Covid Alive and Well and Exerting Varied Influence

July 23, 2021

July preliminary purchasing manager survey results reported today for the euro area, U.K., Australia and United States confirm continuing robust economic activity but weaker business confidence due to elevated inflation, supply-side constraints in labor and materials, and not least the highly infectious Delta Variant of Covid-19.

The number of globally identified coronavirus cases keeps grinding closer to the 200 million mark. The United States alone had over 45 thousand cases reported yesterday. Covid continues to wax and wane in an unsynchronized fashion across countries, and that unevenness is reflected in economic trends, as some places diminish restrictions while other have been forced to reimpose barriers to activities.

The dollar is ending this week on a modest uptick, with overnight gains of 0.3% against the yen and 0.1% relative to the euro, Swiss franc, Australian dollar, Chinese yuan and DXY weighted index. Ten-year sovereign debt yields have climbed three basis points in the United States and Great Britain and two bps in Germany. Prices for gold and oil have dipped 0.2% and 0.1%. Stock markets closed down 1.5% in Hong Kong, 0.6% in Indonesia, and 0.7% in China. Japan was shut for Health-Sports Day. European and U.S.  stock markets are strengthening.

The Central Bank of Russia’s policy interest rates was raised today for a full percentage point to 6.5%, which more than reversed last year’s entire easing from 6.25% to 4.25%. Along with increases of 25 basis points in March, 50 bps in April, 75 bps in May and 50 bps in June, the Russian central bank rate has climbed 225 basis points in all this year, as officials respond to above-target inflation (6.5% as of June versus a goal of 4.0%). A released statement, moreover, promises more monetary restraint if necessary in coming months. Expected inflation has risen, too, and officials concede that it probably will take longer than imagined for inflation to return to target. GDP is back to pre-pandemic levels, but a faster spread domestically of Covid creates some uncertainty.

British consumer confidence improved two index points to a 17-month high of -7 in July, and retail sales volume in June rebounded 0.5% on month to 9.7% above its year-earlier level. But that economy’s July preliminary purchasing manager survey results reflect dampening consumer demand due to higher Covid. The composite PMI reading 4.5 points to a 4-month low of 57.7 and included a drop of business optimism to a 9-month low. Staff and material shortages became more acute.

To the North of the U.S, Canadian retail sales dropped 2.1% in May amid more Covid-related closures. But to the south, Mexican retail sales that same month went up 0.6% on month and were 29.7% greater than the year-earlier level.

Swedish producer prices rose 1.5% in June and accelerated 1.7 percentage points further to a 9.6% 12-month rate of increase. Back in January, the PPI had been 0.8% below a year earlier.

In Iceland, producer price inflation accelerated to 12.2% in June from 9.2% in May and 4.9% in March, while CPI inflation in July printed at June’s rate of 4.3%.

Likewise, CPI inflation in Singapore stayed at the same 7.5-year high of 2.4% seen in May.

But in Malaysia, CPI inflation slowed to 3.4% in June from 4.4% in May and 4.7% in April.

Newly imposed Covid restraints affected Taiwanese retail sales in June, which slumped 14.4% on month and 13.3% on year, but industrial production in that economy recorded the biggest year-on-year advance (18.4%) since January.

Australia’s composite purchasing managers index dived 11.5 index points to a 14-month low of 45.2 in July. It was the first sub-50 reading (connoting declining activity) in 11 months, and weakness was primarily concentrated in services, whose PMI fell to 44.2. The manufacturing PMI, although lowest in 4 months, was 56.8 and thus conveys continuing robust activity.

Euroland’s composite PMI advanced 1.1 points to a 21-year high of 60.6 in July according to preliminary findings. It did so despite a 4-month low in the manufacturing PMI and a 3-month low in France’s composite PMI. The German composite PMI and services PMI each improved to data-series highs, indicated the fastest rate of increase since the late 1990s. But in the face of the Delta Variant, lengthening unfilled order backlogs, and persistent inflation, business optimism regarding the one-year outlook weakened in Germany, France and Euroland as a whole during July.

The IHS-compiled U.S. composite PMI dropped four index points to a 4-month low of 59.7 in July in spite of a record high manufacturing reading. The report reflects a strong start to the third quarter but also includes the weakest business optimism index so far in 2021.

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

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