of 2024. Total and core CPI inflation had averaged 2.2% and 2.1%, respectively, in January-May.
Like their counterparts in Ukraine, officials at the National Bank of Serbia today voted to keep their key interest rate. Such was the first reduction since December 2020 and was a move from 6.5%, the level maintained over the prior twelve months, to 6.25%. Consumer price inflation in Serbia decelerated by half a percentage point to a 33-month low in May of 4.5%. That happens to also be the upper end of a target range of 1.5-4.5%. In a released statement, the Executive Board “expects inflation to recede further, staying within the target band in the medium term and hovering around the 3% target as of early 2025. Such inflation profile will be supported by the still restrictive monetary conditions, reduced global inflationary pressures, and lower inflation expectations of market agents.”
Price data reported around the world today
- Confirmed the flash estimate for Spanish CPI inflation (3.6% and 3.0% among core items). Those results are down from highs of 10.8% in July 2022 and 7.6% in February 2023 in the case of core CPI.
- The Swiss combined PPI/import price index fell 0.3% last month and matched April’s on-year pace of -1.8%. Import prices were 2.9% lower than in May 2023, while domestic producer prices dipped 1.3% in that span.
- Irish consumer prices climbed 0.5% on month and 2.6% on year, which matched April’s 33-month-low.
- German wholesale prices dropped 0.7% on year in May, the smallest deceleration in the streak of on-year declines that started in May 2023.
Australia’s jobless rate edged back down 0.1 percentage point to a 2-month low of 4.0% and was accompanied by a greater-than-forecast 39.7 thousand increase in employment.
Business sentiment among large Japanese companies was less pessimistic in the second quarter than was anticipated. Further improvement is expected to occur during the second half of 2024.
Industrial production in Euroland was a tad weaker than expected in April, edging 0.1% lower on month and dropping 3.0% compared to the April 2023 level. Compared to the average level in this year’s first quarter, output was down 0.275%.
U.S. producer prices, like yesterday’s consumer price data release, showed less inflation that analysts were expecting. The PPI fell 0.2% on month in May and it’s 2.2% pace from a year earlier was 0.3 percentage points lower than predicted.
The weekly report of U.S. jobless insurance claims was consistent with another Fed conditions for lowering interest rate, namely more evidence of lessening labor market tightness. 242k new claims filed in the week of June 8th were the most since the week of August 12, 2023.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Taiwan, Central Bank of Uzbekistan, Euroland industrial production, FOMC statement, Hong Kong Monetary Authority, National Bank of Serbia, National Bank of Ukraine, Swiss PPI, U.S. producer prices
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