Continuing Post-FOMC Market Repercussions – Currency Thoughts
Continuing Post-FOMC Market Repercussions
August 1, 2024
Chairman Powell’s press conference yesterday gave as much encouragement as one could expect to speculation that the Federal Reserve will begin a cycle of interest rate reductions at its next meeting in September. One of his major themes was the return of labor market conditions to those just before the onset of the Covid pandemic, and U.S. data out today underscored that point.
U.S. non-farm labor productivity increased last quarter by a dynamic 2.3% annualized and by 2.7% compared with the second quarter of 2023. High productivity suppresses the cost of labor and thus promotes price stability. Unit labor costs went up only 0.9% on quarter and 0.5% on year, down from 2.8% in full-2023 and 5.7% in 2022. Meanwhile, the weekly number of new U.S. jobless insurance claims climbed 14k last week to a one-year high of 249k. Fed officials are watching unemployment indicators more closely than before to ensure that the economy is throttling back to a safe and healthy non-inflationary pace of growth but not overshooting and creating a risk of recession.
Investors like a Goldilocks economic environment. U.S. equities rose yesterday, and stock futures today are up additionally. Share prices overseas closed up 2.0% in Taiwan but down 2.5% in Japan, where the Bank of Japan is finally getting serious about lifting interest rates to more normal levels. In Europe, share prices so far today show declines of 1.1-1.3% in Germany, France and Italy. But the British Ftse is steady following the as-expected cut in the Bank of England’s base rate to 5.0% from 5.25% that had prevailed for the past year.
The dollar opened August in plentiful demand, gaining 0.4% against the yen, yuan, and sterling, 0.3% versus the euro, and 0.1% relative to the Canadian dollar. The yen had initially extended yesterday’s big rise and got as strong as 148.3 per dollar.
The ten-year British gilt, German bund, and Japanese JGB yields are down today by 5, 2, and 1 basis points, while the 10-year U.S. Treasury yield ticked up a basis point but is still 24 basis points lower than its close on July 24th.
Oil and gold prices have climbed 0.6% so far today, and Bitcoin is 0.2% firmer.
Although expected by many economists, the Bank of England’s 25-basis point Bank Rate decline to 5.0% embodied a surprisingly slim voting majority that included Governor Bailey. But four of the nine members of the monetary policy committee, including the chief economist Huw Pill, favored not yet reducing the cyclical high of 5.25% that had been maintained since last September. The minority’s concern involves still-elevated service sector price pressures and concern over the second-order inflation risk that such pose. Also, recent growth in the U.K. has exceeded expectations. Although a majority was fashioned to cut the interest rate, the whole committee widely supports proceeding with considerable caution when considering follow-up rate reductions. CPI inflation of 2.0% has now touched down to target but is projected to rise later this year somewhat past 2.5% and energy-related base rate effects drop out of year-on-year price comparisons.
Among other central bank decisions announced late on Wednesday, Brazil’s Selic rate was left unchanged at 10.5%, after having been cut by 125 basis points during this year’s first half and by 200 bps in 2023. Officials at the Central Bank of Colombia, however, extended their interest rate down-cycle by another 50 basis points to 10.75%, bringing the cumulative drop since last December to 250 basis points.
Consumer price inflation in Pakistan receded to a 33-month low in July of 11.1%, having crested in May 2023 at 38%. Cypriot inflation of 2.1% last month was its lowest in four months.
Unemployment in the euro area ticked up to 6.5% in June following a record low of 6.4% in both April and May. The June 2023 jobless rate had also been 6.5%.
The British Nationwide house price index posted a larger year-on-year increase of 2.1% in July, up from 1.5% in June and a low-point of -5.3% registered in September 2023.
Australia’s trade surplus in the first half of 2024 of A$ 36.76 billion was roughly half of the year-earlier surplus of A$ 71.3 billion.
Thursday’s data menu mostly involves manufacturing purchasing manager surveys from a slew of economies. Note that a reading of 50 among these diffusion indices is the breakeven level separating expansion from contraction.
- Euroland’s PMI got revised up marginally but only to June’s 2-month low of 45.8. Within the bloc, only Greece, Spain and Ireland had a 50-handle, and the others ranged from Austria’s 43.1 to the Dutch 49.2. The big picture is one of weakening demand, persistent input cost pressures impinging profit margins, depressed confidence, and the possibility that Euroland GDP in 2024 will grow by less than 1.0%.
- China‘s PMI fell from a 23-month high of 51.8 in June to a 4-month low of 49.8 last month.
- Japan‘s manufacturing PMI also printed at a 4-month low (49.1).
- On a brighter note, the British PMI was revised upward and, at 52.1, was its best score in two years.
- India‘s factory PMI dipped to a 2-month low but reflected strongly positive growth with a score of 58.1.
- Sweden’s PMI fell to a 6-month low of 49.2, while Norway‘s index improved to a 27-month high of 51.9.
- Russia‘s PMI fell to a 6-month low in July of 53.6 from June’s 3-month high.
- The Turkish PMI reading of 47.2 was a 9-month low.
- Australia‘s manufacturing PMI rose 0.3 points to a 2-month high of 47.5.
- The Czech PMI fell to a 6-month of only 43.8, and Poland’s reading, although at a 4-month high, remained well under 50 at 47.3.
- Vietnam’s 54.7 PMI was unchanged from June’s 25-month high.
- Lower PMI readings were posted in July in Malaysia (a 3-month low of 49.7), Indonesia (35-month low of 49.3), South Korea (3-month low of 51.4), the Philippines (a 4-month low of 51.2), and Taiwan (a 2-month low of 52.9).
- Canada‘s PMI fell to a 7-month low of 47.8.
- Lastly, both U.S. manufacturing PMI readings were lower than in June. The S&P Global index dropped two full points to a 7-month low of 46.6, while the Institute of Supply Management’s index fell 1.9 points to an 8-month low of 46.6.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, manufacturing PMIs in July 2024
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