Equities Selling Off Further

January 18, 2022

Share prices in Asia fell 0.9% in India and South Korea, 0.8% in Taiwan and 0.3% in Japan. European stock markets currently show daily drops of 0.9% in Germany, 0.8% in France, 0.6% in Italy and 0.3% in Great Britain. In U.S. futures trading, the tech-intensive Nasdaq is 1.5% lower, and losses in the S&P and DJIA are only slightly less than 1%.

Interest rate expectations are driving financial markets, and central bank stances are not all aligned. The Fed is perceived to be very anxious to get ahead of market expectations, and an interest rate hike in March is considered very plausible. Notwithstanding some negative U.S. data reports such as this morning’s news that the Empire State manufacturing index imploded from 31.9 in December to a 19-month low of -0.7 in January, the ten-year Treasury yield climbed another four basis points overnight and, at 1.82%, is 41 basis points higher than a month ago. By comparison, the ten-year JGB and German bund yields are unchanged from yesterday.

Officials at the European Central Bank appear more predisposed to prioritizing recovery from the pandemic while dismissing the risk of higher inflation becoming entrenched.

And the Bank of Japan Board, which held its first scheduled policy review of 2022 yesterday and today has as yet not plan or inclination to debate whether and when to start raising its rates. According to the Board’s latest statement, the short-term interest rate will remain at -0.10%, and quantitative stimulus will continue with the goal of keeping Japan’s ten-year JGB yield “around zero percent.” A sole dissenting vote by Mr. Kataoka urged adopting even greater stimulus. In the accompanying quarterly Outlook for Economic Activity and Prices, officials collectively promised to “closely monitor the impact of COVID-19 and” pledged “not to hesitate to take additional easing measures if necessary… Also they expect short- and long-term policy interest rates to remain at their present or lower levels.” The strongly reaffirmed “promise to continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food)exceeds 2 percent and stays above the target in a stable manner” was made in spite of upward revisions in the bank’s projections of GDP growth and core CPI inflation next fiscal year. The growth forecast was increased to 3.8% from 2.9% projected back in October, and core CPI was bumped up to 1.1% from 0.9%.

Higher energy prices have been a big driver of this year’s spikeĀ  in inflation. The price of West Texas Intermediate oil got as high overnight at $85.74 per barrel, breaking above the prior multyear peak of $85.41, but it subsequently settled back to the vicinity of Monday’s close. Gold is 0.6% softer today.

The dollar overnight rose 0.4% versus sterling and 0.3% against the euro, Aussie dollar, kiwi and on a weighted basis.

Today has not been a prolific one from a data release standpoint.

Inflation in the Swiss combined PPI and import price index settled back from 5.8% in November to a 2-month low of 5.1% in December. Import prices were 9.2% greater than a year earlier, while domestic producer prices went up 3.1%.

Portuguese producer price inflation jumped 1.2 percentage points to a record high of 19.9% in December versus minus 3.1% in the final month of 2020.

British labor statistics revealed a 0.1 percentage point dip in unemployment, another large 43.3k decline in jobless claims, and lower on-year wage inflation to 4.2% overall and 3.8% excluding bonus pay.

Investor confidence in the German and Euroland economies according to the ZEW monthly survey improved sharply in January to six-month highs in spite of deteriorating trends in perceived current economic conditions. Germany’s current situation index dropped 2.8 points to -10.2, an 8-month low, and the euro area’s comparable measure fell less sharply to a 7-month low.

In New Zealand, the NIESR diffusion index of business confidence worsened from -11% in 3Q 2021 to -28% last quarter, a six-quarter low, and capacity usuage fell to nearly an 8-year trough.

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

Tags: , ,


Comments are closed.