Divergent Central Bank Signals
May 8, 2024
Three European central banks have now cut interest rates this month: the Czech National Bank by 50 basis points last Friday, the National Bank of Moldova by 15 bps yesterday and, most tellingly, the Swedish Riksbank today by 25 basis points to 3.75%. These announcements are a harbinger of coming reductions elsewhere in the region.
Prospects for Fed easing are less clear. Minneapolis Federal Reserve District President Kashkari (and a former interim Assistant Secretary of the Treasury) reaffirmed the need for more proof that U.S. disinflation will continue all the way to the 2% target and insinuated that no rate cut this year is possible.
Benefiting from the ambiguous future path of Fed policy, the dollar rose overnight by 0.6% versus the Swedish krona, 0.5% against the yen and Australian dollar, 0.2% relative to the Canadian dollar, and 0.1% vis-a-vis the Swiss franc, euro and sterling. The yen’s renewed drop elicited a warning from Japanese Finance Minister Suzuki of more intervention to counter disorderly currency market conditions, but Japan’s G7 partners have no interest in undertaking forex operations to help support the yen.
Last week’s rebound in equities seems a bit stalled. U.S. stock futures are somewhat lower, and share prices in Asia closed this Wednesday with losses of 1.6% in Japan, 0.9% in Hong Kong and 0.6% in China. European stock markets are higher, however.
The price of West Texas Intermediate oil has dropped 0.9%, whereas prices for gold and Bitcoin are hardly changed.
The Swedish Riksbank policy interest rate cut announced today was anticipated by analysts by nonetheless marks a turning point. The rate’s previous change, a hike of 25 basis points last September culminated 150 basis points of tightening in 2023 after 250 bps of increase in 2022. Its the first rate reduction since a cut to minus 0.50% done in February 2016. In announcing today’s rate change, a released statement projects further disinflation, anchored price expectations, and moderate wage pressure. If such an outlook indeed transpires, officials expect to cut the rate two more times during the second half of this year. But the statement goes on to concede that considerable uncertainty surrounds the economic prognosis and identifies potential upside price risks such as geopolitical tensions and krona depreciation that could abort its rate cut intentions.
The Central Bank of Iceland also reviews monetary policy today. The 7-day term deposit rate has been kept at 7.25%, a level reached initially last August and that happens to represent a 14-year high. From a pandemic low of 0.75% between November 2020 and May of 2021, the rate was increased by 400 basis points during 2022 and a further 275 bps last year. Icelandic consumer prices posted successive month-on-month rises of 1.3% in February, 0.8% in March and 0.6% last month. Although on-year inflation decelerated from 10.2% in February to 6.0% in April 2024, officials want to see more labor market slack and other indications that its 2.5% inflation target is achievable.
German industrial production in March fell somewhat less steeply (-0.4%) than anticipated and managed to tick up 0.1% on average in the first quarter. But the year-on-year slide of 3.3% in March was more than twice the average 2023 decline of 1.5%.
Spanish industrial production in March dropped 0.7% on month and 1.2% on year.
Italian retail sales stayed unchanged in March and registered a 2.0% increase from a year earlier.
Estonian CPI inflation receded to a 3-year low of 2.8% in April from 3.9% in March and a peak of 24.8% in August 2022.
Egypt’s non-oil purchasing managers index dipped 0.2 points to a 2-month low of 47.4 in April, marking its 41st straight sub-50 score.
Lebanon’s private sector PMI declined half an index point to a 4-month low of 48.9 last month.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Iceland, German industrial production, Swedish Riksbank
ShareThis
