Rising Energy Prices Lift Long-Term Interest Rates, Which in Turn Depresses Equities but Boost Dollar

September 28, 2021

Ten-year sovereign debt yields jumped overnight by seven basis points in the U.K. and Italy, 5 basis points in Greece, 4 bps in France and Spain, three basis points in the U.S. and Germany and two bps in Japan.

Nasdaq and S&P stock futures were down 1.3% and 0.7% with about an hour to go before the U.S. stock exchange opening bell. Equity markets had closed down 1.5% in Australia, 1.1% in South Korea, 0.8% in Taiwan, and 0.7% in Singapore. Equities are so far down 0.9% to 1.5% in Germany, France, Italy and Spain but just 0.2% in Great Britain.

The dollar rose overnight by 0.9% against sterling, 0.8% vis-a-vis the kiwi, 0.7% relative to the peso, and 0.6% against the Turkish lira and Australian dollar. Lesser advances have occurred of 0.4% against the Japanese yen to a 3-month high, 0.2% versus the loonie and Swissie, and 0.1% relative to the euro. DXY is up 0.2%.

The price of WTI oil climbed 1.1% amid feared Chinese demand. Gold fell 0.9%.

Remarks by Fed Chairman Powell and NY Fed President Williams were consistent with a likely decision to commence a tapering of the pace of bond purchases soon.

The latest wave of Covid infections may be receding, but a crest has yet to occur in deaths from the disease. More importantly, economies around the world have become more adaptable to persevering through Covid, and that in turn has lent confidence more resilience.

German consumer sentiment climbed to an 18-month high in October.

French and South Korean consumer confidence reached three-month highs in September.

Dutch business sentiment rebounded from a 3-month low of 9.6 in August to a 2-month high of 11.2 this month.

Austria’s manufacturing purchasing managers index rebounded to a 2-month high of 62.8 in September.

In Ireland, retail sales rose 3.5% on month in August (most in a half year) and by 6.0% on year.

Norwegian retail sales fell 2.9% on year in August, which was less than the 4.1% 12-month rate of decline in July.

Swedish retail sales increases of 0.7% on month and 6.6% on year during August were the most in 3 and 2 months.

According to the preliminary estimate, Australian retail sales recorded a third straight monthly decline in August, dropping 1.7% after declines of 2.7% in July and 1.8% in June.

Export and import levels in Hong Kong rose to record levels in August. A deficit of HKD 22.298 billion was 80% wider than the deficit in August 2020.

Malaysia’s trade surplus of MYR 21.4 billion last month was 62% greater than in August 2020, augmenting the widening of the year-to-date surplus growth to 48%.

Concern over the fallout from the Chinese real estate developer Evergrande have been ameliorated by continuing large injections of liquidity by the People’s Bank of China. Overall profitability of Chinese companies remains robust with on-year advances of 10.1% in August and 49.5% on average in the first eight months of this year.

Icelandic CPI inflation ticked up 0.1 percentage point to a 4-month high of 4.4% in September. Producer price inflation in August of 11.4% remained in double digits for a third straight month.

The advance report on the U.S. August trade balance revealed a marginally wider deficit of $87.6 billion. Two U.S. house price measures (the FHFA and Case-Shiller indices) will be released shortly. The Conference Board’s U.S. consumer confidence index also gets reported.

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


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