Tension on Several Fronts but Market Moves Muted Overnight

January 14, 2021

President Trump has been impeached by the House of Representatives for the second time in 13 months. The Senate trial will commence soon after he leaves office.

New Covid cases and deaths remain highly elevated in many countries. The British daily death toll set a record yesterday. Bank of Japan Governor Kuroda said monetary stimulus will be ramped up if needed to counter the pandemic’s drag on the economy. Tokyo restrictions were tightened. A daily U.S. death rate around 4k will soon push the cumulative total above 4 million. Global Covid cases are nearing 100 million people since the start of the pandemic.

Washington D.C. and state capitols remain under very heightened security alerts against the threat of right-wing domestic terrorist attacks.

Overnight dollar movements were slight, ranging from gains of 0.3% versus Swissy and 0.2% against the euro and yen to dips of 0.2% relative to the Australian, New Zealand, and Canadian dollars and 0.1% vis-a-vis the peso and yuan. Sterling is unchanged. The trade-weighted dollar has firmed 0.2% and is 1.5% above its recent 52-week low.

Sovereign debt yields have become more dollar-advantageous. The 10-year Treasury yield is up 2 basis points today, while its German and British counterparts fell by 2 and 1 basis points.

The prices of WTI oil and gold each declined 0.6% overnight.

Stock markets on Thursday closed up 0.9% in Japan and Hong Kong and 0.8% in Singapore but down 0.9% in China, 0.4% in Taiwan and 0.2% in India and New Zealand. The British Ftse has firmed 0.5%. The German Dax is up 0.2%, and the Madrid exchange has dipped 0.2%. U.S. futures are marginally stronger.

China recorded a record $78.17 billion trade surplus in December, bring the full-2020 surplus to a 5-year yigh of $535 billion. Exports and imports posted on-year positive growth in each of the last four months of the year.

Private domestic Japanese core machinery orders, which had soared 17.1% in October, beat expectations in November with a 1.5% additional monthly rise. Analysts were predicting a drop of more than 5%. Nonetheless, orders were still 11.3% south of their November 2019 level.

Japanese producer prices ended 2020 2.0% below their year earlier level, which was the least deflationary result since September. Prices for imports and exports dropped 9.8% and 1.3%, respectively, in December from a year earlier.

U.S. import prices rose even more rapidly, 0.9%, than forecast in December, but the 12-month change remained negative (-0.3%) for an 11th straight time. Fuel prices leaped 7.8%, while all other import prices increased 0.4% collectively. A 1.1% jump in U.S. export prices last month was enough to lift its 12-month change back into positive territory (+0.2%).

Other price data released today around the world showed

  • On-year CPI declines in December of 2.3% in Greece (most since the first month of 2015) and 1.0% in Ireland.
  • On-year positive CPI inflation of 2.7% in Hungary, 0.2% in Finland, and 2.1% in Romania in December.
  •  French CPI inflation printed at zero percent for the third time in four months in December.
  • House prices in the euro area were 4.9% higher in the third quarter than a year earlier, matching the year-on-year increase in the second quarter.
  • The house price balance index compiled by the British Royal Institute of Chartered Surveyors ticked down one percentage point to a 3-month low in December.
  • Indian wholesale price inflation eased back to a 4-month low of 1.22% in December in spite of acceleration in the manufactured goods component.
  • And South Korean import and export prices in December were respectively 10.2% and 5.4% lower than their end-2019 levels.

The preliminary German 2020 GDP growth estimate of -5.0% was not the worst year so far this century. Real GDP tumbled 5.7% in 2009, the last year such was negative. Contributions to the -5.0% growth rate last year from components of aggregate demand included drags of 3.2 percentage points (ppts) from personal consumption, 1.1 ppts from net exports, and 0.8 ppts from business investment, but a boost from government expenditures. As a percent of GDP, Germany’s EUR 158 billion budget deficit equaled 4.8%. That was the first deficit since 2011 and largest gap in 25 years and compares to surplus equal to 1.8% of GDP in 2018 and 1.5% of GDP in 2019.

The Central Bank of Serbia left its policy rate unchanged at 1.0% after the first scheduled review in 2021. Last year saw cut made of 50 basis points in March and 25 bps each in April, June and December. CPI inflation ended 2020 at 1.3%, below target and at a 7-month low. Serbia like much of Europe is feeling the impact of a second Covid wave.

The U.S. weekly jobless claims report produced a shocker. New claims of 965k last week was the most since the week of August 22, 2020 and was some 170k greater than analysts were anticipating. The number of continuing claims rose about 200k in the week of January 2 to 5.271 million.

The Federal Reserve’s latest Beige Book of regional economic conditions, published yesterday afternoon, reveals a loss of momentum with eight districts experiencing modest activity growth, two districts (St. Louis and Kansas City) seeing no change, and two (NY and Philadelphia) experiencing modest declines.President-Elect Biden will be revealing more details of his disaster relief fiscal plans later today, and it comes not a day too soon.

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

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