Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 03/10/23
Euro area inflation rate decelerated further to +4.3% year-over-year in September from +5.2% in August and a record high of +10.6% in October 2022
Key Takeaways
A major driver for global financial markets in September, and more broadly in Q3:2023, was the prospect of “higher-for-longer” monetary policy interest rates. As a result, government bond real yields surged across the board, with inflation expectations remaining broadly stable.
All told, 10-Year US Treasury nominal yields rose by +48 bps in September and by +76 bps in Q3:2023, to 4.57%. In a similar vein, 10-Year German nominal yields rose by +35 bps in September and by +41 bps in Q3:2023, to +2.82%.
Euro area periphery government bond yields spreads widened in Greece and Italy by +20 bps and +29 bps to 152 bps and 192 bps, respectively, in September. BTP/Bund spreads increased, inter alia, due to renewed concerns regarding Italian debt dynamics.
Indeed, on September 27th, Italy updated its Economic and Financial document (NADEF). Real GDP projections were revised lower to +0.8% for 2023 and to +1.2% for 2024, from +1% and +1.5%, respectively, in April's projections. The general government deficit (as % of GDP) forecast was revised to -5.3% for 2023 (from -4.5%) and to -4.3% for 2024 (from -3.7%). Finally, the Government Debt-to-GDP ratio is projected to remain broadly stable over the next three years to 140%.
Sharp gains for oil prices on the back of supply deficit concerns in view of reduced production from Saudi Arabia and Russia, was also a major theme in Q3:2023. Specifically, Brent prices rose by +28% in Q3:2023 to $95 per barrel, hovering at eleven-month highs. The upside repercussions for inflation prospects contributed to the “higher-for-longer” rate theme.
Higher interest rates and oil prices fed through to concerns regarding the global economic outlook and corporate profitability, consequently weighing on global equity markets. The MSCI ACWI index lost -4.3% in September and -3.8% in Q3:2023.
The US dollar appreciated across the board, with the DXY index recording gains of +2.5% in Q3:2023 due to strong US economic performance and widening real interest rate differentials. The Atlanta Fed’s GDPNowcast model points to US real GDP growth of +4.9% qoq saar (+2.9% yoy) in Q3:2023. Against the Japanese yen, the USD appreciated by +3.2% in Q3:2023 to ¥149.23 (+13% YtD). Recall that these levels are in striking distance from the ¥150 threshold, which prompted intervention from the Japanese government in October 2022 to support the Yen.
Solid net exports boosted the Japanese economy in Q2:2023, with real GDP growth of +4.8% qoq saar (+1.6% yoy). Looking forward, the Bank of Japan’s quarterly Tankan survey that assesses business conditions pointed to improved (at robust levels) business confidence in September compared with three months ago. The headline business conditions index for large manufacturers was up by +4 pts to +9 and for large non-manufacturers by +4 pts to +27 (average of +4 & +6, respectively, since 2000).
On a positive development, a partial federal government shutdown in the US was temporarily averted, with a stopgap bill securing sufficient funding until November 17th. By then, government funding bills for the fiscal year which started on October 1st will need to be approved.
Key Takeaways
A major driver for global financial markets in September, and more broadly in Q3:2023, was the prospect of “higher-for-longer” monetary policy interest rates. As a result, government bond real yields surged across the board, with inflation expectations remaining broadly stable.
All told, 10-Year US Treasury nominal yields rose by +48 bps in September and by +76 bps in Q3:2023, to 4.57%. In a similar vein, 10-Year German nominal yields rose by +35 bps in September and by +41 bps in Q3:2023, to +2.82%.
Euro area periphery government bond yields spreads widened in Greece and Italy by +20 bps and +29 bps to 152 bps and 192 bps, respectively, in September. BTP/Bund spreads increased, inter alia, due to renewed concerns regarding Italian debt dynamics.
Indeed, on September 27th, Italy updated its Economic and Financial document (NADEF). Real GDP projections were revised lower to +0.8% for 2023 and to +1.2% for 2024, from +1% and +1.5%, respectively, in April's projections. The general government deficit (as % of GDP) forecast was revised to -5.3% for 2023 (from -4.5%) and to -4.3% for 2024 (from -3.7%). Finally, the Government Debt-to-GDP ratio is projected to remain broadly stable over the next three years to 140%.
Sharp gains for oil prices on the back of supply deficit concerns in view of reduced production from Saudi Arabia and Russia, was also a major theme in Q3:2023. Specifically, Brent prices rose by +28% in Q3:2023 to $95 per barrel, hovering at eleven-month highs. The upside repercussions for inflation prospects contributed to the “higher-for-longer” rate theme.
Higher interest rates and oil prices fed through to concerns regarding the global economic outlook and corporate profitability, consequently weighing on global equity markets. The MSCI ACWI index lost -4.3% in September and -3.8% in Q3:2023.
The US dollar appreciated across the board, with the DXY index recording gains of +2.5% in Q3:2023 due to strong US economic performance and widening real interest rate differentials. The Atlanta Fed’s GDPNowcast model points to US real GDP growth of +4.9% qoq saar (+2.9% yoy) in Q3:2023. Against the Japanese yen, the USD appreciated by +3.2% in Q3:2023 to ¥149.23 (+13% YtD). Recall that these levels are in striking distance from the ¥150 threshold, which prompted intervention from the Japanese government in October 2022 to support the Yen.
Solid net exports boosted the Japanese economy in Q2:2023, with real GDP growth of +4.8% qoq saar (+1.6% yoy). Looking forward, the Bank of Japan’s quarterly Tankan survey that assesses business conditions pointed to improved (at robust levels) business confidence in September compared with three months ago. The headline business conditions index for large manufacturers was up by +4 pts to +9 and for large non-manufacturers by +4 pts to +27 (average of +4 & +6, respectively, since 2000).
On a positive development, a partial federal government shutdown in the US was temporarily averted, with a stopgap bill securing sufficient funding until November 17th. By then, government funding bills for the fiscal year which started on October 1st will need to be approved.