Optimism from the Vaccine and Policy Developments
December 9, 2020
Once again stocks have risen and the dollar fallen from optimism that the arrival of vaccines means the beginning of a return to a better normal. The focus on vaccines coincides with difficult trends in Covid cases, deaths and hospitalizations. New cases in the past 24 hours exceed 600k globally and 216k in the United States, and over 12k and 2.6k deaths in those places have been reported.
There are additional grounds for optimism on the policy front:
- The ECB Governing Council is expected to unveil further stimulus tomorrow.
- Britain and the EU are said to be closer to a trade deal. British PM Johnson heads to Brussels.
- U.S. Secretary of State Mnuchin is reportedly on board with a fiscal stimulus of slightly more than $900 billion. Where Senate Majority Leader McConnell stands is unclear.
- Japanese Prime Minister Suga authorized a third pandemic relief fiscal stimulus.
Optimism deprives the dollar of safety-seeking capital flows. The U.S. currency fell to a 32-month trade-weighted low, but the persistent descent continues to be slow and orderly. The dollar fell 0.8% against sterling overnight mainly on hopes for a British/EU deal as well as 1.0% versus the Aussie dollar, 0.5% relative to the kiwi, and 0.3% vis-a-vis the loonie. But there’s been no net change versus the euro, Swissy, yuan or peso and just a 0.1% dip versus the yen.
Share prices advanced overnight by 2.0% in South Korea, 1.4% in New Zealand, 1.3% in Japan, 1.1% in India and 0.8% in Hong Kong. China, down 1.1%, was an exception to this trend, and U.S. equity futures are little changed. European markets show gains of 0.9% in Germany, 0.5% in Switzerland, and 0.3% in the U.K. and Spain.
Ten-year sovereign debt yields are up two basis points in the U.S. and U.K. and a single basis point in Germany. WTI oil shows a 0.4% advance, while the price of gold is off 0.7%.
Released Japanese data today beat expectations. Core domestic machinery orders soared 17.1% on month in October, the most in 24 years, and produced an unexpected gain of 2.8% from a year earlier. Japanese machine tool orders, up 8.0% on year, ended a streak of 25 consecutive negative 12-month changes. On-year M2 money growth accelerated further to 9.1% in November from 8.5% in the third quarter and 2.4% in 2019.
Germany’s EUR 22.5 billion current account surplus in October was EUR 3.5 billion greater than a year earlier. The seasonally adjusted trade surplus of EUR 18.2 billion extends the recovery from monthly averages of EUR 8.4 billion in the second quarter and EUR 16.8 billion in the summer quarter.
Weaker food prices drove Chinese CPI inflation into the red for the first time in 133 months. Consumer prices fell 0.6% on month in November and 0.5% from a year earlier. Producer price deflation of -1.5%, however, was the least negative since March. Chinese November money and lending growth figures were also released today, revealing a CNY 1.45 trillion loan total after CNY 690 billion the month before and an unexpected acceleration of M2 to a 2-month high of 10.7%.
Vaccine optimism was also apparent in several other data releases around the world.
- The Westpac Australian consumer confidence index advanced another 4.1% in December, bringing its recovery since July to 40.9%. A 16.2% monthly leap in Australian building permits in September was followed by a further 3.8% increase in October.
- The Sacci business confidence index of South Africa climbed 1.4 index points to a 19-month high of 93.4 in November. South African retail sales dipped just 0.2% in October, trimming its 12-month decline to 1.8% from 2.4% in September and 49.9% last May. The rand traded around a 10-month high today.
- Spanish consumer confidence rebounded from October’s 8-year low to a 5-month high in November. Spanish industrial production posted a significantly smaller 1.6% year-on-year drop in October than was forecast. Back in May, the 12-month slide had bottomed at 24.6%.
Mexican CPI inflation last month of 3.33% represented a 5-month low.
In central bank news today, the Bank of Namibia kept its main interest rate unchanged at 3.75%. There had been earlier cuts of 50 basis points in February, 100 bps each in March and April, and 25 bps in both June and August. The current level is considered appropriate with inflation hovering just above 2% and the global pandemic still depressing aggregate demand. The Bank of Canada‘s monetary policy statement will be released at 10:00 EST (15:00 GMT). No rate change is anticipated there either.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Namibia, China CPI and PPI, German current account, Japanese machinery orders
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