Post-CPI Equity Rally Gets Fresh Thrust from Chinese Covid Changes; DXY Has Dropped 5.4% Since Nov 3rd

November 11, 2022

On this Veteran’s Day holiday, U.S. banks will be closed, but the stock market is trading. U.S. equities had their biggest daily advance in over two years after Thursday’s CPI report, and stock futures this morning show a further 0.5% advance.

Chinese officials, after initially denying rumors that a relaxation of the Zero Covid policy was under consideration, confirmed that those reports were indeed correct. Travelers into China will not be quarantined as long as before, and contact protocols will be less severe.

In the Pacific Rim today, equities closed up 7.7% in Hong Kong, 3.7% in Taiwan, 3.4% in South Korea, 2.8% in Australia, 2.0% in India and 1.7% in China and Singapore. Stock markets are up 0.3% to 0.5% in Germany, France and Italy but down 0.4% so far in Great Britain.

Compared to Thursday closing levels, the dollar has depreciated by 1.2% against the euro and yen, 1.1% relative to the Swiss franc and Chinese yuan, 0.9% versus the Australian dollar, but only 0.1% against sterling.

Bitcoin rebounded yesterday but is under renewed selling pressure today, losing 1.6% so far. WTI oil and gold, in contrast, are up 3.2% and 0.6% in today’s action.

Ten-year sovereign debt yields in Europe soared today by 13 basis points in Spain, 17 bps in Italy, 12 bps in France and ten basis points in Germany. But the JGB yield slipped a basis point, and with U.S. banks closed, the 10-year Treasury yield is unmoved.

Price data released elsewhere in the world this Friday suggest that the upbeat mood of investors may be reading too much into yesterday’s lower-than-forecast U.S. consumer price figures.

  • New Zealand food price inflation registered a 166-month high of 12.1% in October.
  • Portuguese CPI inflation last month of 10.1% was the most since September 1992.
  • German CPI inflation in October was confirmed at 10.4%, the most since East and West Germany reunified in 1990. The energy and food components were 43.0% and 20.3% higher than in October 2021.
  • Although at 9- and 2-month lows, Japanese domestic producer price inflation and import price inflation of 9.1% and 42.6%, respectively, are still attention-grabbing for that deflation-prone economy.
  • Romanian consumer price inflation dipped 0.6 percentage points but at 15.3% was at least 15% for a fourth straight month.

Interest rate hikes were announced late Thursday in Mexico and Peru. The Bank of Mexico‘s overnight interbank interest rate was raised by an as-expected 75 basis points to 10.0%. The policy rate has been increased at twelve straight policy reviews since June 2021, including moves of 75 basis points each in the latest four instances. Earlier in the pandemic, the rate had been cut from 7.25% to 4.25% between February 2020 and February 2021. Mexican inflation of 8.4% in September was close to September’s 32-year high of 8.7%.

At the Central Reserve Bank of Peru, the Board of Directors  authorized the sixteenth key interest rate increase since August 2021, lifting such by 25 basis points to 7.25% compared to a level of just 0.25% when rate normalization began. 7.25% nonetheless remains below the 8.3% inflation rate as of October. Officials wish to see inflation back in target by the second half of next year.

A slew of British economic indicators were reported today. Real GDP in September fell on month by a greater-than-forecast 0.6%, but growth in the third quarter as a whole slipped by a smaller-than-expected 0.2%. Even so, on-year growth was trimmed to 2.4% from 4.4% in 2Q and 10.9% in the first quarter. Britain is at the start of a recession that is likely to last more than a year. Factory output was unchanged in September following three straight monthly declines. Merchandise exports and imports each contracted in September, and a goods and services deficit of GBP 3.135 billion was the smallest monthly shortfall of 2022. One bright spot was the rise in construction output in September of 0.4% on month and 5.7% on year.

Germany’s EUR 14.8 billion current account surplus in September was the largest in a half year but down from EUR 23.5 billion in September 2021, and the year-to-date surplus was only half as big as that in the first nine months of 2021.

Malaysian GDP grew 1.9% on quarter in 3Q 2022, the weakest advance in a year.

Hong Kong GDP contracted 2.6% last quarter and posted the largest year-on-year slide (4.5%) in nine quarters.

Turkish retail sales and industrial production respectively recorded on-year rises of 9.7% and 0.4%. the former was the biggest increase in 4 months, while the latter was the smallest 12-month increase in 27 months. Turkey also reported its eleventh consecutive monthly current account deficit, which was $2.966 billion in September.

U.S. Covid cases are currently running 9% above their 14-day average, but deaths are down somewhat. The Georgia senatorial run-off election is scheduled for December 6, and it may be several more days before a winner in the Nevada senate race is declared. Together, these two results are likely to decide which party controls the upper chamber of Congress for the coming two years. President Biden of the United States and President Xi Jinping of China will hold a face-to-face meeting in Bali Indonesia on Monday. They will be there attending the Group of Twenty meeting. Russian troop have abandon the Ukrainian city of Kherson in a major setback and embarrassment in President Putin’s nine-month war.

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

 

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