After Political Setback for the Democrats, Investor Attention Turns to Fed and Global Economic Trends

November 3, 2021

The FOMC decision will be announced at 14:00 EDT (18:oo GMT) and followed by Powell’s press conference 30 minutes later. A tapering of Fed net monthly asset purchases currently totaling $80 billion of Treasury securities and $40 billion of mortgage-backed securities is widely expected.

Running on an anti-vaccination and anti-progressive cultural message, U.S. Republicans in the 2021 off-year election handed President Biden a symbolic political defeat, capturing the gubernatorial race in Virginia and matching strides against New Jersey Governor Murphy in a contest that remains too close to decide. In each state and in many other local races around the country, Trumpian Republicans did very well. Some implications are that 1) obstructionist political strategies are rewarded, 2) the odds have risen greatly that Republicans will recapture one if not both houses of Congress in the 2022 election, 3) Trump has a very realistic chance of becoming only the second president to serve non-consecutive terms, and 4) President Biden is going to have a very hard time securing his agenda and lifting his depressed voter approval ratings. But for the period ahead, financial markets are paying most attention to the path of inflation and the impact that elevated prices will have on central bank policies and economic growth going forward.

The dollar traded in narrow corridors against other major traded currencies overnight, slipping on balance by 0.3% against the Swiss franc, 0.2% relative to sterling and 0.1% on a weighted basis and versus the euro, yen, Australian dollar, Mexican peso, and Chinese yuan.

Amid falling U.S. oil inventories and a day ahead of a monthly OPEC meeting, the price of West Texas Intermediate crude slumped back 2.1%. Gold is 0.2% lower.

Japan observed Culture Day today. Elsewhere in Asia, equities fell 1.3% in South Korea, 0.4% in Singapore, 0.3% in Hong Kong and 0.2% in China. Equities in Spain and Italy have fallen 1.0%, but markets in Germany, France and the U.K., as well as U.S. futures, are little changed as investors await Fed Chairman Powell’s press conference.

Ten-year U.S. and German sovereign debt yields slipped two basis points each, while the British gilt is steady.

Bank Negara Malaysia’s policy interest rate was left unchanged at a record low of 1.75%, its level since the last of four reductions in 2020 done in July and altogether totaling 125 basis points. A released statement accentuates supply-side bottlenecks and other downside risks to growth and projects that inflation will stay below 3% over the balance of this year. More importantly, core inflation is still below 1%.

One currency against which the dollar rose over half a percent overnight was the Turkish lira. Turkish CPI and PPI data for October released today revealed a hefty 2.4% month-on-month jump in consumer prices, resulting in a 21-month on-year high of 19.89%, and a whopping 46.3% 12-month increase in producer prices, the most in 232 months. Turkey is experiencing a classic vicious cycle of accelerating inflation and currency depreciation.

The British Nationwide house price index rose 0.7% on month in October. That was almost twice what had been expected and resulted in a larger-than-forecast 9.9% advance compared to a year earlier.

New Zealand third-quarter labor market statistics showed a record low 3.4% unemployment rate versus 5.3% a year earlier and 4.0% in the second quarter of this year. Labor costs rose 0.8% on quarter and accelerated 0.3 percentage points to a 2.4% year-on-year advance.

The jobless rate in the euro area edged lower to a 17-month low of 7.4% in September, having crested at 8.6% in August and September of 2020.

There were various and sundry purchasing manager survey results reported this Wednesday, some higher, others lower, but almost all attesting to the highest inflationary pressure in a long time.

The composite and service sector PMIs for China and India all advanced and all exceeded the 50 level that separates improving from worsening business conditions.

  • China’s service sector PMI rose 0.4 points to a 3-month high, and the composite PMI of 51.5 was also at a 3-month high.
  • India’s composite and services PMI readings of 58.4 and 58.7 (after 55.2 and 55.3 in September) were their best respective levels in 126 and 117 months.

Britain’s composite and service sector purchasing manager indices rose to 3-month highs of 57.8 and 59.1, but forward-looking sentiment slipped among service sector industries.

Sweden’s composite and service sector PMIs remained very elevated at 67.0 and 68.0 but not quite so much so as in the previous month.

The Irish service sector PMI fell 0.3 points to a 4-month low of 63.4 but was accompanied by a 2-month high in the composite purchasing managers index of 62.5.

Australian composite and service-sector PMI readings of 52.1 and 51.8 represent 4-month highs and a return to positive growth. The Australian construction purchasing managers index also improved in October, climbing 4.3 points to a 5-month high of 57.6.

In Russia, however, the composite and service-sector PMIs dropped back through the 50 threshold to 2- and 3-month lows of 49.5 and 48.8.

Singapore‘s private purchasing managers index dropped 1.5 points to a 2-month low of 52.3.

Hong Kong’s private PMI fell last month to a 6-month low of 50.8 from 51.7 in September and 53.3 in August.

The Standard Bank-compiled South African private sector PMI declined 1.1 points to a 2-month low of 53.6, and the Saudi Arabian non-oil PMI of 57.7 and Lebanese Private PMI reading of 46.6 were also at 2-month lows.

Egypt’s non-oil PMI of 48.7 was below 50 for an 11th straight time in October and at a 5-month low, but the non-oil PMI of the United Arab Emirates rose from September’s 3-month low of 53.3 to a 28-month high of 55.7.

Business confidence in Thailand improved to a 7-month high but remained below 50 with a reading of 47.

ADP’s October estimate of U.S. net private sector job creation in October rose to a 4-month high of 571K surpassed expectations. Still to come today are the release of U.S. non-manufacturing PMI, factory orders and the FOMC policy decision and press conference. The 2021 U.S. baseball season ended with the Atlanta Braves winning the World Series in shut-out fashion. In the regular season, the Braves had won 88 games, a fewer total than four other National League teams and less than seven American League teams had won including their World Series opponent, the Houston Astros.

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

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