Week 3 | January 16-22, 2023
Mr. Van Loven A. Abbu, LPT
SUMMARY
United States (USD) Highlights:
United States Retail sales down 1.1% in December, worse than expected:
After a downwardly revised 1% reduction in November, retail sales in the US fell 1.1% month over month in December 2022, worse than expected with a 0.8% decline. The highest decline in sales was seen at gas stations (-4.6%), followed by furniture shops (-2.5%), auto dealers (-1.2%), electronics and appliance shops (-1.1%), other retailers (-1.1%), and non-store merchants (-1.1%). In contrast, sales at sports goods, musical instrument, and bookstores increased by 0.1% and those at businesses selling building materials and gardening supplies by 0.3%, respectively. Food and beverage retailers saw no change in sales. Because retail sales are not adjusted for inflation, a portion of the decline in December can be attributed to lower product pricing during the month and earlier holiday shopping in October. Sales were down 0.8%, however, when gas station sales were excluded, indicating that Christmas shopping was weaker than anticipated and that consumer spending is slowing down due to rising inflation and interest rates.
US producer prices for final demand end-December with another 0.1 percent fall:
Following a corrected 0.2 percent rise in November, producer prices for final demand in the US decreased by 0.5 percent from one month earlier in December 2022, contrary to market forecasts for a 0.1 percent decline. It was the biggest monthly drop since April 2020, adding to indications that the biggest economy in the world is experiencing a decrease in inflationary pressure. 1.6 percent less was paid for goods, with energy costs falling by 7.9 percent and food costs falling by 1.2 percent to a lesser amount. However, because of better margins for trade services that are in high demand, service prices climbed somewhat by 0.1 percent. The PPI grew 6.2 percent annually on an unadjusted basis in December, which was the smallest gain since March 2021.
Both data this week were the most notable macroeconomic news, which indicates a modest deflation to close 2022. We now anticipate the Fed to raise the federal funds rate by just 25 basis points at its next policy meeting on February 1, 2023. However, a slower rate of tightening does not always imply a lesser degree of tightening.
China (CNY) Highlights:
China’s Q4 GDP ends at second-slowest rate in more than half a century:
In Q4 2022, the Chinese economy grew 2.9% YoY, down from Q3’s 3.9% growth but still above market expectations of a 1.8% increase. Retail sales remained subpar, industrial output rose the least in seven months in December, and the unemployment rate declined from its 6-month peak in November. The economy expanded by 3.0% for the entire year of 2022, falling short of the declared goal of roughly 5.5% and representing the second-slowest rate since 1976 as a result of Beijing’s zero-COVID policy. According to the statistics bureau, “the basis of economic recovery is not firm in 2022 as the global situation is still difficult and dire while the domestic triple pressure of demand contraction, supply shock, and lowering expectations is still looming.” The 2023 GDP growth goal is expected to be revealed by Chinese officials in March during the annual parliamentary gathering. Since President Xi Jinping secured his authority in October 2022, there hasn’t been a meeting of this kind.
These figures are not amazing, but they are also not bad. There is still potential for a soft landing because China basically abandoned its covid-zero approach and continued to offer support to the economy’s weaker sectors.
Japan (JPY) Highlights:
Bank of Japan surprises with unchanged interest rate and yield curve control – sticking to ultra-easy monetary policy:
The Bank of Japan (BoJ) unanimously decided to maintain its benchmark short-term interest rate at -0.1% and that for 10-year bond yields at around 0% during its January meeting. In addition, the central bank maintained its 0.5% limit on bond purchases, defying market speculation and indicating that officials aren’t looking to loosen their control over bond rates in the wake of the surprise adjustment to the yield curve control range in December. In the meanwhile, noting slowdowns in foreign countries and high commodity costs, the board reduced its prediction for 2022 GDP growth to 1.9% from 2.0% in a quarterly outlook report. The bank reduced its GDP projection for FY 2023 from 1.9% to 1.7%. The CPI readings were very constant, hovering at about 3% in FY 2022 and 1.6% the following year. The BoJ maintained that it expects short- and long-term policy interest rates to remain at their current or lower levels and that it will adopt additional easing measures if necessary.
