Several Points of Focus Today – Currency Thoughts
Several Points of Focus Today
November 20, 2024
Third-quarter earnings from the Nvidia, which arrive after markets close today, could be highly influential in determining where the stock market goes from here. Forward guidance from the AI chipmaker holds the key.
Disinflation and sluggish growth in the euro area are the backdrop to the recent less hawkish tone of ECB officials, but today’s release of third-quarter negotiated Euroland wage growth introduces a countervailing considerations. The 5.42% increase from a year earlier was not only about 1.5 percentage points hotter than expected but in fact the greatest year-on-year advance since the 5.62% recorded in the first quarter of 1993.
Yesterday’s fearful mood in world financial markets had been triggered by new suggestions from Russian President Putin that tactical nuclear weapons might be used against Ukraine. Foreign Minister Lavrov seemed to walk back that escalation by saying that going nuke would be done only as a last resort. The fact that the U.S. government didn’t lift its nuclear alert status after Putin’s comment also helped dissipate the sense on geopolitical immediacy.
Iceland’s central bank policy interest rate was cut by 50 basis points to 8.5%, its lowest level since May 2023 and largest decline since May 2020. One-year and five-year Chinese loan prime rates of 3.1% and 3.6% were not changed, however. Likewise, officials at Bank Indonesia left their key interest rate unchanged at 6.0%. Three members of the Federal Reserve Board of Governors have separate public speaking engagements today: Barr, Cook and Bowman. Investors will be paying close attention.
In overnight financial market action,
- The dollar advanced 0.7% against the yen, 0.5% against the Mexican peso and New Zealand dollar, 0.4% relative to the Australian dollar and 0.3% versus the euro. Smaller gains were made of 0.2% against the Swissy and loonie and 0.1% vis-a-vis the Chinese yuan and sterling.
- The Trump-infused rally of Bitcoin continued with a 2.3% additional gain to yet another record peak. Gold and oil advanced as well.
- Ten-year sovereign debt yields are up six basis points in France, five bps in Italy, four bps in Germany, Spain and the U.K. and three bps in the United States.
- Equities sputtered in parts of the Pacific Rim, with drops of 0.7% in Taiwan, 0.6% in Australia, 0.4% in Singapore and 0.2% in Japan, but the Shanghai Composite and Hong Kong’s Hang Seng rose by 0.7% and 0.2%. Major euro area stock markets are up about 0.5%, while U.S. futures point to a modest uptick.
Britain reported higher-than-forecast price data for October. Consumer price inflation accelerated 0.6 percentage points to a 6-month high of 2.3%, with service sector prices hovering at 5.0%. The retail price index climbed 0.5% on month and 3.4% on year versus September’s 42-month low pace of 2.7%. Core producer output price inflation rose 0.3 points to 1.7%.
South African CPI inflation declined a full percentage point in October to a 52-month low of 2.8%.
Producer price inflation in Germany printed at minus 1.1% in October, less negative than the readings of -1.4% in September or -9.2% in September 2023 but well down nonetheless from the September 2022 peak of +38.7%.
Portuguese producer prices fell 0.8% month-on-month and to a 6-month low year-on-year inflation reading of just 0.1% during October. Georgian PPI inflation of 6.8% was two percentage points lower than in September, while Estonian PPI inflation swung from -0.5% in September to +0.1% in October.
Although Japan’s unadjusted trade deficit shrunk significantly from JPY 703 billion in October 2023 to JPY 461 billion last month, the seasonally adjusted deficit of JPY 358 billion was roughly 30% wider than September’s shortfall.
Danish on-year GDP growth this past summer of 3.9% was the seventh straight increase and the largest reading since the final quarter of 2023.
U.S. mortgage applications posted slight increases in each of the past two weeks following a combined 35% combined plunge in the previous six weeks. The 30-year fixed mortgage rate, which had fallen from 7.90% in the week of October 20, 2023 to 6.12% in the week of September 20, 2024, has backed up to 6.90%.
Construction output in the euro area dipped 0.1% in September and was 1.6% below the year-earlier month.
Iceland’s central bank interest rate had been held at 9.25% from August 2023 until an initial rate cut last month of 25 basis points. Today’s second reduction doubled the size of that increment. A released statement observes a broadly shared disinflation, lessening price expectations, and higher unemployment to justify today’s steeper drop. At 8.5% compared to a 34-month low rate of CPI inflation last month of 5.1%, policy remains restrictive. “Persistent inflation and inflation expectations above target (of 2.5%) call for caution.”
Increasing geopolitical uncertainty in the wake of the U.S. election result and Trump’s threat of high trade tariffs and mass deportations creates another reason for central bankers to tread slowly in exiting restrictive monetary stances. Developing economies that rely particularly on trade to drive growth have currencies that could be vulnerable to depreciation in this environment. Indonesia’s interest rate had been raised starting in August 2022 from 3.5% to 6.25% this past September. A 25-basis point cut in September to 6.0% had reversed the final rate increase in April, but that initial cut has not been amplified by further reductions even though CPI inflation of 1.7% in October was Indonesia’s lowest reading in three years and down from 5.95% at peak in September 2022. Officials at Bank Indonesia do not want recent slippage in the rupiah to become more extended.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, British CPI and PPI, Central Bank of Iceland, German PPI, Japanese trade deficit, Nvidia, Russian Foreign Minister Lavrov
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