I will be out tomorrow and not publishing.
The 3rd member of the Fed troika, John Williams, did not echo yesterday the risks of continued tightening like Lael Brainard did but the markets didn’t need that as the Reserve Bank of Australia delivered a monetary present instead. The RBA hiked interest rates by 25 bps to 2.60% and not the 50 bps that was widely anticipated. Governor Lowe said “The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 bps this month as it assesses the outlook for inflation and economic growth in Australia.” This doesn’t mean they are done though, “The Board expects to increase interest rates further over the period ahead.” While their benchmark rate is less than half the pace of inflation, they are now more cognizant of the speed at which they are driving down the road even though they still plan on ending up at the same place, maybe.
The reaction was swift. Below is a chart of the intraday 2 yr yield where it quickly fell 50+ bps and closed down about 30 bps. The 10 yr yield closed down 17 bps to 3.73% and the Aussie$ is lower by .5% but after the 1.8% jump yesterday. Bond yields in the rest of Asia rallied in sympathy as did European bonds and in turn, US Treasuries. Gold and silver too are rallying and will take off further when the markets get further hints that the Fed is going to slow the pace of hikes, let alone end them.
Intraday Aussie 2 Yr Yield
The growing realization of the global recession we’re in, or on the cusp of one, was anecdotally validated yesterday on the manufacturing side when the JPM Global Manufacturing PMI printed 49.8 for September, a hair under the 50 breakeven level between expansion and contraction. That’s the lowest since June 2020.
US vehicle sales in September according to Wards Automotive totaled 13.49mm which was in line with expectations. That compares with 13.18mm in August and 12.18mm in September 2021 that was the low print last year. These are still recessionary levels of sales and due to a combination of still limited supply and the growing cost of financing a record high vehicle price.
Auto Sales at SAAR
Lori Ann LaRocco at CNBC had a story yesterday on freight and said “A significant consumer pullback is showing up in ocean shipping with logistics managers telling CNBC they have seen a 20% drop in ocean freight orders for the months of September and October. The decline in demand cuts across many products, including machinery, housing, industrial and some apparel. Logistics CEO’s explain to CNBC the reason is a combination of too much inventory coupled with a lack of clarity on consumer demand.” The WCI Shanghai to LA container freight price per 40 foot box closed at $3,283, the lowest since August 2020. It peaked at $12,424 in September 2021 during the rush before the holidays and it stood at about $1,500 in February 2020.
Tokyo said headline CPI in September rose 2.8% as forecasted while the core rate accelerated to a 1.7% y/o/y gain from 1.4% in August and that was one tenth more than expected. That is also the biggest increase since late 1992 when not including the impact of value added tax hikes. While JGB’s rallied with all other bonds, the inflationary pressure has the yen weaker again and the pressure on Kuroda and the BoJ will remain intense.
Core CPI in Tokyo y/o/y
South Korea’s September manufacturing PMI fell further below 50 at 47.3 from 47.6 in August. That’s now the 3rd month in a row in contraction. S&P Global said “Goods production slumped at its sharpest rate since the beginning of Covid in the first half of 2020, reflecting weak demand, client order cancellations and overstocked inventory levels at both producers and their customers alike.”
Ahead of what will likely be another 75 bps rate hike from the ECB in 3 weeks, today we saw August PPI in the Eurozone rise by 43.3% y/o/y. There are not enough words to discuss the energy pain the region is experiencing. Ex energy prices, PPI was still up 14.5% y/o/y. The euro is up for a 2nd day to a two week high vs the dollar.
Eurozone PPI y/o/y
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.