The annual inflation rate in Japan rose to 4.0 % in December 2022, the highest since 1991:
In December 2022, the annual inflation rate in Japan reached 4.0%, the highest level since January 1991 as a result of rising import prices for raw materials and a weaker yen. Food (7.0% vs 6.9% in November), housing (1.2% vs 1.2%), fuel, light, and water charges (15.2% vs 14.1%), primarily electricity (21.3% vs 20.1%) and gas (23.3% vs 21.0%), transport & communication (2.1% vs 1.6%), medical care (0.4% vs 0.3%), furniture & household utensils (7.5% vs 7.3%), clothes (2.9% In line with market expectations but above the Bank of Japan’s 2% objective for a ninth consecutive month, core consumer prices also rose by 4.0% year over year, the biggest since December 1981. After an upwardly revised 0.4% advance in November, consumer prices increased by 0.3% in December, the least in four months.
United Kingdom (GBP) Highlights:
UK jobless claims up, pay rises signal slow-down in the labor market:
The UK market is displaying new indications of a shift in the labor market toward a decline in employment, but the faster rate of pay rise means that the Bo’s actions and remarks are being closely watched. After a smooth end to the fall earlier in the year, jobless claims increased by 19.7K in December after rising by 16.1K the previous month. The unemployment rate was 3.7% as of today. These levels have increased by 0.2 percentage points from the August lows, but by historical standards, they are still quite low. Regrettably for decision-makers, the low unemployment rate is a reflection of a declining active workforce, which compelled the government to implement a scheme of tax incentives for those over 50 who are returning to the labor.
UK consumer price inflation falls to 10.7% in December:
The UK’s annual inflation rate decreased to 10.5% in December 2022 from 10.7% in November, in line with market expectations. After reaching a peak of 11.1% in October, it is the second consecutive month of falling inflation and the lowest rate in three months. Prices for transportation, namely motor fuels, contributed the most to the decline (6.5% vs. 7.2%). Between November and December, the cost of gasoline decreased by an average of 8.3 pence per liter. Prices decreased for recreation and culture, primarily games, toys, and hobbies (4.9% vs. 5.3%), as well as apparel and footwear (6.5% vs. 7.5%). In contrast, prices increased more quickly for lodging, food, and non-alcoholic drinks (16.8%, the most since 1977 according to modeled estimates vs. 16.4%), as well as restaurants and motels (11.3%, the greatest since 1991 vs. 10.2%). The CPI grew 0.4% from the previous month, matching its gain from November and staying in line with expectations.
Although the downward trend is promising, inflation is still persistently high and reached a 41-year high of 11.1% in October. Even if the Bank of England increased interest rates to 3.50%, more must undoubtedly be done.
Canada (CAD) Highlights:
Canada’s December CPI ends at 6.3% – lowest since 1983:
In comparison to the 6.8% in November and the 1983 high of 8.1% in June, Canada’s annual inflation rate decreased to 6.3% in December 2022, the lowest level since February 2022, and below market estimates of 6.4%. Transportation price increase decreased significantly (6% vs. 8.5% in November), as lower global crude oil benchmarks reduced inflation for gasoline (3% vs. 13.7%), fuel and other fuels (52% vs. 73.4%), and other fuels (52% vs. 73.4%). Housing prices also decreased (7% vs. 7.2%), as the fall in homeowners’ replacement inflation more than offset the rise in mortgage interest rates. Food costs decreased as well (10.1% vs. 10.3%), thanks to lower grocery store prices (11% vs. 11.4%). The Canadian CPI fell 0.6% on a monthly basis, which is the worst monthly decrease since April 2020.
Although inflation is still far higher than the Bank of Canada’s target rate of 2%, the decline in inflation implies that the aggressive rate cycle is having the expected impact. The markets have already priced in a 25 basis point increase, which would raise the cash rate to 4.50% when the BoC holds its rate meeting the following week. The anticipated hike next week might mark the end of the current cycle of rate tightening if inflation remains on a downward trend.