Quieter Day: Omicron Developments Still Encouraging
December 8, 2021
Omicron news continues to be reassuring. Booster shots appear to reduce rate of transmission, and the symptoms of this Covid variant seem less severe than with the Delta Variant.
The most notable financial market development today has been a large rise in Continental European ten-year sovereign debt yields, for instance, of 10 basis points in Italy, 7 bps in Spain and Portugal, 6 bps in France, and 5 basis points in Germany, and the Netherlands. Comparable yields in the U.K. and United States are up two basis points, while the 10-year Japanese JGB dipped a basis point after third-quarter GDP growth there got revised to show a larger contraction.
Stock markets in the Pacific Rim closed up 2.0% in New Zealand, 1.4% in Japan, 1.2% in China, and 1.3% in Australia. India’s Sensex has risen around 1.75% so far, helped by the decision of central bank officials there to retain an accommodative monetary stance and delay any rate hike. The strength in Asia represented a catching up process and did not extend into European trading, where equities are down 0.4-0.9% in Italy, Spain, France and Germany. U.S. stocks are taking a breather after back-to-back strong advances on the first two days of this week.
The prices of WTI oil and Comex gold slid by 0.6% and 0.2% overnight.
The dollar slipped 0.2% on a weighted basis, falling by 0.3% against the euro and yuan and 0.1% versus the loonie, Swiss franc and kiwi. The dollar also strengthened 1.8% against the beleaguered Turkish lira, 0.3% relative to sterling (which touched a one year low of $1.3160), and 0.4% vis-a-vis the Mexican peso.
Real GDP growth in Japan last quarter has been revised to show a larger 0.9% quarterly drop (-3.6% at an annualized rate) and an on-year rise of only 1.2%.Personal consumption declined more rapidly than estimated initially, and business investment and exports also weakened. Inventory building had a positive 0.4 percentage point impact on GDP growth. A 1.2% on-year drop in the GDP price deflator was the most negative result since late 2011.
Other released Japanese data this Wednesday showed a current account surplus in October of JPY 1.18 trillion not seasonally adjusted versus a JPY 1.95 trillion surplus in October 2020 and a seasonally adjusted surplus of JPY 1.026 trillion, up from JPY 763 billion in September. Japanese bank lending in November was only 0.6% higher than a year earlier in spite of the very loose monetary stance. The economy watchers index improved 0.8 points to an 8-year high of 56.3, but the forward-looking outlook index weakened.
Indonesian consumer sentiment improved to a 22-month high in November.
Despite very strong Canadian labor market data of late, officials at the Bank of Canada kept their overnight interest rate target pinned at the effective floor of 0.25% and did not initiate any drawdown of net bond holdings acquired by the earlier bond purchase stimulus program. A released statement stressed the continuing excess of capacity in the economy that points to inflation eventually receding. GDP is still lower than the level in the final quarter before the Covid pandemic. There were three 50-basis point interest rate cuts engineered in March 2020 to lower the rate to its present level. “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s October projection, this happens sometime in the middle quarters of 2022. ”
Officials at the Reserve Bank of India also kept its monetary policy accommodative and unchanged after the latest bi-monthly review. The RBI’s repo and reverse repo rates have been at 4.00% and 3.35% since cuts of 75 basis points in May 2020. The repo rate had been also slashed in late March 2020 by 75 basis points. Inflation is currently above the mid-point of the 2-6% target range in India. “The domestic recovery is gaining traction, but activity is just about catching up with pre-pandemic levels and will have to be assiduously nurtured by conducive policy settings till it takes root and becomes self-sustaining,” according to a released statement.
CPI inflation in Hungary accelerated 0.9 percentage points to a 167-month high of 7.4% in November, having started the year at 2.7% in January.
Retail sales in Brazil posted their fourth monthly drop in the space of five months, and the year-on-year slide of 7.1% was the most in 17 months.
The Sacci business confidence index for South Africa, where the Omicron Variant first surfaced, fell back to a 2-month low in November.
French employment increased 0.5% on quarter in 3Q, marking its third consecutive advance and bringing the on-year rise to 2.6%.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Canada, Japanese current account, Reserve Bank of India, Revised Japanese GDP growth
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