Growth Concerns and An Indian Election that Didn’t Pan Out Quite As Expected – Currency Thoughts
Growth Concerns and An Indian Election that Didn’t Pan Out Quite As Expected
June 4, 2024
Yesterday’s May U.S. factory PMI release from the Institute of Supply Management surprised investors with a 3-month low 48.7 overall reading and a 7-month low score of 45.4 in new demand. In conjunction with last Thursday’s downward revision of U.S. first-quarter GDP growth to a 7-quarter low of 1.3%, this latest softer-than-anticipated data point continued to weigh on investor sentiment this Tuesday.
Prior to the U.S. opening stock market bell, stock futures are down 0.5%, and European equities so far have fallen by 1.3% in Spain, 1.2% in Italy, 1.1% in Germany, 0.8% in France and 0.5% in Great Britain.
An even larger stock market slump happened in India, where exit poll-basis optimism that Prime Minister Modi was headed for a big election win haven’t been supported by actual returns. His BJP party had set a parliamentary seat goal of 400 versus the 303 won at the 2019 election and well above the 272 needed for an absolute majority. It now looks like BJP’s total could fall shy of 272, allowing Modi to remain prime minister but forcing him to rely on coalition partners more heavily in the next government.
The election surprise in India concerns investors, who have been counting on Modi’s promised reforms to stimulate business investment and maintain India’s high-octane economic growth. The rupee fell 0.6% overnight against the dollar, and India’s Sensex equity index plunged by 2.4%.
Against other currencies, the dollar dropped 0.8% against the yen, possibly a sign of more Japanese intervention sales of foreign exchange, and by 0.3% versus the Swiss franc. But the greenback also advanced 0.8% against the Australian dollar, 0.6% versus the kiwi, 0.4% relative to the loonie, and 0.4% vis-a-vis sterling and the euro. An even larger 2.0% jump in the dollar against the Mexican peso represents continuing concern about a deterioration in U.S.-Mexican relations in the wake of Mexico’s election this past weekend.
In other financial market action overnight, 10-year sovereign debt yields slipped four basis points in Germany, three basis points in Japan, two basis points in the U.K. and a basis point in U.S. Treasuries. The price of WTI oil sank 2.6%, bringing the slide over the past week to slightly more than 9.0%, and gold, which broke above $2,400 per ounce for the first time last month to as high as $2,454, has since fallen back by more than $100, including a 0.9% loss so far today. Bitcoin, by contrast, is steady.
On today’s data release front, Malaysia’s manufacturing purchasing managers index rose 1.2 points to a 21-month high in May of 50.2, ending a long span in contractionary territory. Thailand‘s PMI improved 1.7 points to a 10-month high of 50.3. Egypt’s non-oil PMI climbed 2.0 points to a 33-month high, aided by input price disinflation, and the Saudi Arabian non-oil PMI printed at a 4-month low of 56.4 in the latest month. The Irish manufacturing PMI printed below 50 for a third straight month in May but, at 49.8, was a tad above the March and April levels.
Swiss consumer price inflation in May matched April’s 4-month high of 1.4%, and core Swiss inflation held steady at a mere 1.2%.
South Korean CPI inflation slowed to a 10-month low of 2.7% in May and a 32-month low core inflation rate of 2.2%.
The 12-month change in Romanian producer prices of minus 4.0% in April was its least negative in seven months but still far south of the 51.0% peak clocked in August 2022.
In South Africa where the ANC just lost its parliamentary majority for the first time in three decades, real GDP (-0.1%) was negative in 1Q for the second time in three quarters, and on-year growth of just 0.5% only matched the 0.5% growth that had occurred between the first quarter of 2022 and the first quarter of 2023.
A revised calculation of Australian retail sales during April confirmed the preliminary estimate of +0.1% on month and 1.3% on year. Australia posted a A$ 4.896 billion current account deficit in the first quarter, which was both smaller than expected and considerably worse than the year-earlier surplus of A$ 7.86 billion.
British same-store sales were just 0.4% higher than a year earlier in May, less than their expected rise and the long-term average advance.
German unemployment held steady at 5.9% last month, but the 25k increase in jobless workers was the most in seven months.
The U.S. monthly JOLTS data from the Labor Dept and the RCM/TIPP optimism index will be released today.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: 2024 India election results, U.S. ISM manufacturing PMI
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