Europe Commanding the Spotlight – Currency Thoughts
Europe Commanding the Spotlight
June 6, 2024
Today’s 80th anniversary of the D-Day assault on Normandy Beaches finds Continental Europe at another crossroads. Allied defenders of democracy have struggled to maintain a cohesive response to the challenges posed by the axis of Russia, China and Iran as well as the troubling war between Israel and Hamas.
European Union parliamentary elections begin today and run through Sunday. A NATO summit follows June 9-11. U.S. President Biden is in France for the D-Day commemoration and NATO summit and will return to Italy for the annual Group of Seven Economic Summit June 13-15. Biden is running out of time to resurrect his reelection bid against former President Trump whose foreign policy and domestic security visions would chart an altogether different path for the current linchpin of the international monetary order.
For today, however, the main European focus is on its central bank, as ECB officials have repeatedly signaled a likely start to an interest rate reduction cycle. CPI inflation in the euro area has receded to 2.6% from a peak of 10.6% 19 months earlier, and the economy is only shows signs of a slow emergence from recession. The ECB decision is due at 08:15 U.S. east coast time. The refinancing rate has been at 4.5% since last September. b
Meanwhile, monetary policymakers at the Federal Reserve have been comparatively more reluctant to ease, with U.S. disinflation proving comparatively sticky and economic growth considerably healthier than Europe since the 2021-22 pandemic. Investors continue to waffle back and forth between thinking that the Fed too may cut rates as soon as September or postpone that turning point until December or perhaps later.
In Japan, which sat out the bulk of the monetary tightening elsewhere in the world this decade, the short-term interest rate is only at 0.1%, and the guessing game there concerns when and how much more such might be raised. A remark by central bank Board member Nakamura favors moving later rather than sooner.
In financial market action overnight,
- The dollar mostly treaded water, dipping 0.1% against the yen and euro but remaining steady on balance versus the loonie and sterling.
- Ten-year German, French, Italian and Spanish sovereign debt yields dipped a basis point. Nakamura’s comment depressed the Japanese 10-year JGB yield by five basis points, while the 10-year U.S. Treasury yield ticked two basis points higher.
- Share prices closed up 1.9% in Taiwan, 1.0% in South Korea, 0.9% in India, 0.6% in Japan but 0.5% lower in China. Key European stock markets have risen 0.4-0.7% so far, while U.S. stock futures are generally unchanged.
- Prices for Bitcoin, oil and gold are respectfully down 0.3%, up 0.2%, and up 0.1%.
Retail sales in the euro area dropped in April by a greater-than-forecast 0.5% on month and were unchanged from year-earlier levels. Sales fell in Germany, France and Italy but rose in Spain.
German industrial orders recorded their fourth monthly drop in a row during April, this time by 0.2%. Compared to April 2023, factory orders posted a 1.6% drop.
Wholesale prices in Austria sank 0.8% in May. In year-on-year terms, nevertheless, a 14-month-long streak of deflation ended with a +0.3% WPI inflation rate in May.
Taiwanese consumer price inflation accelerated 0.3 percentage points to 2.2% in May, a 3-month high.
Industrial production in Spain and the Czech Republic were 0.3% and 0.6% higher in April than March.
South Africa’s current account recorded its eighth consecutive quarterly deficit in 1Q 2024, equal to ZAR 84.6 billion compared to a gap of ZAR 63.7 billion in the first quarter of 2023.
Ireland’s composite and service sector purchasing manager indices for May rose to 2-month highs of 52.5 and 55.0.
A three-month high in Euroland’s construction PMI reading of 42.9 in May was up from 41.9 in April but still indicative of a very depress economic sector compared to a month before the Russian invasion of Ukraine when such stood at 56.6. The French, German and Italian construction PMIs were their highest in 6, 3, and 2 months but all lower than the 50 level that differentiates positive from negative momentum.
The British construction PMI, by contrast, rose 1.7 points to a 2-year high of 54.7 in May.
Australia’s A$ 28 billion trade surplus in the first third of 2024 was 44% narrower than a year earlier.
U.S. and Canadian trade figures for April will be reported later this morning.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: ECB President Lagarde, Euroland and British construction PMIs, Euroland retail sales
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