A Respite from Monday’s Difficult Day

October 5, 2021

Following a technology-led rout, U.S. equities are currently up around 1.25%, and the German, French, Italian and British bourses show rises of 0.6-1.0%. This rebound was not reflected in Asia, where share prices closed down 1.9% in South Korea, 1.3% in Japan, 0.9% in Indonesia, and 0.7% in Singapore. New Zealand and Australia markets dropped 1.1% and 0.4%, and China remained shut for the National holiday.

Risk aversion still lurks and helped the dollar advance 0.5% against the yen and peso, 0.4% relative to the Swiss franc, 0.3% versus the euro, and 0.2% on a DXY weighted basis.

The concern is a coming mix of slower growth, elevated inflation, and a shift toward less expansive monetary policies. Ten-year sovereign debt yields are up six basis points in the U.K., four basis points in the U.S., two bps in Germany and a basis point in Japan. WTI oil climbed 1.7%, and the price of a bitcoin moved back above $50k. But gold has declined 1.0%.

Among reported price data today,

  • Producer prices in Euroland climbed 1.1% in August, lifting their 12-month pace of increase to a record 13.4% from 12.4% in in July and 4.4% last March.The energy component was up 32% on year.
  • Filipino CPI inflation of 4.8% in September was close to August’s 32-month high of 4.9%.
  • On-year Thai CPI inflation swung from -0.02% in August to +1.68% in September.
  • Tokyo’s total and core CPI inflation rates each moved above zero percent in September, albeit just slightly.

Rapid input and output inflation was also a theme in many of today’s published service sector purchasing manager surveys. In many cases, inflation appears to be eroding economic growth, but optimism over the roll-out of Covid vaccinations is supporting optimism regarding growth next year.

Euroland’s composite and service sector purchasing manager indices in September were each revised up 0.1 point from preliminary indications but nonetheless at 5-month lows of 56.2 and 56.4. The composite scores ranged from 55.3 in France to 61.5 in Ireland, all comfortably above the 50 breakeven level. The current wave of Covid, unlike earlier ones, is not sending GDP into a contractionary territory.

The IHS-compiled U.S. composite index (55.0) and services PMI (54.4) in September are their lowest scores in 14 and 9 months, respectively, and well down from record highs set in May. The U.S. ISM-compiled PMI, by contrast recovered 0.2 points to a 2-month high of 61.9.

Japan’s composite and services PMIs remained below the 50 level in September, suggesting a decline in activity, but the respective results of 47.9 and 47.8 were above preliminary estimates and August levels, indicating a slower rate of contraction heading into the final quarter of 2021.

The British composite and services PMI scores of 54.9 and 55.4 in September were likewise above preliminary indicators for that month and at two-month highs, but inflationary pressure in the U.K. is the most since 1996.

Sweden posted very high composite and service-sector purchasing manager indices in September of 68.2 and 69.1, which are the best results since May.

Russia’s composite PMI squeezed back above 50 to a 3-month high.of 50.5, suggesting anemic but positive growth.

Australian composite and service-sector PMIs improved to 3-month highs of 46.5 and 45.5. The construction sector PMI score of 53.3 in Australia was also at a 3-month high and above 50 for the first time since June.

Despite a 2-month low in Brazil’s services PMI of 54.6, the composite PMI ticked 0.1 point higher and, at 54.7, wasn’t far beneath June’s 9-month high of 55.2.

PMI readings in India of 55.3 overall and 55.2 in services for September constitute 2-month lows.

Singapore’s private sector PMI rebounded 1.7 points to a 2-month high of 53.8 last month but still well shy of July’s 39-month high of 56.7.

The South African private PMI compiled by Standard Bank rose to 50.7 in September from 49.9 in August and an 11-month low of 46.1 in July. Lebanon’s private PMI rose slightly above August’s 5-month low of 46.6 to a 2-month high of 46.9.

The Saudi Arabian non-oil purchasing managers index climbed 4.5 points to a 73-month high of 58.6, while comparable measures for Egypt and the United Arab Emirates fell to 3-month lows of 48.9 and 53.3.

Trade balance data were released today in the United States, Canada, and Australia.

  • The U.S. goods and services deficit widened to a record $73.252 billion in August, as a 1.4% rise in imports lifted such also to a record high. The deficit had been $63.678 in August 2020 and just $41.63 in February 2020.
  • Canada’s trade balance flipped from a C$ 3.377 billion deficit in August 2020 to a much wider-than-forecast surplus in August 2021 of C$ 1.939 billion. Exports soared 20.6% on year versus an 8.2% rise in imports.
  • The A$ 15.08 billion Australian trade surplus in August was almost 50% greater than forecast.

Consumer confidence in Spain improved in September to its strongest level in two years.

Brazilian industrial production dropped in August by 0.7% both compared to July and August 2020.

As expected, the Reserve Bank of Australia‘s official cash rate was left unchanged at a record low of 0.10%, which has prevailed since a 15-basis point cut last November. Two 25-basis point cuts had also been implemented early in the pandemic in March 2020. Australia’s latest wave of Covid is casting a cloud over the near-term growth outlook, and in any case, officials do not expect the OCR to need a rise until at least 2024. That said, weekly bond purchases had earlier been throttled back to A$ 4.0 billion.

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

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