With Lunar New Year Under Way, Volatility Persists in Equities and Inflation Worries Remain Uppermost

January 31, 2022

On this last day of January, the Chinese Year of the Tiger has trading shut in China, Hong Kong, Taiwan, and South Korea. The Japanese Nikkei took its cue from the strong U.S. stock market performance on Friday, but that rally looks short-lived with DOW and S&P futures down about a half percent and the Nasdaq hardly moved. European stock markets are mixed, with Spain’s down, Britain and France flat, and Germany, Switzerland and Italy up.

There’s been a significant 5-7 basis point rise in 10-year sovereign debt yields in Germany, France, Spain, Great Britain and the Netherlands. The 10-year Treasury yield and Japanese JGB yield are up by a lesser 3 and 1 basis points.

Oil experienced a strong January, aided by Russian saber-rattling, and the price of WTI is 0.5% above its Friday close. The price of a Bitcoin is down 1.6%, while that of gold is up 1.0%.

The weighted DXY dollar index just edged below 97.0 but remains only 0.5% from its recent 18-month peak. The greenback has lost 0.1% relative to the euro and sterling but is up 0.2% against the yen.

Monetary policy announcements are awaited Tuesday from the Reserve Bank of Australia and Thursday from both the Bank of England and European Central Bank. The RBA in December promised to review its bond purchase program at this month’s meeting, and many analysts expect a rate hike from the Bank of England.

Today’s economic data menu featured fourth-quarter and full-2021 Euroland GDP, which increased by an as-expected 0.3% on quarter and 4.6% on year. Quarterly growth was down sharply from increases of 2.2% in 2Q and 2.3% in 3Q. GDP fell on quarter by 2.2% in Austria and 0.7% in Germany but rose 2.0% in Spain, 1.6% in Portugal, 0.7% in France, 0.6% in Italy and 0.5% in Belgium. The 4.6% rise in the euro area GDP from a year earlier follows a 4.4% on-year drop in 4Q 2020, leaving the level of GDP little changed from the pre-pandemic 4Q 2019 level. Calendar year average comparisons show a 5.2% increase in 2021 after a 6.4% plunge in 2020.

Swedish GDP advanced 1.4% last quarter, down from 2.1% in 3Q 2021, but a 6.1% increase compared to the final quarter of 2020 easily exceeds the 2.0% contraction between 4Q 2019 and 4Q 2020.

Polish GDP rose 5.7% last year after contracting by 2.5% in 2020.

Mexican GDP dipped 0.1% last quarter, a smaller decrease than forecast but enough to trim the on-year rate of growth to 1.0% from 4.5% in the third quarter and 19.9% in the second quarter of last year. Before that upsurge, year-on-year GDP growth had been negative for eight straight quarters.

Among price data reported today,

  • German consumer prices had been expected to fall 0.3% on month in January but instead rose 0.4%. That wide disparity produced a much smaller-than-expected deceleration of on-year inflation to 4.9% from December’s 29-year high of 5.3%. Energy price inflation accelerated 2.1 percentage points to 20.5%.
  • Canadian producer price inflation fell from November’s record high of 18.1% to a 3-month low of 16.1% in December, when the monthly increase of 0.7% was almost as great as in November.
  • In Spain, consumer prices fell 0.5% on month. On-year inflation was 6.0%, down from 6.5% in October but above 5.5% in November and zero percent last February.
  • Portuguese CPI inflation of 3.3% in January was the most in 119 months.
  • Sri Lankan CPI inflation jumped to 14.2% this month from 12.1% in December and 3.3% last February.
  • PPI inflation in Hungary rose to 22.3% last month, most since at least 2000.

Several Chinese purchasing manager surveys were reported over the weekend and just before the start of the extended Lunar New Year holiday. The government-authorized manufacturing PMI fell to a 2-month low of 50.1 in January, signaling stagnant activity. The companion non-manufacturing PMI was depressed by Omicron restrictions and declined 1.6 index points to a 5-month low of 51.1. And the Caixin manufacturing survey index slumped 1.8 points, crossing below the 50 level into contractionary territory with a reading of 49.1 that is the lowest in 23 months.

Several Japanese statistics were released on this final day of January. Consumer confidence sank 2.4 points to a 5-month low of 36.7 in January. Industrial production fell 1.0% on month in December, which cut the 4Q rise to 1.0%. Year-on-year increases amounted to 2.7% in December (versus 5.1% in November), 1.2% in the fourth quarter, and 5.8% in 2021 (following a 10.4% dive in 2020). Japanese retail sales also fell 1.0% in December and were just 1.4% greater than the year-earlier level. Finally, both housing starts (+4.2%) and construction orders (+4.8%) rose on a year-on-year basis by less in December than predicted.

Turkey’s trade deficit shrunk slightly to $46.1 billion in 2021 from $49.9 billion in 2020.

The Chicago region purchasing managers index improved to a 3-month high of 65.2 in January.

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

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