Dollar and U.S. Equity Futures Up After Wednesday’s Coup in Washington Fails

January 7, 2021

The U.S. Congress shortly before 04:00 today confirmed that the ticket of Biden/Harris won the 2020 election and will take office at noon on January 20th. This ordinarily ceremonial act of power transition was anything but ordinary this time after a mob stormed the Capitol building yesterday to prevent the process. Taking his cue from Alexander Lukashenko in Belarus and Nicolas Maduro in Venezuela, President Trump instigated the mob’s action in which one woman was shot dead. Even as democracy has survived in the United States for one more day at least, people around the world are left to wonder if a rubicon has been crossed, and immediate questions remain unanswered like whether the 25th amendment ought to be invoked and how national security was so unprepared to meet America’s greatest act of domestic terrorism. Beyond that lies the task of addressing American divisiveness.

But a worst-case scenario was averted, and so markets have reacted positively this morning.

  • The dollar rose 0.7% against the Mexican peso, 0.6% versus the yen and Australian dollar, 0.5% relative to the4 Swiss franc, 0.4% vis-a-vis the euro and kiwi, and 0.3% against the Canadian dollar.
  • Stock markets rose 2.1% in South Korea, 1.6% in Japan and Australia, 1.5% in Taiwan and Indonesia, 1.1% in Singapore, and 0.7% in China. The German Dax and Paris Cac are 0.4%, and U.S. S&P and Nasdaq futures are up 0.6% and 0.8%.
  • Ten-year U.S. Treasury, British gilt and Japanese JGB yields climbed two basis points further overnight.
  • Commodity prices for WTI oil and gold are 0.5% and 0.6% firmer.

The other big U.S. political story is confirmation that Democrats won both Georgian senate seats, giving President-Elect Biden’s party control of Congress’s upper chamber. A fiscal policy to take some of the burden off of the Federal Reserve is closer at hand, and so are higher interest rates and a speedier restoration of in-target inflation.

New U.S. jobless insurance claims last week matched the prior week’s 787,000 total, which is somewhat less than anticipated. The U.S. goods and services trade deficit of $68.1 billion in November was $5 billion wider than October’s imbalance.

Euroland consumer prices recorded a year-on-year decline of 0.3% for a fourth straight time in December and has been negative since August. Inflation at end-2019 had been 1.3%, by comparison. Core CPI inflation has been at a record low of 0.2% for four consecutive months, down from 1.3% in December 2019.

Economic sentiment in the euro area rebounded in December on favorable vaccine news to a 2-month high, climbing 2.7 points to a reading of 90.4 but remaining 13.0 points below last February’s pre-pandemic level of 103.4.

Retail sales volume in Euroland was clobbered by Covid-19’s second wave, dropping 6.1% on month in November and by 2.9% compared to the same month a year earlier.

Euroland’s construction purchasing managers index edged further below the 50 level that delineates deterioration from improvement. A 2-month low of 45.5 in December marks the seventh straight sub-50 score. The French PMI sank to a 7-month low of 40.5, but Italy’s construction PMI of 50.3 exceeded 50 for the first time since September.

The British construction PMI, like Euroland’s, dipped to a 2-month low in December, but unlike the euro area, the U.K. reading of 54.6 is comfortably within an expanding cycle.

Sweden services PMI dropped 2.3 index points to a 2-month low in December, but its composite purchasing managers index (58.9) shows the fastest positive growth in 25 months.

Swiss retail salesĀ  dropped 2.0% in November, its third monthly decline in four months, and that trimmed the 12-month increase to 1.7%.

German industrial orders were expected to decline a bit in November after six straight increases including 3.3% in October, but orders instead went up by a further 2.3% and resulted in a larger on-year advance of 6.3%. Domestic demand climbed 1.6%, and export orders went up 2.9%.

Between December 2019 and last month, consumer prices slipped 0.1% in Italy, fell 1.1% in Cyprus, and recorded the smallest 12-month increase (3.15%) in Mexico since May. Taiwanese wholesale prices were 5.1% below their end-2019 level, And Austrian wholesale price inflation last month (-2.7%) was below zero percent for an 11th straight time.

Japanese labor cash earnings fell on year in November by 2.2% nominally and 1.1% in inflation-adjusted terms.

Consumer confidence in Thailand slipped to a 5-month low in December due to intensifying Covid cases.

Chinese international reserves swelled $39 billion in December to $3.217 trillion, the highest level since April 2016.

Australia’s trade surplus of A$ 5.022 billion in November reflected on-year growth of 10% in imports but just 3% in exports. The monthly average surplus in January-November was A$ 5.95 billion. Australian building permits rose for a third straight time in November, but the 2.6% increase was smaller than those in September and October.

Canada’s C$ 3.34 billion trade deficit in November was 11% smaller than October’s deficit.

U.S. FOMC minutes from the mid-December policy meeting that kept settings steady leaves the door open to additional stimulus if the inflation and employment mandated goals are not approached as quickly as hoped. Since that meeting, however, Congress passed a fiscal stimulus, and even more support is likely on its way. These developments lessen the chances that the central bank will be compelled to augment its easing.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

 

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