Dollar and Equities Buoyant in Spite of Geopolitical Tensions, Inflation Concerns, and Softer Confidence

October 25, 2021

China’s government has locked down parts of the country to combat a new spread of Covid-19. The global death count from the disease is likely to cross above 5 million victims later this week.

A fresh Russian cyber attack on U.S. government and corporate networks has been revealed.

Turkish President Erdogan is threatening the expulsion of several ambassadors of Western countries. In response, the lira touched a new record low of 9.8505 per dollar overnight, representing a near 20% year-on-year depreciation. The lira currently shows a 0.8% slide from last week’s closing level.

In a blow to Prime Minister Kishida, Japan’s ruling LDP lost a by-election last week, just one week before the scheduled national parliamentary lower house election.

Two central banks from the former Soviet empire raised interest rates in response to rising and above-target inflation.

The National Bank of Tajikstan lifted its policy rate by 25 basis points to 13.25%. The rate had been raised previously this year by a full percentage point in both April and July after an initial 25-basis point hike done in February, and the rate level is now at its highest level since November 2019. CPI inflation of 9.6% currently is above the NBT’s target corridor of 4-8%.

Officials at the National Bank of Kazakhstan also lifted their interest rate by 25 basis points. This move followed similar increases in July and September. Last year after initially hiking the rate by 275 basis points to 12.0% in March, officials hurriedly slashed such by 250 bps in April and a further 50 basis points in July. The rate now stands at 9.75% compared to a 59-month consumer price inflation high of 8.9%. Medium-term inflation is targeted at 4-6%.

In other price news today, CPI inflation in Singapore unexpectedly edged up 0.1 percentage point to 2.5% in September, which matches July’s 92-month high.

Finnish producer price inflation leaped 3.6 percentage points to 19.1% in September, most in at least 25 years.

Disappointing confidence data were also reported today, most notably from the German IFO Institute, whose monthly business climate index sank 1.2 index points to a 6-month low of 97.7 in October versus 102.0 posted in June. Indices for current conditions (a 4-month low of 100.1) and future expectations (an 8-month low of 95.4) both deteriorated. By sector, manufacturing, services, and trade recorded respective 8-, 5-, and 6-month lows, while construction improved to its best reading in over a year. Supply bottlenecks were cited for the recent slide.

The Chicago Fed National Activity Index dropped 0.18 points in September and, at -0.13, posted its weakest reading since -1.67 last February.

In the Czech Republic, consumer and business confidence fell to 6- and 7-month lows in October.

Turkish business confidence dropped 3.8 index points to an 8-month low in October.

Japan’s indices of leading, coincident, and lagging economic indicators in August were each revised below their initial estimates to 6-, 6-, and 3-month lows.

Brazilian consumer confidence bounced up an index point to 76.3 in August but was still well below a reading of 81.8 in August.

The 12-month 12.2% rate of increase in Taiwanese industrial production during September was the smallest year-on-year advance in seven months and down from 18.0% in June.

U.S. equity futures point to modest gains at the open, extending record highs at the end of last week.

In other stock market activity overnight, share prices rose 0.8% in China and 0.3% in South Korea and Australia. The Japanese Nikkei fell 0.7%, and New Zealand was close for the Labor Day holiday. European bourses are up 0.7% in Italy, 0.4% in the U.K. and 0.3% in Germany and Spain.

The DXY weighted dollar index has strengthened 0.2%. So are the dollar’s values against the euro and loonie. The dollar has risen 0.3% versus the Swiss franc and 0.1% relative to the Aussie dollar and sterling but is 0.1% softer against the yen.

Prices for WTI oil and gold are higher by 1.1% and 0.4%.

Ten-year sovereign debt yields have climbed three basis points in the United States, two basis points in Great Britain, and a basis point each in Germany and Japan.

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

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