Equities Tumbling Anew as Inflation and Interest Rates Climb

January 14, 2022

The dollar overnight rose 0.1% against the euro and on a weighted basis, held unchanged against the Swiss franc and sterling and fell 0.3% versus the yen.

Share prices dropped 1.3% in Japan, 1.4% in South Korea, 1.1% in Australia, and 1.0% in South Korea. The German Dax and Paris Cac show losses so far today of 1.0% as well, and key U.S. stock futures are around 0.6% lower, led by tech.

Ten-year sovereign debt yields rose today by four basis points in Italy, three bps in the U.K. and U.S. and two basis points in Germany and France. The price of WTI oil advanced 0.5%, while that of gold stayed flat.

Officials at the Bank of Korea are the latest to hike a central bank interest rate in this young year of 2022, lifting such by an as-expected 25 basis points to 1.25%. This third such advance since August 2021 reverses all of the early 2020 rate reduction and returns the rate to its pre-pandemic level. South Korean monetary policymakers served notice that rate normalization is not yet completed: “The Board will appropriately adjust the degree of monetary policy accommodation as the Korean economy is expected to continue its sound growth and inflation to run above the target level for a considerable time, despite underlying uncertainties over the virus.”

Today’s array of price data releases around the world revealed the following:

  • In Japan, domestic producer prices, import and export prices posted monthly declines in December of 0.2%, 0.4% and 0.8% and two-month year-on-year lows of 8.5%, 41.9%, and 13.5%.
  • Indian wholesale price inflation also retreated to a two-month yet still-elevated level of 13.56% last month from 14.23% in November.
  • Spanish CPI inflation in December got revised marginally lower to 6.5% from 6.7% reported initially.
  • French consumer prices rose 0.2% on month and 2.8% on year in December. That matches the preliminary estimate and matches the 13-year 12-month rate of increase recorded in November.
  • In contrast to the above indices, Swedish consumer prices recorded a larger monthly advance in December of 1.3% after November’s 0.5% rise, and that lifted the 12-month rate of increase to a 158-month high of 3.9%. Core CPI inflation climbed a half percentage point further to 4.1%.
  • CPI inflation in Hungary remained at November’s 7.4% level last month, but in Romania such accelerated further to a 127-month high of 8.2%.
  • U.S. import prices unexpectedly slipped 0.2% in December, which reduced their 12-month increase by 1.3 percentage points to 10.4%, a 3-month low. While the cost of imported fuel had jumped 2.3%, such tumbled 6.5% last month and accounted for the entire deceleration of the overall import price index.
  • U.S. export prices fell 1.8% in December after a 0.8% rise in November. On-year export price inflation had been just 0.6% in December 2020 but ended 2021 at 14.7%.

China’s monthly trade surplus swelled to a record $94.46 billion last month, surpassing expectations by around $20 billion due mainly to slower-than-presumed import growth. The surplus in 2021 was $676 billion (or $56 billion per month) after a surplus in 2020 of $524 billion.

Euroland’s balance of trade swung into the red in November on both a seasonally adjusted basis (EUR 1.3 billion) and in unadjusted terms (EUR 1.5 billion marking the first deficit since early 2014). By contrast, house price inflation in the euro area of 8.8% in 3Q 2021 was the highest in 15 years.

German real GDP rebounded just 2.7% last year after plunging 4.6% in 2020 and remained 2.0% below the level in 2019. Growth in 2021 was led by increases of 3.4% in government expenditures and 5.2% in business investment in machinery and equipment. Personal consumption remained at the average level in 2020 after dropping by 4.9% in 2020.

Britain’s merchandise trade deficit of GBP 11.337 billion in November was about 0.5 billion less than in October, and the goods and services surplus of GBP 626 million was at a 6-month high.

Other British data releases today revealed a surprisingly large 1.0% increase of industrial production in November. Following monthly declines in both September and October, this was the biggest rise since March. Construction output advanced 3.5% in November, also an 8-month high. While construction output was 6.8% greater than a year earlier, industrial production remained 2.6% below its pre-pandemic February 2020 level. Monthly GDP rose 0.9%% in November and by a 3-month average of 1.1%, exceeding market expectations, but that preceded the emergence of Omicron.

Analysts were not expecting much from today’s U.S. retail sales report, but the result was considerably weaker than the street consensus. Sales fell 1.9% in December, only their fourth largest monthly drop in 2021 and the largest slide since February. Moreover, November’s uptick was revised downward to just 0.2%.

Still to come: U.S. industrial production and U. Michigan index of consumer sentiment.

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

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