Continuing Shift into Riskier Assets

February 5, 2021

It’s been another up-session for equities. Markets closed up 1.5% in Japan, 1.1% in South Korea and Australia, and 0.6% in Taiwan and Hong Kong. Market gains today so far exceed 1.0% in France, Italy, and Spain, and U.S. futures are up about 0.4% following yesterday’s senate partisan vote supporting President Biden’s $1.9 trillion proposed pandemic aid stimulus.

The move out of fixed income securities into stocks saw 10-year sovereign debt yields rose today by 5 basis points in the U.K., 3 bps in the United States and two bps in Germany.

Prices for silver, gold and WTI oil are up 1.2%, 0.5%, and 1.1%.

Overnight changes in the dollar have been minimal. The DXY dollar index is off a mere 0.1%.

Today’s most awaited event is the release of U.S. labor market statistics due momentarily. Investors anticipate an unchanged 6.7% jobless rate and a return to positive but only slight jobs growth in January. In the meantime, a number of interesting data developments have been reported by other countries.

Following seven straight monthly increases in German industrial orders through November, output in December dropped 1.9%, which is about double the expected decline. Production remained 6.4% higher than in December 2019 but on balance fell 7.2% for 2020 as a whole.

Indonesian GDP unexpectedly swung back into negative growth (-0.4%) last quarter and was 2.1% lower from a year earlier.

Revised Australian retail sales sank 4.1% in December.

Italian retail sales rose 2.5% in December but reversed only a third of the previous month’s decline. Sales were still 3.1% below their year-earlier level in the month.

Retail sales in Singapore fell 0.9% on month and 3.6% on year in the final month of 2020. The on-year change in sales has been below zero percent for 23 straight months.

Japanese real household spending rose 0.9% in December, resulting in a 0.6% year-on-year drop, which was only about a quarter as deep as had been forecast. But Japan also released leading and coincident economic indicators from December, which were at 2- and 3-month lows.

Swedish industrial production rose 1.4% in December, lifting its 12-month change to a third straight positive figure and, at 5.9%, the largest gain in 33 months. Swedish household consumption fell for a second straight month in December, this time by 0.4% on month and 6.3% on year.

Just in: A 49k increase in non-farm U.S. payroll jobs last month was in line with expectations but still about 10 million shy of last February’s pre-pandemic high. Moreover, the net increase in jobs in November-December was revised downward by a combined 159k. There was good news in the jobless rate that declined 0.4 percentage points to 6.3% and in the broad un- and under-employment rate of 0.6 percentage points to 11.1%. But labor market participation slid to 61.4%, and average hourly earnings recorded a smaller monthly rise of just 0.1%.

A second U.S. data release was the trade deficit for December and full-2020. December’s goods and services deficit of $66.613 billion was $2.4 billion narrower than in November but almost $21 billion (i.e. 46%) wider than the deficit in December 2019. The full-2020 deficit of $678.7 billion was about $102 billion larger than the deficit in 2019 despite the Trump administration’s priority to reduce external deficits through a policy of trade tariffs.

In other data news today,

France’s current account deficit shot up from EUR 18.3 billion in 2019 to EUR 53.3 billion last year.

The Halifax index of British housing prices dropped 0.3% on month and to a 5-month year-on-year low of 5.4%.

Business investment in Mexico recorded the smallest on-year decline in 8 months in November, albeit still in double digits at 12.1%.

Filipino CPI inflation accelerated 0.7 percentage points to a two-year high of 4.2% last month.

CPI inflation in Taiwan unexpectedly moved back under zero percent last month to -0.16%. PPI inflation became less negative, however, at -2.8%.

The Reserve Bank of India as expected left its repo rate and reverse repo rate unchanged at 4.0% and 3.35%, respectively (there had been rate cuts of 115 basis points during 2020.) at the same time an initial move away from the ultra-expansionary stance commenced with today’s other decision to raise the bank’s cash reserve ratio to 3.5% from 3.0%. A further half percentage point increase is likely three months from now. A released statement from the RBI estimates that GDP will have dropped 7.7% in the fiscal year ending March 2021 but then to rebound 10.5% next fiscal year. CPI inflation is hovering now at the top of the target range but projected to fall back to 4.3% shortly after then mid-point of fiscal 2022. Monetary policy is characterized as accommodative and appropriately complementary to a stimulative fiscal stance.

Australia’s quarterly Monetary Policy Statement rehashes what was conveyed after the policy meeting this past Tuesday. A rate increase by the Reserve Bank of Australia before 2024 is doubtful.

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

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