Awaiting FOMC Minutes and Digesting More Purchasing Manager Surveys Taken Last Month

January 5, 2022

FOMC Minutes from the December policy meeting, due at 14:00 EST (19:00 GMT) will be combed for further clarity about bond purchase tapering, Fed balance sheet management, the timing of an initial hike of the federal funds rate target, and how aggressively the rate might be raised thereafter.

With this big event just hours away, markets are in a holding pattern and digesting a considerable amount of data that were released around the world today.

  • The dollar dipped 0.1% on a weighted basis overnight, falling 0.2% against the yen and New Zealand and Australian currencies and by 0.1% vis-a-vis sterling and Swiss franc. The dollar rose 0.1% against the euro.
  • The prices of oil and gold have climbed 0.5% and 0.2%, respectively.
  • Stock markets in Asia mostly fell today, including drops of 1.6% in Hong Kong, 1.2% in South Korea and 1.0% in China. The German Dax and Paris Cac, in contrast, have thus far risen 0.7% and 0.6%, but key U.S. indices point to slight dip skewed toward the tech sector.
  • Ten-year U.S. Treasury and German bund yields rose one and four basis points overnight.

Today’s menu of released data reflect concerns about the highly infectious Omicron strain of Covid-19. The global accrued number of Covid-19 infections since the pandemic’s start is fast approaching 300 million people. In the United States, the daily average of new infections on January 3rd and 4th of 952,238 was four and a quarter times greater than that of 223,849 on the first two days of this year. Hospitalizations are up 51% in the past two weeks.

Euroland’s composite purchasing managers index fell 2.1 points to a 9-month low of 53.3 in December. The services sector underperformed manufacturing for the first time in five months. All individual euro area members saw their service sectors and overall private economies grow more slowly in December than November, weighed down by new Covid restrictions, continuing supply chain bottlenecks, and elevated inflation. German’s services and composite PMI readings of 48.7 and 49.9 depict an economy close to stalling.

Purchasing manager indices also fell last month in Hong Kong, South Africa, Sweden, and the United Arab Emirates. Hong Kong’s private sector PMI fell 1.8 points to a 2-month low of 50.8. The South African private sector PMI dropped from a 6-month high of 51.7 through the 50 threshold to a 5-month low of 48.4 but stayed above July’s 11-month trough of 46.1. Sweden continues to experience rapid growth, but the services PMI (67.3) and composite services plus manufacturing PMI reading of 65.8 each constituted four-month lows. The U.A.E. non-oil purchasing managers index slipped from November’s 29-month high of 55.9 to a 3-month low of 55.6.

Singapore’s private PMI recovered from a 5-month low of 52 in November to a 6-month high last month of 55.1.

Although at a 3-month high, Lebanon’s private PMI reading of 46.7 still represents a pretty strong pace of economic contraction as 2021 drew to a close.

Consumer confidence indices were reported today for Japan, France, Spain, and Mexico. Consumer sentiment in Japan dipped 0.1 point to 39.1. Although confidence in October and November had the best readings since May 2019, it remains deeply in pessimistic territory. French consumer confidence unexpectedly improved to a reading of 100 that matches the long-term trend and represents a 3-month high. But Spanish consumer sentiment dropped 3.3 index points to an 8-month low in December of 81.3 versus a 27-month high of 98.3 touched in September. Mexican consumer confidence had improved in November but relapsed to a 2-month low of 44.5 in December.

Among price data reported on Wednesday,

  • Italian CPI inflation accelerated 0.2 percentage points to a 160-month high of 3.9% last month. It was only 0.4% last January.
  • Austrian wholesale price inflation fell 1.1 percentage points to a 3-month low of 15% in December but remained well in double digits and sharply above the minus 2.7% pace in December 2020.
  • In Thailand, CPI inflation slowed from November’s 7-month high of 2.7% to a 3-month low of 2.17%.
  • Brazilian producer prices posted a smaller 1.3% monthly increase in November than October’s surge of 2.3%, but the 12-month rate of increase ticked a tad higher to a 2-month high of 28.9%.
  • In the Philippines, CPI inflation retreated 0.6 percentage points to a one-year low of 3.6% in December.
  • PMI surveys provide further timely indications of inflation, and those released today point to continuing input cost pressure but by and large suggest downtick in their intensity.

Business confidence rose to a 9-month high in Thailand but remained unchanged in Denmark last month.

On-year growth in Singaporean retail sales of 1.9% in November was down sharply from 12-month increases of 7.3% in October and 6.8% in September.

The National Bank of Poland engineered the first central bank interest rate hike of 2022, lifting such by 50 basis points yesterday to 2.25%. This was the fourth increase since October before which the rate had been just 0.10%. Polish CPI inflation of 7.8% is its highest of the 21st century and about five percentage points above its targeted range midpoint. Spikes in many global commodity prices and supply chain bottlenecks are primarily responsible for lifting inflation to these heights. “Ongoing economic recovery, including demand driven by rising household income, has also added to an increase. Amidst further economic recovery and expected continuation of favorable labor market conditions, as well as probably more lasting impact of external shocks on price dynamics, there persists a risk of inflation running above the NBP inflation target in the monetary policy transmission horizon.”

Just in: The revised IHS-compiled U.S. services and composite purchasing manager indices in December printed close to their preliminary estimates and, at 57.6 and 57.0, represent 3-month lows in each case.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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