Equities Down but Dollar Stronger as U.S. Retail Sales Take a Hit

August 17, 2021

Stock markets in the Pacific Rim on Tuesday fell by 2.0% in China, 1.7% in Hong Kong, 1.2% in Taiwan, and 0.9% in Australia, South Korea, and Singapore. Share prices thus far today in Europe are down 0.9% in Italy, o.7% in Spain, 0.4% in France and 0.2% in Germany.

The key U.S. equity indices are also down around 0.7%, but the dollar has enjoyed broad overnight gains of 1.5% against the kiwi, 1.3% relative to the Aussie dollar, 0.6% vis-a-vis sterling and 0.4% versus euro, loonie, peso and DXY weighted index. Dollar/yen is up 0.3%, and dollar/yuan has risen 0.2%.

The price of West Texas Intermediate crude oil briefly dipped under $67 per barrel but now shows a net 0.2% advance. Gold is 0.2% softer, and ten-year sovereign debt yields have slipped a basis point lower in the United States, Japan, U.K. and Canada.

Several U.S. data have been reported today:

  • A 3.9% monthly drop in sales of motor vehicles and parts caused overall retail sales to slide back 1.1% in July. That’s almost four times greater than the predicted decline and marks the second monthly decline exceeding 1.0% in the past three reported months. The 12-month rate of sales increase dropped to 5.8% from 18.7% in the prior month.
  • The National Association of Home Builders’ monthly housing market index unexpectedly fell five index points to a 13-month low of 75 in August.
  • A 0.9% increase of industrial production in July was the most in four months and produced a 6.6% increase compared to July 2020’s level.
  • Capacity utilization went up 0.7 percentage points to 76.1%, but that’s only 0.1 percentage point above the year-earlier level.
  • Monthly Treasury-compiled international capital flow figures showed a large net inflow of long-term capital amounting to $110.9 billion in June, most since March. There was a $31.5 billion combined long- and short-term capital inflow that month.

In the euro area, positive GDP growth last quarter of 2.0% according to the preliminary estimate matched the pre-flash indication and constituted positive growth for the first time since the summer quarter of 2020. Year-on-year growth of 13.6% was the most ever recorded but is set against the pandemic-weakened second quarter of 2020, which GDP recorded a 14.6% on-year plunge. Employment growth in Euroland swung from a year-on-year drop of 1.8% both in 1Q 2021 and 4Q 2020 to a rise of 1.8%.

Unlike the United States, quarterly European GDP growth is not reported in annualized terms. Within the euro area, GDP in the second quarter advanced by 4.9% in Portugal, 4.3% in Austria, 3.1% in the Netherlands, 2.8% in Spain, 2.4% in Italy, 1.8% in Finland, 1.5% in Germany, 1.4% in Belgium, 0.8% in France, and 0.2% in Cyprus.

Within Eastern Europe, GDP last quarter increased 1.8% in Romania, 2.7% in Hungary,m 1.9% in Poland, and 0.6% in the Czech Republic.

Swedish GDP in 2Q 2021 increased 0.9% versus 1Q and 9.3% compared to the same quarter a year earlier.

British labor market statistics released Tuesday reveal a fifth straight monthly drop in jobless claims, but the drop of 7.8k after declines of 114.8k in June and 92.6k in May was the smallest of the sequence by far. Average hourly earnings in the second quarter accelerated to and 8.8% on-year advance overall and 7.4% excluding bonuses. Britain’s jobless rate of 4.7% last quarter was down from 4.9% in 1Q but still well above the pre-pandemic level.

Japan’s tertiary index of service-sector activity rose 2.3% in June, most since March but not enough to forestall a 0.6% average drop in the second quarter after a similar 0.7% drop in the first quarter. The tertiary index had plunged 6.9% in 2020 and fallen 0.7% in 2019.

The Delta Variant resurgence of Covid infections, hospitalizations and deaths around the world continues to be a major market concern. Identified global infections are approaching 210 million patients, and U.S. infections and deaths yesterday topped 140,000 and 700, the latter reflecting a more than doubling of the 14-day average death rate. Minutes from this month’s Reserve Bank of Australia monetary policy board meeting express concern that the economic recovery is being interrupted by the Delta Variant. Not only have restrictions been restored, but the public’s confidence in the handling of the pandemic appears to be eroding.

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

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