Dollar and Equity Markets Extend Recoveries

December 7, 2021

Identified Covid cases in America are zeroing in on the 50 million level since the start of the pandemic, including almost 119k cases yesterday. But there has been a sense of relief in the absence so far of evidence that the Omicron Variant will be associated with higher rates of hospitalization or deaths. Investors are moving back into equities. Share prices on Tuesday rose 1.9% in Japan, 2.7% in Hong Kong and 1.0% in Australia. Equity markets in Germany, France, and Italy have climbed more than 2.0% so far, and the Nasdaq and S&P 500 show advances at this writing of 3% and 2%.

Buoyed by the possibility of a faster Fed exit from its program of bond purchases, the dollar rose another 0.1% on a weighted basis overnight and is merely 0.5% south of its 52-week high set in late November. Ten-year sovereign debt yields rose today by two basis points in Germany and one basis point in Japan, the U.K., and the United States.

More reports of accelerating inflation emerged today, and a 3.8% upsurge in the price of West Texas Intermediate oil suggests further intensification of price price in the near future.

Dutch CPI inflation jumped to a 470-month high of 5.2% in November from 3.4% in October, 2.7% in September and 1.4% as recently as July. Core consumer price inflation of 2.5% was 0.7 percentage points above October’s pace and the most in 27 months.

Quarterly growth in U.S. unit labor costs during 3Q 2021 has been revised sharply higher to 9.6% on an annualized basis, and the measured increase from 3Q 2020 was raised to 6.3% from 4.8% estimated earlier. U.S. productivity sank 5.2% on quarter and 0.6% on year.

Consumer price inflation rates in November of 6.7% in Chile and 2.8% in Taiwan were the highest in 131 months and 110 months, respectively.

The 8.2% year-on-year increase of the British Halifax house price index in November matched October’s 4-month high.

CPI inflation in the Philippines printed last month at 4.2% overall and 3.3% on a core basis.

Euroland GDP growth in the third quarter of 2.2% versus 2Q (and not annualized) matched the preliminary estimate and also the pace seen during the second quarter. Personal consumption (up 4.1%) accounted for virtually all of last quarter’s growth. Drags of 0.2 percentage points from business investment and 0.1 percentage point on GDP from inventories counterbalanced a 0.3 percentage point positive contribution from net foreign demand. Year-on-year GDP growth was revised upward from 3.7% reported earlier to 3.9%, but the level of GDP remained a tad below the level in 3Q 2019. Employment grew 0.9% on quarter and 2.1% from a year earlier.

Under the weight of fresh lockdown measures, elevated inflation, and relentless bottlenecks in materials and workers, hopes are nevertheless diminishing for stronger Euroland growth in the first half of 2021. The ZEW expectations index, a gauge of investor perceptions of Euroland’s economic outlook, of 26.8 in December was twenty-something for a third straight month compared to eighty-something last May and June, and the companion index that measures perceived current economic conditions in the euro area tumbled from 11.6 in November to a 6-month low of -2.3  in December. Likewise, Germany’s ZEW expectations index in December (29.9) and current conditions index of -7.4 represent 2- and 6-month lows.

Other European data reported Tuesday reveal

  • A 2.8% rebound in German industrial production in October, easily surpassing expectations but not enough to prevent a second straight year-on-year drop, this time of 0.6%.
  • Industrial production also rose 2.1% in Denmark but fell 5.3% in Norway during October. Swedish industrial production rose 1.3% on month and 3.7% on year, and Swedish household consumption was 0.8% greater than in September.
  • Industrial production in Hungary and the Czech Republic were 3.4% and 4.9% lower than in October 2020. Those were the respective biggest on-year declines in nine and 18 months.
  • Swiss unemployment in November matched October’s 20-month low of 2.5%.
  • According to the British Retail Consortium, same-store sales in November rose 1.8% on year in November, most in 4 months.
  • The French current account deficit narrowed slightly in October to EUR 2.6 billion.
  • Consumer confidence in Spain fell sharply from a reading of 97.3 in October to a 7-month low of 84.6 in November.

Japanese household spending rose 3.4% in October but was 0.6% less than in the same month a year earlier. Japan’s customs trade deficit ballooned from JPY 8 billion in the first twenty days of November 2020 to JPY 766 billion in November 1-20, 2021. On-year growth in Japanese average weekly earnings slowed to a 4-month low of 0.2% in October, and the country’s international reserves rose in November for the first time since August. Japan’s index of leading economic indicators rose to a 3-month high in October, but officials assessed the trend on the index  of coincident economic indicators as “weakening” for the second straight time.

China’s trade surplus narrowed from $84.5 billion in October to $71.7 billion last month but still managed to be the second largest surplus since January. China’s stock of foreign currency reserves totaled $3.22 trillion at the end of November.

The United Arab Emirates’ non-oil purchasing managers index improved 0.2 points to a 29-month high of 55.9 in November.

Australia’s AIG-compiled purchasing managers index for service-sector activities rose 2.0 points  in November but, at 49.6, was below the improvement-deterioration threshold of 50 for a fourth consecutive month. Separately, Australian building permits dived 12.9% in October, their biggest monthly drop in 19 months.

As expected, policymakers at the Reserve Bank of Australia maintained the Official Cash Rate at a record low of 0.1% at this month’s review. The last change had been a 15-basis point cut in November 2020. A statement speaks of low core inflation and reaffirms that conditions for interest rate liftoff (sustainable 2-3% CPI inflation and substantially greater upward wage pressure than seen now) are unlikely to be met for a couple more years.

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

Tags: , , , ,


Comments are closed.