Divergent Trends Continue in Equities (Down) and the Dollar (Up)
August 19, 2021
Equity markets on Thursday tumbled 2.7% in Taiwan, 2.1% in Indonesia and Hong Kong, 1.9% in South Korea, 1.4% in Singapore, 1.1% in Japan but just 0.6% in China and 0.5% in Australia. In Europe thus far, share prices are down over 2.0% in Germany and France and by more than 1.5% in the U.K. and Italy. Major U.S. stock index losses are hovering around 1.0% so far today.
By contrast, the dollar has enjoyed another solid day against many currencies, climbing 1.0% versus the Aussie dollar to a 10-month high, 1.0% as well relative to the Canadian dollar, 0.8% versus the Turkish lira, 0.7% vis-a-vis the kiwi, and 0.6% against sterling and the Mexican peso. The dollar is flat relative to the yen and up just 0.1% vis-a-vis the euro, yuan and Swiss franc. Compared to its DXY weighted index, the dollar has strengthened another 0.3%.
The price of West Texas Intermediate crude oil has dived 2.6%, while gold is up 0.5%. Ten-year U.S. Treasury and British gilt yields are down a basis point.
The Covid-19 pandemic continues to play havoc with the world’s attempt to recover confidence. Global cases and deaths on Tuesday surpassed 70K and 11k. I personally heard yesterday about a man, mid 70s in age and fully vaccinated, who contracted the Delta Variant and ended up in the ICU for two weeks.
The Reserve Bank of New Zealand’s unexpected deferral this week of plans to raise its Official Cash Rate this month enabled the country’s equity index to buck today’s downtrend around world and instead appreciate by 2.0%. But in Sri Lanka where inflation is threatening to exceed the central bank’s 4-6% target, monetary officials today raised their policy interest rate for the first time since November 2018. From January through July of 2020, the rate had been lowered five times by a total of 250 basis points to 4.5% but was lifted now to 5.0%. Officials also raised their reserve ratio in an additional preemptive policy action “to ensure the maintenance of inflation in mid-single digit levels over the medium term,” according to a released statement.
Moreover, at the Bank of Norway‘s latest policy review retained previous forward guidance pointing to a likely interest rate hike at next month’s meeting. Officials feel good about Norway’s economic recovery while conceding the persistence of Covid-related uncertainties. The policy interest rate has been at zero percent since two cuts in March 2020 followed by a 25-basis point reduction two months later. “The Committee judges that there is still a need for an expansionary monetary policy stance. At the same time, economic conditions are starting to normalize. This suggests that it will soon be appropriate to raise the policy rate from today’s level”, says Governor Olsen.
Yesterday’s published minutes of the FOMC meeting on July 27-28 revealed a range of opinions on how soon to begin winding down bond purchases but a more solid front on the need to wait longer before embarking on interest rate increases because labor market conditions still have quite some way to improve before constituting “further substantial progress.”
Bank Indonesia‘s 7-day reverse repo rate has been left at a record low of 3.5%. It was cut most recently by 25 basis points in February and reduced in 2020 by a total of 125 basis points. Inflation of 1.5% now is below target, and Indonesia lately has been hit hard by a wave of Covid.
New jobless insurance claims last week in the United States fell to 348k, which was below expectations, the fourth week-to-week decline, and the fewest since the onset of the pandemic. Solid advances of 0.9% and 0.6% were also reported today in the U.S. leading and coincident indices of economic indicators. On a cloudier note, the Philly Fed manufacturing index slipped for a fourth straight time to an 8-month low in August.
Australian July labor market statistics were a mixed bag, with unemployment dropping 0.3 percentage points to a 151-month low of 4.6% but under-employment rising 0.4 percentage points to 7.9%. The number of employed workers didn’t fall as analysts were anticipated, but labor participation did dip.
Euroland’s seasonally adjusted current account surplus rebounded to a 2-month high of EUR 21.8 billion in June but mainly because of a 2.2% monthly slide in imports. The unadjusted surplus over the last twelve reported months, EUR 317 billion, was 25% greater than a year earlier and equal to an ample 2.8% of GDP.
Consumer price inflation in Hong Kong leaped three percentage points to a 59-year high of 3.7% in July, reflecting Covid relief measures that dropped out of the year-on-year comparison. Abstracting from that distortion, CPI inflation rose to 1.0% from 0.4% in the prior month.
Polish PPI inflation accelerated to a 115-month high of 8.2% in July. Producer prices had dropped 1.3% between July 2019 and July 2020.
Consumer sentiment in Norway improved to a 7-quarter high in 3Q 2021.
Dutch unemployment slid to a 16-month low of 3.1% last month.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia, Bank of Norway, Central Bank of Sri Lanka, Euroland current account, FOMC Minutes