Evidence of Two-Speed Post-Pandemic Recovery and Some Encouraging News on the Inflation Front

July 1, 2021

The first day of July brought a slew of manufacturing purchasing manager surveys. Recovery from the Covid recession is developing faster than than the upswing from the Great Recession, but countries that have been forced to reimpose restrictions on social gathering are seeing their recoveries lag others. Currencies are also becoming more aligned with Covid-management trends.

The dollar in this regard remains strong but on balance did not extend yesterday’s strong finish to the second quarter that left it at or very near multi-month highs. Net movements today show the dollar unchanged against the yen, sterling, and loonie, up 0.4% vis-a-vis the Mexican peso, 0.3% versus the Swiss franc, 0.2% relative to the Australian dollar, and 0.1% against the euro and kiwi. The dollar alternatively lost ground against the Turkish lira and Chinese yuan.

The most remarkable market development has been a 2.3% advance in the price of West Texas Intermediate oil, which moved above $75.00 per barrel. Gold firmed 0.3%.

Ten-year sovereign debt yields climbed 3 basis points in the U.K., 2 bps in Germany and a basis point in the United States but slipped back two basis points in Japan.

Equity markets dropped 0.7% in Australia, 0.3% in Japan and India, and 0.1% in China. Share prices are up 0.5% in the U.K. but down 0.1% in Germany. U.S. stock futures are pretty steady.

Canadians observe Canada Day today, and Hong Kong is commemorating the 24th anniversary of that former British colony’s return to China.

The final estimate of Euroland’s manufacturing purchasing managers index was revised higher to a new all-time peak of 63.4, with individual country scores ranging from Greece’s 254-month high of 58.6 upwards to a 2-month high of 66.8 in the Netherlands. Aside from Greece, only France (a 2-month low of 59.0) had a reading below 60.0. These levels represent very rapid growth. In commenting upon the surveys, IHS officials noted “several survey indicators which add to hopes that the current spike in prices will prove transitory” such as fading constraints on port congestion and available shipping containers, protections being taken against future supply chain shortages, and capacity expansions.

Britain’s manufacturing PMI of 63.9 in June represents a 2-month low, exceeded only by May’s 65.6 record high.

Poland and the Czech Republic set record manufacturing PMI highs of 59.4 and 62.1, While Hungary‘s PMI improved 1.6 points to a 25-month high of 54.7. Russia’s index, however, swung under 50 to a 7-month low of 49.2.

The Swiss and Swedish manufacturing PMIs dipped to 3-month lows but, at 66.7 and 65.8, connote very rapid rates of expansion. Norway’s PMI jumped 2.3 points to a 47-month high of 60.6. Although dropping ot a 4-month low, Denmark‘s purchasing managers index remains above the 60 level at 62.1.

Turkey‘s reading of 51.3 was its best score since March, and the Absa manufacturing PMI of South Africa (57.4) exceeded 55 for a fourth straight month.

Asian manufacturing PMIs were not as exemplary as Europe’s. Japan’s index was revised higher but still at a 4-month low of 52.4. In India, which has been ravished by Covid, the manufacturing PMI (48.1) fell below the 50 breakeven level for the first time since July 2020. China scored a 51.3, representing a 3-month low. The South Korean and Thai factory PMIs ticked up to a 2-month highs of 53.9 and 49.5, and the Filipino PMI rose 0.9 points to a 3-month high of 50.8. But Malaysia’s 39.9 score was at a 14-month low. Vietnam’s PMI fell by a sharp 9.0 points to a 13-month low of 44.1, and Taiwan’s PMI dropped 4.4 points to a 7-month low of 57.6. Indonesia’s 53.5 score was the lowest since March.

The AIG-compiled Australian PMI hit a record high of 63.2 in June, while the CBA-compiled Australian factory PMI slipped back to 58.6, a 3-month low that still signifies fast growth.

In other data news, new U.S. jobless insurance claims last week of 364k and their four-week moving average of 392.75k represent pandemic lows.

The Bank of Japan’s quarterly Tankan survey of corporate conditions and expectations revealed substantial improvement in the second quarter of 2021. The summary diffusion index for all 9,407 firms that participated in the survey rose five points to a score of -3, which compares to -31 a year earlier and an expectation of -8 at the time of the March 2021 survey. Large manufacturers had their best diffusion index reading (+14) in ten quarters. Readings above zero connote good or improving conditions. Also, expected growth this fiscal year in sales and profits were revised upward, and so was revealed planned investment growth.

Euroland’s jobless rate fell to a one-year low of 7.9% in May.

German retail sales volume recovered 4.2% in May following a 6.8% drop in April. Sales were nearly 4% above their pre-pandemic level in February 2020 but 2.4% below May’s level last year.

Swiss retail sales declined 1.8% in May but exceeded their year-earlier level by 2.8%. CPI inflation in Switzerland did not accelerated further in June from May’s 2-year high of a mere 0.6%.

On-year May comparisons of Russian GDP and retail sales showed increases of 10.9% and 27.2%.

South Korea had a trade surplus of $18.3 billion in the first half of 2021, up from $10.5 billion a year earlier. Australia’s trade surplus climbed to a 10-month high of A% 9.68 billion in May, bringing the year-to-date surplus to A$ 40.8 billion, up from A$ 31.9 billion a year earlier.

OPEC oil ministers are meeting today amid reports of a tentative accord between Saudi Arabia and Russia to taper back their production cuts. Oil prices also responded to news of a big drop in U.S. inventories last week and are trading near 3-year highs.

The Executive Board at the Swedish Riksbank retained a zero percent repo rate and provided guidance that such will likely not be raised through the third quarter of 2023. Officials also are maintaining asset purchases at their current pace. The pro-growth monetary policy in spite of upwardly revised projected growth in 2021 and 2022 is justified by the persistence of moderate and sub-target CPI inflation, which is projected at 1.6% this year,1.7% in 2022, and 1.8% in 2023.

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



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