Tuesday Surprises

November 2, 2021

West Virginia Senator Manchin flip-flopped again. After days of indicating progress on the twin fiscal packages addressing dated infrastructure and a host of other major issues such as climate change and child care, he said he would not support this two-front approach, which throws President Biden’s agenda into peril.

The Reserve Bank of Australia discontinued its 0.1% bond yield target and indicated that a lift-off in the 0.1% official cash rate could occur before 2024. These actions were expected. But the released statement and Governor Lowe’s press conference did not encourage speculation that the interest rate could be raised as soon as 2022 as many investors thought would be signaled. While conceding that recovery has resumed and that progress toward the inflation goal has been ahead of expectations, Lowe stressed a continuing need for a highly accommodative stance and the need for patience.”While these forecasts for inflation are higher than our previous forecasts, we are not expecting the surge in inflation that has been experienced in some other countries. The situation in Australia is different. We have not seen the same fall in labour force participation as experienced elsewhere, and the impact of other supply disruptions, including in energy markets, is less evident in our CPI.”

The IBD/TIPP index of U.S. consumer optimism fell sharply to a 74-month low in November. While less robust growth in jobs, elevated inflation, and uncertainty over the fallout of lessening quantitative stimulus by the Federal Reserve continued to weigh on optimism, the biggest depressant lately has been a slide in the public’s confidence in the federal government’s functionality to solve problems. At 43.9, the IBD/TIPP index was down from 46.8 in October and 56.4 at midyear. Even more startling, the index fell through the previous pandemic low of 44.0 in July 2020 to a 74-month low, and sub-component for faith in fiscal policy slumped to a 70-month trough. One can interpret this development as a big vote of no confidence from the American majority in the successful obstruction of President Biden’s agenda by Republicans and a minority of moderate Democrats. Households fear that the paralysis of Congress is putting the United States on a course of secular economic decline.

In financial market action overnight, the dollar strengthened 1.1% against the Turkish lira, 0.8% versus the Australian dollar, 0.4% relative to the loonie and Swiss franc, and 0.2% against sterling. But the gain was only 0.1% against the euro, and the dollar dropped 0.3% relative to the yen.

The most remarkable market development has been sizable declines in European 10-year sovereign debt yields, amounting to 11 basis points in Italy, 7 bps in Spain, 6 bps in France, 8 bps in Portugal, 4 bps in the Netherlands, 3 bps in Germany. The 10-year Japanese JGB yield is two basis points lower, but the U.S. ten-year Treasury yield remains unchanged.

In equity trading, Asian markets closed down 1.1% in China, 0.9% in India and 0.4% in Japan. Australia’s market lost 0.6%, but South Korea’s Kospi index went up 1.2%. Stocks are down in the U.K. Spain and and Italy but slightly up in Germany and France. Commodity prices are little change.

Manufacturing purchasing managers indices, whose release were delayed Monday due to All Saints Day, show mixed overall results, but a common theme has been the relentless supply disruptions due to “a lack of shipping containers and inadequate freight capacity.”

Euroland’s manufacturing PMI fell 0.3 more points to an eight-month low of 58.3 in October. This final result was a little weaker than the preliminary estimate. While the Italian, Irish, Greek and Dutch PMIs rose to 4-, 2-, 2- and 2-month highs, the indices elsewhere dropped to a 9-month low in Germany and France, an 8-month low in Austria, and a 7-month low in Spain.

Poland’s manufacturing PMI rose 0.4 points above September’s 8-month low to a 2-month  high of 53.8.

The Absa-compiled South African manufacturing PMI, which had touched a 10-month high of 57.9 in August fell to a 3-month low of 53.6 last month.

And in the Philippines, the manufacturing PMI edged 0.1 point higher to a 6-month high of 51.0, which still connotes a soft rate of expansion.

Among released price data this Tuesday, consumer price inflation accelerated 0.7 percentage points (ppts) to more than a nine-year high in South Korea of 3.2% in October. Core inflation also rose 0.7 ppts, reaching 2.4%.

Swiss consumer prices went up 0.3% between September and October, lifting the 12-month rate of increase to a 38-month high of 1.2%.

Romanian producer price inflation of 19.5% in September was 3.8 percentage points greater than in the prior month and the highest since at least end-2005. PPI inflation in Hungary, however, retreated to 14.0% from 14.4% in the previous month and 14.8% in August.

Swiss retail sales edged up just 0.1% in September. Following a 1.4% monthly spike in August, the year-on-year advance rose to a 4-month high of 2.5%, nonetheless.

India’s trade deficit of $19.9 billion in October was more than twice its year-earlier size and the second largest shortfall ever.

The Central Bank of Armenia left its policy rate unchanged at 7.25% after its latest monetary review. There had been six increases since December totaling three percentage points, yet at 7.25%, the interest rate benchmark remains over 150 basis points below the current rate of CPI inflation.

Today is Election Day in America and marks the end of the first quarter between the presidential elections of 2020 and 2024. The most closely watched race today is for governor of Virginia, where momentum seems in recent days have skewed toward the Republican. There is also a gubernatorial race in New Jersey that the incumbent Democrat is expected to win, plus countless local contests and voter proposals to be decided.

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

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