Mixed Economic Tidings

December 16, 2020

The message from December purchasing manager survey preliminary findings is that vaccine hopes eclipsed the need to tighten activity restrictions to combat an intensifying wave of the infection. The data clearly signal that economic activity in the fourth quarter declined only slightly compared to the huge hit taken when the first Covid wave hit in the second quarter.

In a clear sign that the U.S. recovery from the catastrophic second quarter has lost considerable momentum, retail sales fell 1.1% last month, four times faster than projected and by the most since April. A silver lining is that Democrats and Republicans are reportedly nearing agreement on a much-needed, albeit smaller-than-desired, fresh fiscal stimulus. The retail sales report raises the urgency of that effort and the likelihood of it getting done soon.

Japanese and Euroland trade figures and British and Canadian consumer prices were also released.

In other news, Senate Majority Leader McConnell belatedly congratulated President-Elect Biden, who won 306 electoral votes. And the biggest snow storm to hit NYC in nearly three years is expected to begin within hours, complicating life  in a financial center already grappling with a second Covid wave. There have been almost 208k reported new U.S. cases and just over 3k deaths from the coronavirus in the  past 24 hours.

The trade-weighted DXY dollar index slipped further today, touching a low of 90.13. Depreciation remains orders. The dollar fell overnight by 0.2% against the euro, 0.1% relative to the yen and Australian dollar and 0.5% vis-a-vis sterling. Since midyear, DXY is down about 7.5%.

Equities in the Pacific Rim picked up the tone of yesterday’s strongest U.S. daily performance in a couple of months. Share prices rose 1.8% in Indonesia, 1.7% in Taiwan, 1.0% in Hong Kong, 0.9% in India, 0.7% in Australia and 0.3% in Japan and South Korea.  The German Dax is up over 1%. But not all European markets have shared in the upturn, and the DOW is down marginally.

Ten-year sovereign debt yields rose sharply, including increases of 6 basis points in Germany, 5 bps in the U.K. and four basis points in U.S. Treasuries.

There’s been little change in oil or gold prices, but the price of a bitcoin made history, with a quote above $20,000 for the first time ever.

Australia’s composite purchasing managers index advanced 2.1 points to a 5-month  high reading of 57.0. Manufacturing reached a 36-month high, while services were at a 3-month peak.

Japan’s composite PMI edged down only 0.1 point in December to a 2-month low of 48.0, which is consistent with only modest deterioration. With vaccine distribution in sight, firms remain optimistic about the business outlook.

Euroland’s composite PMI rebounded 4.5 points instead of the half point that had been forecast by analysts and, at 49.8, instead conveyed a picture of stagnation rather than clear deterioration. The fourth quarter average of 48.3 is down from 52.1 in 3Q but far above 31.3 seen in the second quarter of 2020. Manufacturing PMI scores for Euroland and Germany rose to 31- and 34-month highs of 55.5 and 58.6. The French composite PMI increased 9.0 index points to 49.6, signalling only very slight contraction.

The IHS-compiled U.S. December purchasing managers index fell 2.6 index points but, at 55.7, still clearly signaled continuing economic recovery, albeit at the slowest pace since August. “Resurgent virus numbers were cited as a key factor behind a pull-back in hiring.”

Preliminary British PMI results put the composite index at a 2-month high of 50.7, led by a 37-month high manufacturing score of 57.3. The 49.9 services PMI was just below the breakeven level of 50.0.

Japan’s November customs trade surplus of JPY 367 billion compares favorably with a year-earlier deficit of JPY 88 billion. Export volumes dropped 4% on year, but imports (-11.1%) declined more sharply in real terms. The seasonally JPY 570 billion trade surplus was the fifth surplus in a row and the largest in that sequence. However, monthly export and import growth swung into the red.

Euroland’s seasonally-adjusted trade surplus widened in November to a post-pandemic high of EUR 25.9 billion in October and embodied continuing uptrends in both exports and imports. The unadjusted EUR 30 billion surplus was larger than the November 2019 surplus of EUR 27.2 billion. Exports and imports were respectively 9.0% and 11.7% lower than a year earlier.

Construction output in Euroland rose 0.5% in October but was still 1.4% below its year-earlier level. There had been a year-on-year drop of 15.3% in the second quarter. On-year labor cost growth in the euro area settled back to 1.6% last quarter from 3.5% in the first half of 2020.

British CPI inflation of 0.3% last month represented a 3-month low and fell short of analyst forecasts. Core consumer price inflation dropped 0.4 percentage points to 1.1%, also a 3-month low. A 0.8% on-year drop in producer output prices was the least in an 8-month sequence of declines. Likewise, a 0.5% on-year decrease in producer input prices was the least in ten months.

Canadian consumer price inflation accelerated 0.3 percentage points in November to a nine-month high of 1.0% and was associated with 1.5% 12-month price increase in core items.

The National Association of Home Builders housing market index gave back most of November’s gain, printing at 86 in December after readings of 90 in the prior month and 85 in October. April saw a low of 30, and the year began at 75 in January.

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


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