Stymied Effort to Get Fiscal Package and Covid Concerns Depress Stocks and Lift Dollar

December 11, 2020

While bipartisan consensus has emerged over the size of a U.S. fiscal stimulus (slightly above $900 billion), disagreement over the composition of relief and particularly over the  issue of liability protection for businesses continues to prevent a senate vote before Christmas.

There also is no trade deal yet between Great Britain and the European Union, but the deadline for talks was pushed out to December 13. EU leaders, however, agreed separately to a EUR 1.8 trillion long-term budget and Covid recovery plan.

Vaccine optimism has waned meanwhile on concerns over supplies and distribution logistics, plus the touted Sandolfi-GSK product hit a big snag over effectiveness for older folks. Meanwhile, Covid deaths are on a rising, surpassing 12k globally in the  past 24 hours and more than 2.9k in the United States.

Donald Trump’s continuing insistence that he won the election, an assertion not denied by most Republicans, is a Quixotic quest. Biden will be sworn in on January 20, but that’s not to say that the current president’s relentless campaign to overturn the result isn’t doing further damage to the political fabric of the United States and to its world image.

The resurgence of risk aversion lifted the dollar by 1.0% against sterling 0.5% relative to the peso, 0.3% vis-a-vis the loonie, 0.2% versus the kiwi and Swissy, and 0.1% against the euro and Australian dollar. The yuan is unchanged, and the yen, which also attracts safe haven-seeking funds, ticked up 0.1% overnight.

After a steller performance in the prior weeks, stocks sold off this week, and that setback intensified today, with markets closing down 0.6% in Australia, 0.7% in China and 0.4% in Japan. Conditions worsened after Europe opened, and markets there currently show losses of 2.2% in Spain, 1.7% in Germany and 1.0% in the U.K., Italy and France.

U.S. stock futures are down by around 0.8%, and the 10-year Treasury yield has slipped back below 0.90%. Its British and German sovereign debt yield counterparts plunged 5 and 4 basis points today.

The prices of West Texas Intermediate crude oil and gold are little changed, however.

Friday has been a light day in Asia and Europe from a data release standpoint.

The preliminary estimate of German inflation last month was confirmed: the CPI fell 0.8% on month (most in a year) and 0.3% on year, the most deflationary in 70 months. There hasn’t been a year-on-year increase since June. In the dozen months through November, energy fell 7.7%, while all other consumer prices went up just 0.6%.

Spanish consumer prices recorded a 0.8% on-year drop in November, matching October’s result and marking the eighth straight month with a sub-zero percent change.

Romanian CPI inflation of 2.1% in November represents a 38-month low. Serbian CPI inflation slid a tenth percentage point to a 5-month low of 1.7% last month.

Italian industrial production rebounded 1.3% in October and recorded its smallest 12-month decline (2.1%) since August. Hungarian industrial production recorded year-on-year growth of 0.6% in October, down from 2.2% in September. The year-to-date total was 8.2% less than in the first ten months of 2019.

Indian industrial production in October was 3.6% greater  than a year earlier, which was the biggest such gain in eight months.

Turkey’s current account was in deficit for an 11th consecutive month in October, but its $273 million size was only about a tenth the size of the deficit one year earlier.

The Central Reserve Bank of Peru retained a 0.25% benchmark interest rate after the last scheduled policy review of 2020. There had been back-to-back 100-basis point rate cuts in March and April to reach the current record low. In a released statement, officials proclaimed “it appropriate to maintain a strong expansionary monetary stance for as long as the negative effects of the pandemic on inflation and its determinants persist. The BCRP stands ready to expand monetary stimulus using a range of instruments.” Inflation in 2021 is projected to stay around the target range floor, and economic activity remains below “last year’s levels.”

Canadian capacity utilization recovered to 76.5% last quarter from 70.7% in the second quarter but remained well south of 80.1% in the first quarter and the recent peak peak of 84.3% seen in the second quarter of last year.

The U.S. federal budget deficit for the first two months of this fiscal year was reported late Thursday at $430 billion, some 25% wider than a year earlier. And just in, producer prices in November edged up a tad less than forecast, firming 0.1% on month and 0.9% on year (1.2% excluding food and energy).

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


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