Covid and Ukraine War Remain in the Spotlight

April 26, 2022

The uncertain evolutions of the war in Ukraine, Covid-19 pandemic and central bank interest rates are perpetuating erratic financial market movements.

Stock markets are behaving diversely today, with drops of 1.4% in China, 2.1% in Australia, 0.8% in New Zealand and around 0.5% in U.S. futures countering gains of 1.4% in India, 0.4% in Japan and South Korea, and around 1% so far in Germany, France and the United Kingdom.

The weighted DXY dollar index touched another 25-month high but has settled back to the lower part of its overnight trading corridor and is up just 0.1% on balance. The U.S. currency has lost 1.3% against the ruble, 0.4% versus the Australian dollar, 0.3% relative to the Chinese yuan, and 0.2% against the Mexican peso and New Zealand dollar but retains net gains of 0.5% versus the Japanese yen, 0.4% against sterling, 0.3% relative to the euro, and 0.1% versus the Turkish lira and Canadian dollar.

The price of gold has risen 0.4% but remains a tad more than 4.0% weaker than last week’s high. There’s been scant net movement in WTI oil, which remains below the psychologically fraught $100 per barrel level. Bitcoin’s price is likewise steady.

The ten-year U.S. Treasury yield has slipped three basis points and 15 basis points lower than a week ago.

Covid-19 is spreading through China. A possible lockdown looms in Beijing, and investors worry about the rippling impact of Covid restrictions in China will exert on the global economy. Identified Covid cases continue to crest in the United States, too, surpassing 74k yesterday to their highest single day total since the eve of Russia’s invasion of Ukraine. The U.S. Covid death rate remains very contained at just 353 on Monday, and the hospitalization rate has been steady.

Western allies are ramping up military aid to Ukraine, which is the right thing to do but nevertheless heightens the risk of Putin resorting to weapons of mass destruction.

The National Bank of Kyrgyzstan left its policy interest rate of 14.0% unchanged. Three earlier increases this year totaled 600 basis points, and the record high of 14% is almost 10 percentage points above the 4.25% low at the start of 2020. Consumer price inflation in the Kyrgyz Republic has risen from a 10-month low of 10.8% in February to a 9-month high of 14.3% this month. In inflation-adjusted terms, the central bank’s interest rate level still looks too low in the former part of the Soviet Union.

Japan’s unemployment had been toggling between 2.7% and 2.8% since last summer but unexpectedly dipped to a one-year low of 2.6% in March.

Public sector net borrowing in the U.K. of GBP 18.1 billion was the third greatest monthly level ever. Outstanding British government equals 96.2% of GDP.

Growth in real GDP in South Korea slowed last quarter to a two-quarter low of 0.7%, resulting in the smallest on-year advance (3.1%) since the first quarter of 2021.

A 16.6% monthly rise of industrial production in February was flanked by drops of 10.4% in January and 12.6% in March. Sales were 3.4% greater than in March 2021.

Switzerland’s trade surplus fell from February’s record high of CHF 5.522 billion to a 31-month low in March of CHF 1.763 billion as exports (down 12.3%) were badly impacted by Putin’s war.

Mexican retail sales rose 0.8% on month in February and posted an on-year advance of more than 6.0% for a second straight month.

U.S. durable goods orders climbed 0.8% last month and recorded on-year advances of 9.9% in March and 12.6% in the first quarter.

Other U.S. releases due later this morning include new home sales, the FHFA and Case Shiller house price indices, and the Richmond Fed monthly manufacturing survey.

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

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