Quiet Start to an Important Week

December 13, 2021

The dollar firmed o.2% overnight against the euro, Swiss franc and on a weighted basis as measured by the DXY index. The U.S. currency advanced more sharply versus the Canadian, Australian and New Zealand dollars — respectively 0.5%, 0.6% and 0.4% — but has not moved on net relative to Japan’s yen.

Equity markets rose 0.7% in Japan, 0.4% in China and Australia, and 0.5% so far in Germany but have dropped by 0.5% in Indonesia and the U.K. thus far and by almost 1% in India. In the U.S., the DOW has lost 0.5%, while the S&P 500 and Nasdaq are little changed.

Ten-year sovereign debt yields are down four basis points in the United States, three bps in the U.K., Spain and  Italy, and two basis points in Germany, France and the Netherlands. The 10-year Japanese JGB yield is low (0.04%) but steady after the Bank of Japan released its quarterly Tankan corporate survey. The price of West Texas Intermediate crude oil fell 0.4%. That of gold is little changed.

Central banks will be in the spotlight this week. The Bank of Japan Tankan survey of corporate conditions and expectations revealed improved conditions this quarter along largely predicted lines but also less favorable conditions next quarter. The diffusion indices for big manufacturers printed at +18, matching its second quarter result, which had been the highest reading since 4Q 2018. Diffusion indices rose for large non-manufacturers from +2 in this year’s third quarter to a two-year high in 4Q of +9 and to +2 for all participating companies in the survey from -2 in September’s survey. Firms revised up their fiscal 2021/22 projections for sales, earnings and planned investment from responses given in the prior survey three months earlier. These developments were balanced, however, by caution about the coming first quarter of 2022 that reflect Covid uncertainties and substantially higher import prices.

Many central banks have planned monetary policy reviews this week including those in the United States, U.K., Euroland, Japan and Turkey. A spectrum of diverse stances is expected to emerge.

Japanese machinery orders data for October were also reported today. Core private domestic orders went up by a greater-than-forecast 3.8% on month and 2.9% on year after posting only a 0.7% third quarter-over-2Q advance before. Public sector orders and exports orders more than reversed large tumbles that had occurred in September.

In inflation news reported today, German wholesale prices in November shot posted a second straight monthly advance of more than 1.0%, this time a gain of 1.3% that resulted in the largest ever 12-month rate of increase (16.6%). Between November 2019 and November 2020, the WPI had declined 1.7%. Indian consumer prices went up 0.7% in November, lifted the year-on-year increase back to a 3-month high of 4.91%. And Serbian consumer price inflation of 7.5% last month was up from 6.6% in October and 1.1% last January, marking the biggest 12-month rate of increase in 100 months. Romania had its highest inflation rate in 125 months during October (7.94%) and experienced only a slightly lesser 7.8% CPI pace in November. Investors have grappled with three big negative surprises in 2021: the rapid acceleration of inflation, a lack of closure to the Covid pandemic, and weather extremes around the world that have surpassed the most dire forecasts of climatologists.

The Turkish lira remained extremely volatile in overnight trading, at one point plunging as much as 5% to a record low of 14.6412 per dollar on concerns that the Central Bank of Turkey, which has been pressured by the government to ease its stance, will cut the policy interest rate further at this week’s review even though inflation is still cresting. Since that low, however, the lira has recouped the entire overnight loss and somewhat more after the release of data.

Turkey experienced a larger-than-forecast $3.156 billion current account surplus in October after a $1.674 surplus in September and a $90 million deficit in October 2020. Industrial production and retail sales  rose by 0.6% and 0.9% on month and 8.5% and 15.2% on year in October.

New Zealand’s service sector purchasing managers index stayed below the 50 threshold between improvement and deterioration but rose 0.6 index points to a 2-month  high of 46.5 in November.

Ireland’s construction PMI fell 0.6 points back to September’s five-month low of 56.3. In a separate Irish data release today, industrial production plunged 34.5% in October, the greatest measured monthly drop ever, and that dragged the year-on-year change from +27.3% in September to -12.9%, its biggest such drop in a year.

A 7.8% on-year rise of Hong Kong industrial production in the third quarter was the biggest increase in 131 quarters.

In Romania, by contrast, seven straight on-year advances in industrial production during February-August came to an end in September with a 3.5% 12-month rate  of decline and was followed up in October by an even greater 6.1% on-year slide.

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



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