Sobering Data

October 29, 2021

A round of risk aversion depressed equities but lifted the dollar and 10-year bond yields on Friday. The price of gold dipped below $1,800 per ounce. Ten-year German bund and British gilt yields rose five basis points overnight, and the 10-year Treasury yield is 3 bp higher. Share prices fell 1.3% in South Korea, 1.4% in in Australia, 0.7% in Hong Kong, and so far by 1.2% in Germany, 0.9% in Italy, 0.7% in France, 0.6% in Spain and 0.5% in Great Britain. Nasdaq futures are down a full percent after weaker-than-forecast third-quarter earnings were reported by some big-name tech companies. The dollar strengthened 0.3% against the euro, 0.2% relative to the DXY weighted index, and 0.1% versus the Swiss franc and Japanese yen. Larger dollar advances amounted to 0.7% against the Turkish lira and 0.6% versus the Mexican peso.

In Japan, industrial  production drops of 1.5% in July and 3.6% in August were exceeded by a 5.4% tumble in September that resulted in the first 12-month decrease (2.3%) since March. This pause in the uptrend of output eclipsed news of a low 2.8% jobless rate for a third straight month and a further improvement of Japanese consumer confidence to a 29-month high in October. At 39.2, the latest reading was still historically low, nevertheless, and investors also learned that housing starts in Japan had recorded their smallest year-on-year rise in ah half year last month.

South Korea in September experienced its first year-on-year drop in industrial production (-1.8%) in eleven months. Retail sales recorded an on-year rise (3.7%) for the eighth straight month. South Korean business confidence in October matched September’s six-month low.

The first estimate of third-quarter GDP growth in Euroland printed at 2.2%, similar a rise of 2.1% in the second quarter. Growth last quarter in Austria (3.3%), France (3.0%), Portugal (2.9%), and Italy (2.6%) exceeded the euro area mean, while 1.8% expansion in Germany and Belgium fell below such. Reflecting lockdown removals in the summer of 2020, year-on-year growth in Euroland dropped to 3.7% from 14.2% in the prior quarter and merely offset a 4.0% on-year contraction in the third quarter of 2020.

GDP grew 1.4% on quarter and 2.8% on year in the Czech Republic. Swedish GDP went up 1.8% last quarter and was 4.5% greater than a year earlier.

CPI inflation in the euro area jumped to a 159-month high in October of 4.1% from 3.4% in September and -0.3% in October 2020. Core CPI inflation, which had been just 0.2% in October 2020, rose another 0.2 percentage points to 2.1% in the latest month. The energy component of the CPI swung from -8.2% in October 2020 to +23.5% this month, while service sector price inflation accelerated from 0.4% to 2.1%.

In other price news reported this Friday, Portuguese PPI inflation rose 0.3 percentage points to a 54-month high of 1.8% in October. Austrian PPI inflation of 10.5% in September was the most since before 2000. Polish CPI inflation of 6.8% in October was up from 5.9% in September and its highest in 125 months. French CPI inflation of 2.6% this month compared of 2.2% in September and zero percent last December represents its highest pace in 13 years. Australian producer prices last quarter rose 1.1% from their 2Q level and by 2.9% on year, their largest 12-month pace since late 2011. In Singapore, producer prices in September were 21.3% greater than in the same month a year earlier, which is their biggest 12-month advance in 496 months. Greek PPI inflation in September of 19.9% was the highest since at least 1995.

Given the unusual circumstances of this year’s very elevated rates of inflation around the world and the fact that the extent and duration of the spike has fooled just about all the pundits, financial market participants are doubting the central banking mantra that the experience will be self-limiting. The liftoff in ECB interest rates, for instance, is expected to occur sooner than forward guidance after yesterday’s policy review. By the same token, excessive inflation has also depressed growth rates.

British mortgage applications in September slowed less than predicted by were still the fewest in 14 months.

Spanish retail sales rose 0.3% in September but were 0.1% weaker than a year earlier. Dutch retail sales dropped 0.8% in September but surpassed the September 2020 level by 4.0%. A string of three consecutive drops in Australian retail sales ended in September with a monthly rise of 1.3%, which was the biggest increase in a half year. On-year growth in Greek retail sales decelerated further to 6.6% in August from 11.4% in July and 39.1% in April.

The Swiss index of leading economic indicators retreated for a fifth straight month to a reading of 110.7 in October from 111.0 in September and a record high of 143.6 last May.

In geopolitical news, President Biden is in Europe to attend the Group of Twenty annual summit in Rome and the UN-sponsored climate change conference in Glasgow. His trip follows a month of falling voter approval ratings and continuing uncertainty over what Congress might approve in terms of fiscal spending in a variety of areas.

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


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