Investor Flight to Safety After Putin Threatens Use of Nuclear Weapons – Currency Thoughts
Investor Flight to Safety After Putin Threatens Use of Nuclear Weapons
November 19, 2024
Geopolitical risk took a turn for the worse today. Russian President Putin widened conditions under which nuclear weapons might be used not only against Ukraine but allies of Ukraine whose long-range missiles are used against Russian sites by Ukraine. The clear implication is a much feared broader European war with weapons of mass destruction. Putin’s threat comes on the same day that Ukraine shot a long-range U.S. missile into Russia. With nine weeks before Donald Trump’s U.S. presidential inauguration and and additional month before German elections, the period ahead looks ripe for an accidental war.
Stock markets in Europe have taken the biggest hit today, with those in Germany, France, Spain and Italy each down more than 1%. U.S. stock futures are in the red to a lesser extent. Earlier overnight, stocks got a lift as expectations rose that China will expand policy stimulus. Share prices closed up 1.3% in Taiwan, 0.9% in Australia and Indonesia, and 0.7% in China and Singapore.
The price of Bitcoin and gold jumped 1.9% and 1.0%, while oil slipped 0.5%.
Ten-year sovereign debt yields have dropped four basis points today in the U.S., three bps in Germany and two bps in France and Great Britain.
As usually happens, the dollar benefited from today’s latest wave of risk aversion. Also confidence that the federal funds rate will be lowered next month has diminished but remains above an even bet. The greenback got within 0.3% of last week’s high against the euro and is 0.2% above Monday’s close. The dollar rose 0.3% against sterling but has fallen somewhat against the yen after Japanese Finance minister Kato again threatened currency market intervention to support their currency.
Consumer price inflation in the euro area during October has been left unrevised from preliminary estimates that showed a 0.3% monthly rise in prices and a 2.0% 12-month rate of increase. That’s up from the 41-month low of 1.7% in September but otherwise this year’s slowest pace. Service sector prices contributed 1.8 percentage points (ppts) to the inflation rate, and food chimed in with a 0.5 ppt impact, but a 4.6% on-year drop in the energy component exerted a drag on overall inflation. Non-energy industrial goods had nil effect.
Moldovan producer price inflation imploded from 34.9% in October 2022 to -3.8% by March 2024 but rose a half percentage point above September’s reading to -1.2% in October.
Euroland’s seasonally adjusted current account surplusof EUR 37 billion widened 4.5% in September compared to August’s 3-month low of 35.4 billion euros. The unadjusted EUR 51.5 billion surplus was 49% larger than the September 2023 surplus. As a percent of GDP, the surplus during the past 12 reported months equaled 2.9%, more than double the ratio in the previous one-year period.
Switzerland’s year-to-date trade surplus was CHF 39.5 billion, up from CHF 31.8 billion in January-October of 2023.
Spanish consumer sentiment fell to 79.6 in October, a 7-month low, from 84.8 in September and 89.4 in August but still exceeded the year-earlier level of 77.2. Norwegian consumer confidence this quarter was the least negative at -14.4 in a streak of seven consecutive quarters with a subzero reading.
The base rate of the National Bank of Hungary had been lowered from a peak of 13.0% by 225 basis points in the final four months of 2023 and an additional 425 bps this year to 6.5%. As expected it was left unchanged at today’s scheduled review even though core inflation eased to 4.5% last month. The pause in easing reflects concern over recent depreciation in Hungary’s currency amid rising geopolitical tensions in Europe.
The tone of minutes published today of the last Reserve Bank of Australia policy review is hawkish. A whole year has now passed since the official cash rate reached a cyclical peak of 4.35%, and officials still won’t rule out the possibility of a further tightening. All options remain on the table.
Members therefore considered the conditions that might warrant either a future change in the cash rate target or a decision to hold it at its present level for a prolonged period. Members agreed that it was important to keep monetary policy sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland CPI and current account, Magyar Nemzeti Bank, Putin makes a nuclear threat, Reserve Bank of Australia
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