Equities Still Climbing as Evidence Piles Up of Inflationary Pressure

October 26, 2021

As U.S. congressional democrats continue haggling and scaling back President Biden’s fiscal proposals, equities extended their gains overnight. Share prices are up 1.0% in Germany and Spain, 0.7% in the U.K., 0.6% in France and 0.5% in Italy. U.S. futures show moderate gains as well, and the Japanese Nikkei more than reversed Monday’s loss with a 1.8% advance. Elsewhere in Asia, equities rode 0.9% in South Korea, 0.8% in Taiwan, 0.6% in India but fell 0.4% in Hong Kong and 0.3% in China.

Ten-year sovereign debt yields settled back two basis points in the U.K. and by a single basis point in Germany and the United States. Among commodity prices, those of WTI oil and gold are down 0.4% and 0.2%.

The weighted dollar index stayed put at an elevated level, as the U.S. currency rose 0.3% against the yen but fell by 0.4% relative to sterling, 0.2% versus the Canadian and Australian dollars and 0.1% vis-a-vis the euro and Swiss franc. One of the largest overnight currency moves has been a 1.4% drop against the Turkish lira, which has fallen 4% altogether from Monday’s intra-day record high of 9.8505.

Tuesday data from overseas have been few, but investors now await a batch of U.S. indicators, including the Case Shiller and FHFA house price indices, new home sales, consumer confidence, and the Richmond Fed manufacturing index.

Japanese corporate service prices were unchanged on month in September and posted their smallest 12-month increase (0.9%) since March.

But producer price inflation in September accelerated 1.4 percentage points in Sweden to 17.2% and by 5.7 percentage points to 23.6% in Spain. Those levels are the highest since at least the start of 1991 and December 1977, respectively.

South Korean GDP rose only 0.3% last last quarter, which was only half what analysts were expecting, and growth from a year earlier slowed to 4.0% in 3Q from 6.0% in 2Q as a result.

A 2.8% monthly drop in Singapore industrial production also fell well short of expectations and was associated with a 3.4% decline from a year earlier.

The CBI-compiled index of British distributive trades rebounded 19 points to a 2-month  high of 30 in October, which is still well below August’s reading of 60.

Hong Kong’s trade deficit widened more than three-fold from a year earlier to HKD 4.392 billion in September as import growth of 23.5% surpassed the 16.5% on-year rise of exports.

South Africa’s leading economic index rose to a 3-month high of +0.7 in August from -2.4 in July and -4.4 in June.

Markets will be turning their attention to monetary policy, as central bank reviews later this week are scheduled at the European Central Bank, Bank of Canada, Bank of Japan and Bank of Brazil. Central bankers had hoped to cement labor market recoveries but are finding the persistence of elevated inflation harder and harder to ignore.

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



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