China Reports Economic News; U.S. MLK Birthday Holiday Squelches Market Response

January 17, 2022

The U.S. observance of Martin Luther King Jr.’s birthday points to light market trading volume this Monday and will limit any immediate reaction to the release of Chinese data covering fourth-quarter GDP and capacity usage, December retail sales, industrial production, property prices, fixed asset investment, unemployment or the first interest rate cut by the People’s Bank of China since April 2020.

The weighted DXY dollar index is unchanged from Friday’s level. There’s been no change in the dollar’s value against the euro, sterling, peso, or kiwi. The dollar strengthened a tad versus the yen but slid a bit against the Canadian dollar.

Ten-year sovereign debt yields are up three basis points in the U.K., two basis points in Germany, France and Italy, and one basis point in Japan.

Share prices in Asia closed up 0.7% in Japan and Taiwan and up 0.6% in China but fell 1.1% in South Korea and 0.7% in Hong Kong. Major European equity markets show gains so far of 0.4-0.6%.

The price of gold firmed 0.2% overnight, while that of WTI oil held steady on balance.

Chinese GDP rose 1.6% on quarter in 4Q after a downwardly revised uptick of just 0.2% in the third quarter. GDP had advanced 3.2% in the final quarter of 2020, so the year-on-year growth rate declined for a third straight time to a six-quarter low of 4.0%. Calendar year economic growth had slowed to a 46-year low of 2.2% in 2020, and the average pace in 2021 of 8.1% remained weaker than average growth of 9.2% per annum since 1989. The loss of momentum in the second half of 2021 reflected draconian restrictions on activity to counter the Omicron variant of Covid-19 as well as a policy-induced softening of China’s real estate market and persistent supply chain bottlenecks.

On-year growth in Chinese retail sales last month fell by roughly half to a 16-month low of 1.7%, which compares very adversely with an average 12.5% increase for all of 2021 following a 4.2% drop in 2020 and an 8.0% rise in 2019.

On-year growth in Chinese industrial production of 4.3% in December was the most since 5.3% recorded in August but was still less than half the average increase last year of 9.6%. That folowed increases of 5.6% in 2019 and 2.8% in 2020.

China’s unemployment rate increased by 0.1 percentage point for a second straight month in December to a 4-month high of 5.1% and was similar to the December readings of 5.2% in both 2019 and 2020. This flat trajectory contrasts with the improving trends felt in many western economies, especially the United States.

Chinese fixed asset investment increased 4.9% in 2021 in spite of a 12.6% on-year advance during the first half of the year. Last year’s gain was just 2 percentage points more than the very depressed result of 2020.

Chinese capacity utilization edged 0.3 percentage points higher in the final quarter of 2021 to a 2-quarter high of 77.4% and was less than 78.0% experienced in the final quarter of 2020.

In response to these weak data that portend growth in 2022 that could possibly sink under 5%, officials at the People’s Bank of China cut the central bank’s one-year loan prime rate by five basis points to 2.80%. The rate had not been reduced since reductions early in the pandemic of 10 basis points in February 2020 followed by 20 bps in April 2020. The five-year LPR, which had been cut by five and ten bps on those occasions, was left unchanged at 4.65% today, but the one-week reverse repo rate was sliced by ten basis points.

Japanese core domestic machinery orders rose 3.4% in November, more than twice what analysts had been predicting, but public-sector orders and export orders respectively fell 17.4% and rose 0.7%. Japan’s tertiary index of service sector activity increased for a third straight month. The gain of 0.4% in November was smaller than those in September and October but produced a positive 0.6% year-on-year advance, which was in the black for only the first time since July. The tertiary index slumped 6.9% in 2020 as a whole.

Price data reported today revealed a 0.1% monthly dip in Czech producer prices, resulting in a slightly lower year-on-year increase of 13.2% in December. The Czech PPI had been unchanged on net in the previous twelve months ending December 2020. And Italian CPI inflation last month was confirmed at the preliminary estimates of +0.4% versus November and a 159-month high year-on-year pace of 3.9%. Core inflation ended 2021 at a more manageable 1.5% in Italy.

Britain’s Rightmove house price index rose this month by 0.3% from December and 7.6% from January 2021. Such was the largest 12-month increase in 68 months.

Indonesia’s $1.019 billion trade surplus last month was the smallest since April 2020 and below the monthly average surplus of 3.12 billion during the first eleven months of 2021.

In energy-exporting Norway, the trade surplus soared from NOK 13.5 billion in 2020 to NOK 531 billion in 2021.

Ireland’s construction sector purchasing managers index dropped 2.6 points to an 8-month low of 53.7 in December.

In some countries, the Omicron wave of Covid-19, although extremely contagious, has been relatively short-lived. That’s the hope in the United States, where new Covid cases fell from 933,249 last Friday to 418,828 on Saturday and 337,884 yesterday. The U.S. 7-day averages of cases, deaths, and hospitalizations were nonetheless 98%, 57%, and 61% greater than two weeks earlier.

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


Tags: , ,


Comments are closed.