Multi-Pronged Blow to Stocks and Bonds but Dollar Soars – Currency Thoughts
Multi-Pronged Blow to Stocks and Bonds but Dollar Soars
January 10, 2025
The People’s Bank of China announced a temporary suspension to its purchases of government bonds.
The U.S. Labor Dept’s December employment situation report revealed more strength than forecast, notably in non-farm payroll jobs whose jump of 256k was the most in nine months and about 100k greater than the market consensus. Employment expanded by almost half a million workers in the final two months of 2024, well above the pace during the earlier ten months of last year. Privately employed workers advanced 223k in December, exceeding ADP’s estimate of 122k. Another hot element in the U.S. labor market report include unexpected drops in unemployment to 4.1% and the U6 measure of under- and unemployment to 7.5%. These developments drowned out the 0.1 percentage point dip in average hourly earnings growth to 0.3% on month and 3.9% on year. At the December FOMC meeting, Federal Reserve officials halved their expected interest rate cut during 2025. That may overstate the scope for ease. At the least, it will take many months of tamer data to resume easing.
Central bank news from other countries today accentuate caution. First, the National Bank of Serbia failed to cut its policy interest rate as pundits had predicted. The rate stays at 5.75% following three prior 25-basis point cuts decided last June, July and September. Serbian inflation of 4.3% is within but near the 1.5-4.5% target range. Officials want to assess the effects of their earlier cuts and enumerated several uncertainties that could unfavorably affect future inflation. The peak interest rate of 6.5% after hikes totaling 400 basis pints in 2022 and 150 bps in 2023 had been maintained from July 2023 until June 2024.
More startling, there was an unscheduled emergency meeting of officials today at the National Bank of Moldova that concluded with a two percentage point hike of that central bank’s policy interest rate to 5.60%, its most elevated level since October 2023. This action was also precipitated by external developments, namely tariffs on energy and the possibility of more sanctions to come that officials fear could boost inflation expectations. Moldovan inflation rose from 3.3% last May to a 15-month high of 7.0% in December.
Fires continue to rage in California, providing even more incentive for insurers to eliminate disaster insurance or raise premiums to levels that homeowners cannot afford.
The countdown to the Trump inaugural is down to just ten days. His desires to acquire Greenland and Canada have drawn parallels to Germany’s seizures of Austria, Czechoslovakia, and Poland that preceded world war 2 and inject a fresh dimension of fear among America’s allies.
The price of WTI oil leaped 4.1% overnight, and that of Bitcoin is up 1.4%.
Stock markets in the Pacific Rim closed broadly in the red this Friday, with losses of 1.3% in China, 1.6% in Singapore, 1.1% in Japan, and 0.9% in Hong Kong. European stock markets are down only slightly, but the Nasdaq, DOW and SPX were down 1.6%, 0.9% and 1.0% just 30 minutes after they opened.
10-year sovereign debt yields have risen six basis points in the U.S., four bps in Italy and the U.K., and two bps in Germany, France and Japan.
The dollar thrives when uncertainty swells, so it’s not surprising to see the U.S. currency sporting gains so far today of 0.7% against sterling and the Australian dollar, 0.6% versus the euro, and 0.5% relative to the Swiss franc. The threat of currency intervention is holding the yen steady.
Canadian labor market data for December also depicted more strength than anticipated. Jobs grew 91k, more than triple what analysts had predicted, and the jobless rate slid back to 6.7% from November’s 38-month high of 6.8%. Average weekly earnings growth climbed to a 45-month high of 5.3% from 4.9% earlier in the fourth quarter.
Among reported price data this Friday,
- Norwegian consumer price inflation slowed to a 48-month low of 2.2% last month, but producer price inflation rose to a 2-year high of 9.3%.
- Danish CPI inflation printed at a 4-month high of 1.9%, but core inflation was only 1.5%.
- Brazilian CPI inflation slid marginally below November’s 14-month high to 4.87% last month.
- Lithuanian PPI inflation moved above zero percent to a 6-month high of 0.3% in December.
- Latvian CPI inflation jumped 1.1 percentage points to 3.3%, most in 15 months.
Germany’s current account surplus nearly doubled on month to an 8-month high of EUR 24.1 billion.
November industrial production figures were reported by several countries. Such rose 2.9% on month in Turkey, a 20-month high, and recorded a 1.5% year-on-year advance. French production fell 1.1% on year in November, most in five months, and the 0.4% on-year slide in Spanish output ended a 3-month streak of results above zero percent. Finnish industrial production rose 3.2% on year, most in 4 months. Malaysian production was 3.6% above the level in November 2023, which was the biggest rise in three months. In Bulgaria’s case, industrial production’s rise of 2.8% constituted a 2-year high, but Denmark’s IP drop of 2.3% was the largest on-year decline in 8-months. Austrian production was 2.7% less than a year earlier, while Indian output recorded its largest on-year gain (5.2%) in a half year. Production in Greece and Sweden were 4.9% and 2.6% above year-earlier levels.
Late Thursday came news that the Central Reserve Bank of Peru had implemented another 25-basis point rate cut. At 4.75%, the new policy rate level is three percentage points below the peak that had prevailed from January 2023 until an initial reduction the following September. Peruvian CPI inflation of 2.0% currently is aligned with the central bank’s target.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Reserve Bank of Peru, French and Spanish industrial production., National Bank of Moldova, National Bank of Serbia, U.S. and Canada jobs data
ShareThisYou can leave a response, or trackback from your own site.
