Rout of Risky Assets Continues

January 21, 2022

The third week of January has seen relentless selling pressure against riskier financial assets, and Friday is not providing any respite. At next Wednesday’s post-FOMC press conference, Fed Chairman Powell is widely expected to signal a likely rate hike in March and other coming steps to rein in the accommodative policy stance.

Equities around the Pacific Rim closed down today by 2.3% in Australia, 1.8% in Taiwan, 1.2% in New Zealand, 1.0% in South Korea, and 0.9% in Japan and even China in spite of two rate cuts by the People’s Bank of China earlier in the week. Share prices in Europe so far are down between 1.5% and 1.8% in Germany, France and Italy and by around 1% in the U.K. and Spain. Nasdaq futures have lost an additional 0.9%, and the DJIA and S&P futures are lower, too.

The $38,400 price of a Bitcoin represents a 7.2% daily decline and a slide of 44% from its early November high.

The stampede into safer assets has seen ten-year sovereign debut yields fall today by four basis points in Germany and the U.K., three basis points in France, Spain and the Netherlands, two basis points in the United States, and a basis point in Japan.

Prices for WTI oil and gold are 1.4% and 0.4% lower today.

There have been mixed changes in the dollar overnight ranging from losses of 0.5% against the Swiss franc and 0.3% versus the yen, euro, and peso to gains of 0.6% vis-a-vis the kiwi, 0.5% against the Aussie dollar, 0.4% versus the Turkish lira, and 0.2% against sterling and the Canadian dollar. The DXY dollar index is merely 0.1% lower.

Published minutes from the Bank of Japan’s Board meeting on December 16-17 expressed more optimism that inflation at long last may be on an enduring upward trajectory, albeit a gradual one. It will take time before wage pressure emerges as such has in other economies, but corporate price expectations seem to be firming. A concern was voiced that a less accommodative Fed policy could subject the yen to unwanted upward pressure.

Japanese overall consumer price inflation rose 0.2 percentage points to a 2-year high of 0.8% in December. Core CPI inflation, which excludes perishable foods but not energy, held steady at November’s 21-month high, but the twelve-month change in consumer prices, excluding both food and energy, remained significantly negative at -0.7%. A 16.4% on-year jump in energy prices was the most in 160 months, and food price inflation accelerated from 1.4% in November to 2.1% in December.

Irish wholesale price inflation, which in November had climbed above zero percent for just the first time since May 2017, soared from 0.2% in November to 4.5% last month. In December 2020, shuch had been -14.5%.

Polish producer price inflation rose 0.6 percentage points further in December to a 308-month high of 14.2%.

Consumer confidence deteriorated to an 11-month low this month in the U.K., which is experiencing higher inflation and a political crisis, but improved to three month highs in Denmark, Belgium and Turkey.

British retail sales volume plunged 3.7% on month in December, the most in 11 months, and was also 0.9% weaker than in the final month of 2020. Compared to the pre-pandemic February 2020 level, however, sales still showed a net increase of 2.6%.

Business confidence in Hong Kong this quarter matched the reading in the final quarter of 2021.

In December, Australian new home sales jumped 11.3%, and the manufacturing purchasing managers index in New Zealand rebounded 3.1 index points to a 2-month high of 53.7.

Canadian retail sales grew by a smaller-than-forecast 0.7% in November, resulting in the smallest year-on-year advance (4.4% after 5.3% in October) since January.

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

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