Equities, Sovereign Debt Yields, and Commodity Prices Higher, while Dollar Softens at Start of New Week

August 23, 2021

Ahead of the Jackson Hole annual central banking symposium at the end of this week, investors have become more hopeful than last week. Whether bond buying starts to taper this year or in early 2022, it will be quite a while longer before the federal funds target is raised. Second-quarter earnings were good,

  • Equities closed at least 1% higher in Japan, China, Hong Kong, Taiwan, and South Korea and have so far traded up in Europe and the U.S. as well.
  • Ten-year sovereign debt yields rose today by four basis points in Italy, two bps  in the U.K. and a single basis point in Germany, Japan and the United States.
  • The price of WTI oil recouped 3.1%. That of gold has climbed 1.1% today.

The dollar fell today by 0.4% against the euro, sterling, Turkish lira and DXY weighted index. Larger drops have occurred of 0.8% against commodity-sensitive currencies like the Australian dollar, 0.8%, the Canadian dollar (0.7%) and kiwi (0.5%). The yen and yuan are unchanged against the dollar, in contrast.

The preliminary composite purchasing managers index of the euro area slid 0.7 points below July’s 15-year high in August but, at 59.5, signals continuing strong economic growth in August in spite of supply bottlenecks that dampened the manufacturing reading to a 6-month low. The services  PMI edged down only 0.1 point to a 2-month low of 59.7. Employment grew at the fastest pace in 21 years.

The German and French composite PMI’s slipped respectively in August to a 2-month low of 60.6 and a 4-month low of 55.9. Results above 50 connote positive growth.

The preliminary PMI results of Japan, U.K., and Australia reflect more significant momentum loss.

In Japan, the composite PMI printed at a 12-month low of 45.9 in August, led by a 13-month services low of 43.5. The manufacturing PMI of 52.4 eased 0.6 points to a 2-month low.

In spite of less Covid restrictions, a deterioration of the trend in infections in the U.K. depressed that economy’s composite PMI by 3.9 points to 55.3, a six-month low.

Australia’s composite PMI score in August of 43.5 represents the fastest rate of contraction in 15 months. Services fell to a 15-month low as well, while the manufacturing index was at a 14-month low.

The IHS-compiled U.S. preliminary PMI readings also exhibited a sharp reduction in momentum in August. The composite U.S. score of 55.4 was down from 59.9 in the  prior month and its lowest reading since December. With consumers scared by the menacing Delta Variant, the services PMI of 55.2 was also at an 8-month low, and continuing supply bottlenecks dampened the manufacturing PMI reading to a 4-month low of 61.2, a level that still reflects very buoyant activity.

U.S. existing home sales advanced more than expected to a 4-month high in July of 5.99 million at an annualized pace, 7.3% more than in June and 12% above their year-earlier level. Likewise, the Chicago Fed National Activity index recovered more than a half point to a four-month high in July of 0.53.

Among other non-U.S. data reported this Monday, consumer confidence in Euroland weakened for a second straight month according to the European Community’s preliminary estimate of -5.3 following readings of -4.4 in July and -3.3 in June. It was the weakest score since -8.1 in April but considerably better than -15.5 way back in January.

Danish consumer sentiment improved 1.8 points to a reading of 4.4 in August, best since January 2020.

But consumer confidence this month weakened in Turkey to a 5-month low and in the Netherlands to a 3-month low.

The monthly industrial trends survey by the Confederation of British Industry shows orders climbing a single point in August to a 2-month high of +18. The readings have been tightly grouped for four months following a stochastic improvement in May.

Consumer price inflation in Singapore edged up 0.1 percentage point in July to a 92-month high of 2.5%. CPI inflation was at zero percent back in December.

In comparisons of July 2021 to the same month a year earlier, Taiwanese retail sales fell 10.3%, while industrial production there rose 13.9%. The jobless rate in Taiwan of 4.36% in July was at a 2-month low.

The Jackson Hole central banking symposium hosted by the Kansas City Federal Reserve District begins on Thursday. Not long after that event, President Biden will reveal his choice for the next four-year Fed chairmanship. Jay Powell was appointed by Donald Trump and is eligible for a second term. Powell’s predecessor, Janet Yellen, is now Secretary of the Treasury and a supporter of Powell. Only eight people have held the post since 1951: Martin, Burns, Miller, Volcker, Greenspan, Bernanke, Yellen, and Powell.

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

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