Volatile Markets as Investors Scramble to Assess Omicron Variant
December 21, 2021
Ten-year sovereign debt yields rose nine basis points overnight in the U.K., eight bps in Spain and Italy, seven bps in France, six bps in Germany, five bps in the United States and a basis point in Japan.
The steep drop in stock markets was partially trimmed overnight, but equities still appear vulnerable. U.S. stock market indices are up slightly less than 1.0%. Larger gains have occurred in Japan of 2.1%, Spain and Italy of 1.6%, Germany and France of 1.4% and Great Britain of 1.3%. Gains in China, Hong Kong, Taiwan, and China are similar to those today in the United States.
The price of West Texas Intermediate crude oil rebounded 2.3% back to the $70/barrel threshold. Gold is little changed.
The Turkish lira has boomeranged 38% from yesterday’s record low of 18.0184 per USD following President Erdogan’s announced lira rescue plan that purports to protect the value of local currency savings.
The weighted DXY dollar index is flat. The dollar is little changed against the euro, up against the Swiss franc and loonie, but down somewhat relative to the Australian dollar, Canadian dollar and sterling.
Omicron is clearly more infectious than earlier variants of Covid but seems to be less lethal. Hospital capacities are headed for trouble. New cases in the United States topped 140,000 yesterday, and roughly three-fourths of them are from the Omicron strain, which continues to spread exponentially. President Biden has a plan to distribute millions of free test kits to households, but one has to wonder if that can be done quickly given the bogged-down pace of package deliveries every holiday season.
The U.S. current account deficit widened last quarter to $214.779 billion (equivalent to 3.7% of GDP) from deficits of $198 billion in the second quarter and $172 billion in the third quarter of 2020. As a percent of GDP, the deficit has nearly doubled compared to its level in the final quarter of 2019 before the pandemic struck and is not radically larger than its relative level during 2020 and the two previous quarters of 2021.
Price news continues to command keen investor interest.
- Icelandic CPI inflation rose 0.3 percentage point in December to 5.1%, most since mid-2012.
- Icelandic PPI inflation climbed to a 138-month high in November of 21.0% from 4.1% as recently as April.
- Record high Italian producer price inflation of 22.1% in November was up from 9.1% in June and -1.8% last December.
- South Korean PPI inflation accelerated to a 157-month high of 9.6% in November from 0.2% last December.
- Hong Kong CPI inflation of 1.8% in November was the second highest since January 2021 but comparatively low by global standards.
The latest wave of the Covid-19 pandemic is predictably weighing on household confidence.
- In the euro area, consumer sentiment dropped 1.5 index points to a 9-month low of minus 8.3, according to preliminary data. The weakest reading of 2021 last January had been -15.5.
- Dutch consumer confidence fell to a 13-month low in December of -25 versus -3 in June and a long-term average of -8. Higher 8.5% on-year growth in Dutch household spending also announced today was for the month of October and therefore very dated news.
- The December reading of Turkish consumer confidence (68.9) represents a record low and was well below 86.7 posted last March.
- German consumer sentiment fell to a 4-month low of -6.8 from a prior reading of -1.8 and +1.0 in the month before that.
- Danish consumer confidence had stayed above zero for six straight months through October but fell to -2.0 in November and a 9-month low of -2.1 this month.
- Belgian consumer sentiment swung from +8 in September to +4 in October, +1 in November and an 8-month low of -4 in December.
- Swedish consumer confidence sank to a 9-month low in December of 98.7 versus 103 in October and 111.3 last May. A 7-month low in Swedish business confidence was also reported today.
Indicative of the blow to British household confidence, the distributive trades survey released today produced a 9-month low reading of +8, down from +39 in November and a 2021 high of +60 last August.
Danish retail sales slipped 0.3% in November, marking the sixth monthly decline in eight months but resulting in a 1.5% year-on-year uptick.
Canadian retail sales, in contrast, rose 1.6% on month and 5.3% on year, but the data were for October, not November.
Italian industrial sales grew 2.8% on month and by a hefty 16.9% between October 2020 and October 2021.
The Swiss current account surplus of CHF 24.38 billion in the third quarter was the widest in eight years. Switzerland’s trade surplus of CHF 44.6 billion in January-November was 42% wider than a year earlier, but the surplus in just November was at a 7-month low.
India’s index of leading economic indicators went up only 0.1% in November following a 1.4% jump in October.
Minutes from this month’s Reserve Bank of Australia review of monetary policy pretty much mirror was was disclosed earlier this month, namely that officials expect continuing positive growth in spite of Omicron but intend to exert great patience before any interest rate liftoff because core inflation is still low and the economic impact of the pandemic is very uncertain.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland consumer confidence, Italian producer prices, Turkish lira rescue plan, U.K. distributive trends survey, U.S. current account