China Remains in the Spotlight

July 27, 2021

The Shanghai Composite equity index fell 2.3% on Monday and another 2.5% on Tuesday reflecting the deteriorating relationship between the Chinese and U.S. governments and investor fears over intensifying Sino regulations constricting the business activities of foreign companies. Hong Kong’s Hang Seng index has taken an even bigger blow, dropping 1.5% last Friday, 4.1% yesterday and 4.2% today.

Other stock markets are down today as well, amounting to 1.8% in the technology-intensive U.S. Nasdaq, 0.9% in the S&P-500, 0.8% in Italy, New Zealand and Taiwan, 0.7% in France, 0.6% in Germany, and 0.4% in the British Ftse.

Mounting risk aversion, due additionally to climbing new  Covid infections that surpassed 50,000 in the United States on both Sunday and Monday can also be seen in a 5-basis point decline of the 10-year U.S. Treasury yield and a 0.3% dip in the price of gold.

The dollar is mostly weaker today in spite of some upbeat economic U.S. data, with declines from Monday’s close of 0.7% against the yen, 0.2% versus the euro, Swissie, and peso, and 0.3% in the weighted DXY index.

Among U.S. data out today, elevated house price inflation was reflected in May on-year increases of 16.6% and 18.0% in the Case-Shiller-20 and FHFA home price indices. The Conference Board’s monthly gauge of consumer confidence did not drop about 4% as forecast but instead edged marginally higher to a 17-month and post-pandemic high in July. The Richmond Fed manufacturing index also ticked a bit higher, printing at its best level in July in 208 months. To be sure, a 0.8% monthly rise of durable goods orders in June was quite short of street expectations but followed a strong 3.2% advance in May and was associated with on-year growth of 31.7%.

The British distributive trades survey index slipped back two points to a two-month low of 23 in July.

Finnish consumer confidence dipped 0.2 points to a 2-month low of 4.4 in July, but Finland’s 7.6% jobless rate in June was its lowest in 7 months.

Likewise, Greek unemployment fell to a 3-month low of 15.9% in May.  In June, there were 72.5 thousand fewer unemployed workers in France than in May and 544k fewer than in June 2020.

Brazil’s current account surplus increased from $0.5 billion in May 2020 to $3.84 billion one year later.

Chinese corporate profits were 20% and 66.7% greater than a year earlier, respectively, in June and the first half of 2021.

South Korean real GDP growth slowed by more than half in the second quarter to 0.7%, but year-on-year growth of 5.9% more than offset the 2.6% contraction between the second quarters of 2019 and 2020.

Key interest rates were raised today at two different central banks:

  • A 30-basis point increase in the National Bank of Hungary’s base rate to 1.2% was larger than what analysts were predicting and represents the second such hike in a month. Magyar Nemzeti Bank’s overnight deposit rate was increased from -0.05% to +0.25%. The base rate level is now at its highest level since early 2016. In justifying today’s second straight rate hike, a released statement concludes,”In the decision-makers’ assessment, risks to the inflation outlook remain on the upside. The Council considers it justified to continue the cycle of interest rate hikes by taking firm steps on a monthly basis to ensure price stability, avoid second-round inflationary effects and to anchor inflation expectations. The Monetary Council will continue the cycle of interest rate hikes until the outlook for inflation stabilizes around the central bank target and inflation risks become evenly balanced on the horizon of monetary policy.” CPI inflation in Hungary has risen to 5.3%.

 

  • The National Bank of Kyrgyzstan’s policy interest rate was lifted a full percentage point today  to 7.5%, its highest level since April 2016 but still considerably below the currently double-digit rate of CPI inflation there. This was the third rate hike of 2021, following incremental moves of 50 basis points in February and 100 basis points in April.

On-year growth in the stock of M3 money in the euro area slowed to 8.3% in June from 8.5% in May and to 8.7% on average in 2Q 2021 from 11.6% in the first quarter of this year. Private credit growth remained steady last month at 3.5%.

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

 

 

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