Omicron, Central Banks, ISIS, Metaverse, OPEC, Russia, Inflation and January PMIs Vying for Market’s Attention

February 3, 2022

The top leader of ISIS and his family have died after a U.S.-led raid in Syria.

Geopolitical tensions between the U.S. and Russia remain very high.

A total of 3,623 Covid-19 deaths yesterday in the United States were the greatest single-day total in a year. Omicron affected numerous service-sector and composite purchasing manager surveys reported today.

Significantly weaker-than-expected earnings reported by Metaverse, the parent of Facebook, triggered a 22% after-hours implosion of the company’s share price, driving Nasdaq futures down over 2%. The S&P futures are down about 1%, and Japan’s Nikkei closed down 1.1%.

There’s been some awful inflation reports today. Turkish CPI inflation leaped to a 237-month high of 48.7% in January from 36.1% in December and 21.3% in November. Producer price inflation in Turkey of 93.5% was the highest since 1995 and twice as high as October’s 46.3%. The PPI index rose 10.5% in January alone.

As a result of month-on-month rises of 2.7% in September, 5.4% in October, 1.8% in November and 2.9% in December, producer price inflation in the euro area jumped 2.5 percentage points further to a record high of 26.2% in the final month of 2021, underlying the upward momentum lately when compared to the average PPI rate of 12.2% last year.

This month’s meeting of OPEC Plus oil ministers took no new action to alleviate recent upward pressure on oil prices, which have been a driver of global inflation. More and more central banks are shifting gears in response.

Officials at the Central Bank of Brazil authorized a 150-basis point hike of their Selic interest rate to 10.75%. From a pandemic low of 2.0% prior to March 2021, there have been eight increases totaling 875 basis points. Brazilian CPI inflation accelerated from 4.6% in January 2021 to just over 10% currently and way above the 3.5% level targeted for 2022.

The Committee considers that, given the increase in its inflation projections and in the risk of a de-anchoring of long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory. The Committee emphasizes that it will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate.

After a scheduled meeting of the Bank of England Monetary Policy Committee, the BOE Bank rate was doubled to 0.5%. The increase follows a 15-basis point hike in December and lifts the rate level to its highest point since March 2020. The 25-basis point size of today’s hike was as analysts expected but accompanied with surprising news that four of nine committee members favored a 50-basis point increase today. Officials also agreed to whittle down their balance sheet by stopping the practice of reinvesting maturing assets acquired through bond-buying during the pandemic. Today’s meeting coincided with publication of the quarterly Monetary Policy Report in which CPI inflation is now expected to crest in April at 7.25% versus a previously assumed 6.0%. The medium-term inflation target is 2%. More small incremental bank rate increases are expected to follow.

The European Central Bank‘s cluster of interest rates (a -0.50% deposit rate since September 2019 and a zero percent refinancing rate and 0.25% Marginal Lending Facility rate since March 2016) were not changed today. Bond purchases as part of the Pandemic Emergency Program will cease after next month however, and quantitative support through the monthly Asset Purchase Program are being scaled backed. Unlike the Fed and Bank of England and in spite of higher-than-forecast record inflation (5.1% on the CPI and 26.2% on the PPI), officials at the ECB haven’t signaled a likely rate hike in the near-term, but markets are pricing in some increases nonetheless. Today’s statement includes this: “The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilizes at its 2% target over the medium term.”

The Czech National Bank‘s two-week repo rate was raised for the sixth time since last June. Today’s hike of 75 basis points to 4.5% followed increases of 100 basis points in December, 125 bps in November, 75 bps in September and 25 bps each in August and June. The rate level will now be its highest in 20 years and up from a pandemic low of 0.25%.

Purchasing manager surveys for January reported today show:

  • January drops of one point in Euroland’s composite index to 52.3 (an 11-month low) and in services of two points to a 9-month low of 51.1.
  • Declines in Japan‘s composite and services indicies to 4- and 5-month lows of 49.9 and 47.6 from readings of 52.5 and 52.1 in December.
  • Two-month highs in Britain’s composite and service-sector readings of 54.2 and 54.1.
  • Six-month lows in India‘s composite and services PMIs of 53.0 and 51.5.
  • Four-month highs in in Russia‘s composite and services PMIs of 50.3 and 49.8.
  • Four-month lows in Australia‘s composite and services PMI readings of 46.7 and 46.6. These were sharply below December scores of 54.9 and 55.1.
  • Eight-month lows in Brazil’s composite and services PMIs of 50.9 and 52.8.
  • Swedish composite and service-sector PMI’s rose to 2-month highs of 66.9 and 58.6.
  • U.S. PMI readings last month plunged, too, but at least remained above the 50-level than separates improving conditions from outright deterioration. The IHS-compiled composite and service sector U.S. purchasing manager indices dived by 5.9 and 4.4 points to 18-month lows of 51.1 and 51.2. The Institute of Supply Management’s non-manufacturing purchasing managers index fell to a 3-month low of 62.0 from 69.1 in the prior month.
  • South Africa‘s private PMI, by contrast moved back above 50 to a 2-month high of 50.9.
  • Lebanon‘s private PMI stayed below the 50 threshold but rose 0.4 points to a 7-month high of 47.1.
  • All three non-oil purchasing manager indices dropped in January: Saudi Arabia‘s to a 15-month low of 55.2, Egypt‘s to a 9-month low of 47.9 and the U.A.E. index to a 4-month low of 54.1.

Other U.S. data reported this Thursday include a much larger that expected 6.6% in labor productivity last quarter that helped to produce a much less-than-expected quarterly increase in unit labor costs of 0.3%; a 0.4% decline in factory orders in December after back-to-back rises of 1.2% in October and 1.8% in November; and a drop last week in new jobless insurance claims from 261k to 238k, which aside from the week of January 22 was the most since the week of November 13th.

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

 

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