Global Stock Markets and Dollar Pause

November 9, 2021

The strength of equities in October and the first week of November was fed by the tapering patience of major central banks, evidence of continuing economic recovery in spite of Covid and inflation, and robust corporate earnings. But new concerns are adding to the pile. Biden’s still-unannounced choice to lead the Fed Board of Governors over the next four years is one. This is later in the cycle than previous such revelations have occurred. Another worry is that inflation continues to overshoot forecaster expectations in many instances. Also, the clock is running down on the U.S. debt ceilings deadline, which must be extended by December 3rd.

In overnight trading, the dollar marked time, dipping 0.1% against the yen, rising 0.1% versus the euro, and holding flat relative to the loonie and sterling. Bigger gains occurred of 0.5% vis-a-vis the Turkish lira and 0.3% relative to the Australian and New Zealand dollar. There was little net movement in U.S. stock futures as of a few minutes before the release of producer price data. Japan’s Nikkei had dropped 0.8%, but the German Dax and Paris Cac were 0.3% firmer.

Ten-year sovereign debt yields in the U.S. and Germany had slipped three basis points overnight. WTI oil was up 0.5%.

Other reported price data showed accelerations in Mexican CPI inflation to a 46-month  high of 6.2% in October and Hungarian consumer price inflation to a 109-month high of 6.5% that same month.

Just in: U.S. producer prices rose 0.6% on month and 8.6% on year in October. Three-fourths of a 1.2% monthly jump in final demand prices for goods was attributable to a 4.8% advance in the energy component, which also posted a 42.4% year-on-year gain. The 12-month pace of the overall PPI index remained at September’s 8.6% reading, which had been the most since 2008. Core PPI inflation of 6.8% in October likewise matched the result in September.

Among sentiment indices reported today,

  • The NFIB index of U.S. small business sentiment fell 0.9 points to a 7-month low in October, reflecting frustration over the difficulty of finding workers and product supply-side shortages.
  • The ZEW November indices of investor sentiment toward Germany and Euroland revealed a juxtaposition of worsening current conditions and more hopeful views about the future. The expectation indices improved to 3- and 2-month highs in Germany and the euro area, but current conditions fell to 5- and 4-month lows, respectfully.
  • Indonesian consumer confidence leaped to a 19-month high reading of 113.4 in October from 95.5 in September and 77.3 in August.

Another data revelation has been widening trade and current account imbalances. China experienced a record $84.54 billion trade surplus in October, up from $60.5 billion per month in the third quarter and $41.3 billion per month in the first half of this year. Japan’s seasonally adjusted trade surplus caved¬†from JPY 3.897 billion in the second half of fiscal 2020 (October 2020-March 2021) to 979 billion yen in the ensuing six months. The German current account surplus of EUR 19.6 billion in September was down from EUR 25.0 billion in the same month a year earlier, and the French current account deficit widened from EUR 4.1 billion in the second quarter of 2021 to EUR 7.6 billion last quarter. Last Thursday came news of a record U.S. monthly goods and services trade deficit ($80.934 billion) posted in September.

An inference of more polarizing trade and current account positions, like the spreading out of different national inflation rates is that international financial markets may be heading for a period of greater exchange rate volatility.

Other data highlights today included a 105-month high in the Japanese economy watchers index last month, a 0.2% year-on-year drop in British same-store sales during October, higher readings in the National Australia Bank’s October surveys of Australian business confidence (a 6-month high of 21 after 10 the month before) and business conditions (11 versus 5 the month before), a monthly 0.3% rebound in Swedish industrial production but also a 2.0% monthly drop in factory orders, and better-than-forecast third-quarter GDP growth in the Philippines of 3.8% from 2Q and 7.1% versus the third quarter of 2020.

The National Bank of Serbia at today’s review decided to continue a less accommodative stance in some elements of its monetary policy without lifting the record low policy interest rate of 1.0%. The rate has been 1.0% since a 25-basis point cut last December culminated 125 basis points of reduction since the start of the pandemic. In a released statement, officials explained its intent to “continue with monetary policy tightening via the repo rate and withdrawal of a larger amount of excess liquidity from the banking sector… It is important to impact inflation expectations in conditions of cost-push pressures that are stronger than anticipated…. Unlike the majority of other inflation targeting countries in the region, core inflation, which monetary policy measures affect the most, is still in the lower half of the target tolerance band for headline inflation in Serbia (2.6% y-o-y in September), which is mostly attributable to the preserved stability of the exchange rate.” Officials target CPI in a range of 1.5-4.5%. The spike to 5.7% as of September puts total inflation at its highest point since August 2013.

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

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