No Deals and Many More Covid Cases… Also Several Central Bank Meetings

December 10, 2020

Talks last night between British Prime Minister Johnson and EU Commission President Von Der Leyden failed to achieve a trade deal. The U.S. senate grinch, Mitch McConnell, put the brakes on efforts to nail down a fiscal stimulus.

U.S. Covid deaths yesterday nudged above 3k, and that pace has accelerated to 3,340 over the last 24 hours and 234,483 reported cases. Record daily cases of the infection also occurred in Germany, France, Italy, Japan and Great Britain.

The Governing Council of the European Central Bank as expected augmented monetary stimulus through a variety of adjustments to non-interest rate tools and forward guidance. Notably, the Pandemic Emergency Purchase Program was increased to EUR 1.85 trillion from EUR 1.35 trillion and extended to at least end-March 2022 from mid-2021.

In other central bank news,

The Executive Board of the National Bank of Serbia cut its interest rate by 25 basis points to 1.0% in a move that had not been anticipated by analysts. This brings the total reduction this year to 125 bps following cuts of 50 basis points last March and 25 bps cuts in April and June. A released statement notes the worsening Covid situation especially in Europe and an outlook of low and stable inflation. Today’s rate cut also complements recent fiscal support and is intended to preserve favorable financing conditions for borrowers.

The Central Bank of Brazil‘s Selic interest rate was left unchanged at 2.0%, its level since a 25-basis point cut in August. Since February, there have been five cuts totaling 250 basis points. A released statement notes that inflation (now 4.3%) has run higher than expected lately, but pandemic uncertainty is containing Brazil’s recovery.

Officials at the Central Bank of Uzbekistan left their interest rate unchanged at 14%. There were two full percentage point cuts made in 2020, first in April and followed up in September. CPI inflation in the economy fell 4.3 percentage points to 11.3% between November 2019 and last month.

The National Bank of Ukraine‘s interest rate was maintained at 6.0% at the last scheduled monetary policy review of 2020. It was slashed by 650 basis points during the first half of the year, and that stimulus has helped counteract the drag of the pandemic. Although at an 11-month high of 3.8%, CPI inflation remains below the 4-6% target range.

New U.S. jobless insurance claims jumped to an 11-week high of 853k in the week of December 5 compared to a post-pandemic low of 711k just four weeks earlier.

U.S. CPI inflation held steady at 1.2% in November, matching its lowest level since July. Core inflation remained at 1.6%. Inflation is not the Fed’s current primary concern. It’s too low.

Other price data released today showed

  • No monthly change in Japanese domestic producer prices, which were also 2.2% lower than a year earlier. Import prices dropped 10.6% year-on-year.
  • Norwegian CPI inflation slowed a full percentage point to an 8-month low of 0.7% in November. A simultaneous 3.4% on-year slide in Norwegian producer prices was the least negative in 11 months.
  • Irish consumer prices rose 0.3% on month but fell 1.1% on year in November. That was the eighth straight on-year decline but the smallest slide since August.
  • A 2.1% on-year drop of Greek consumer prices in November was the largest decline in four years.
  • Czech CPI inflation eased to a 13-month low of 2.7% in November.
  • Swedish CPI inflation of 0.2% last month represented a 6-month low, while Danish CPI inflation edged up to a 2-month high of 0.5%.

French industrial production rose 1.6% for a second straight month in October. That was four times larger than what had been forecasts by analysts, but it left production still 3.6% below last February’s level and down 4.2% from a year earlier.

South African factory output rose 2.6% on month but fell 3.4% on year, breaking a 5-month streak of diminishing year-on-year declines. On a brighter note, South Africa in 3Q recorded its largest quarterly current account surplus (ZAR 298 billion) in at least six decades. As a percent of GDP, such swung to +5.9% from -2.9% in 2Q.

As in France, British industrial production far exceeded expectations in October, climbing 1.3% on month. But production remained 4.4% lower than in February and 5.3% below its year earlier level. Construction output went up 1.0% on month but fell 7.5% on year in October.

The British goods and services trade balance reverted to deficit for the first time since March, swinging from a GBP 613 million surplus in September to a shortfall in October of GBP 1.738 billion. The merchandise trade deficit widened 28% on month.

Business sentiment among large Japanese companies improved sharply this quarter but is projected in a survey done by the Ministry of Finance to relapse considerably in the first quarter of 2021.

Turkish unemployment in September fell to a 22-month low of 12.7%.

Indonesian retail sales in October dropped 5.3% on month and 14.9% from a year earlier. Brazilian retail sales that month rose 0.9% from September to post its greatest on-year advance (8.3%) in 80 months.

In financial markets, share prices and long-term interest rates are mostly lower. The prices for gold and oil are up, and the dollar slid a bit after the U.S. data were released.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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