Markets Reach New Highs
At the close of business last Friday, global equities firmed on the week amid signs that the spread of the Delta variant of the coronavirus may have peaked in some hard-hit parts of the US and on a signal from China’s central bank that credit conditions may be eased further.
Both the S&P 500 and Nasdaq 100 notched new record highs this week. The yield on the benchmark 10-year US Treasury note rose 7 basis points to 1.32% while the price of a barrel of West Texas Intermediate crude oil rose over $6 to $69.00 as a hurricane brewed in the Gulf of Mexico. Volatility, as measured by the Cboe Volatility Index (VIX), slipped to 17.9 from 19.7 a week ago.
To the dismay of allies, Biden sticks to Afghan withdrawal date
US President Joe Biden told G7 allies that the US will stick to its self-imposed withdrawal date from Afghanistan of August 31st even if that means leaving behind US citizens and Afghan holders of special visas to enter the US. Dismayed, most other G7 partners pushed the White House to extend the deadline, but began wrapping up their evacuation efforts after Biden held firm.
The already chaotic situation in Kabul, Afghanistan’s capital, deteriorated further on Thursday when a terrorist attack mounted by Taliban rival ISIS-K near an entrance to the city’s airport killed scores, including thirteen US troops. The US has retaliated with drone strikes against ISIS-K targets.
Variant’s spread further tangles supply chains
Outbreaks of the Delta variant of the coronavirus in Asian countries with low vaccination levels, such as Vietnam, Indonesia and Thailand, are threatening to further snarl global supply chains. More than 30% of US shoes are produced in Vietnam, according to the Wall Street Journal, illustrating the importance of remedying global supply chain problems and highlighting the potential for inflation amid tight supplies in multiple categories.
Last Monday, the US Food and Drug Administration gave final approval to the Pfizer-BioNTech COVID-19 vaccine for those ages sixteen and over. The move opens the door to an increase in employer vaccine mandates while officials hope it will reduce vaccine hesitancy.
CANADIAN ECONOMIC NEWS
Inflation in Canada spiked to the highest reading since 2011, up 3.7% in July year over year, surpassing expectations of a 3.4% rise.
In our Federal election, it appears the Liberals are ceding popularity to the Conservatives by a slim lead. The latest poll shows Conservatives favoured by 33.3 percent of eligible voters, to 30.8 percent for the Liberals. The Nanos poll put the New Democratic Party in third position, supported by 21.7 percent of eligible voters.
US ECONOMIC NEWS
Fed’s Powell signals tapering of bond buys this year
In a speech to a virtual symposium hosted by the Federal Reserve Bank of Kansas City, US Federal Reserve Chair Jerome Powell confirmed the central bank could begin tapering the pace of its asset purchases before the end of this year. While the Fed has observed further healing in the US labour market in recent months, Powell cautioned that the Delta variant poses a near-term risk. He reiterated that he remains confident the inflation surge being felt in the United States this year is temporary, and historical efforts to offset temporary inflation fluctuations may have done more harm than good.
US service sector slowed in August
Activity in the giant US services sector, which accounts for about 70% of US gross domestic product, slowed sharply in August, according to Markit’s flash purchasing managers’ index. The PMI slipped to 55.2 from 59.9 in July while the dip in manufacturing was more muted, falling to 61.2 from 63.4.
The combination of the Delta variant’s spread, and ongoing supply chain woes, weighed on activity, survey participants said. The prices paid indices by both service providers and manufacturers rose in the August survey. Backward-looking data released Thursday showed the US economy expanded at a 6.6% annual pace in Q2, a slight upward revision.
Fed’s preferred inflation measure eased in July
According to a US Commerce Department report, the US core personal consumption expenditures price index rose 0.3% in July, down from June’s 0.5% pace. The inflation gauge rose 3.6% year over year, the highest reading in about thirty years, but at the same annual pace as in June. The report shows personal income rose a robust 1.1% last month, well above expectations of a 0.2% advance.
EUROPEAN ECONOMIC NEWS
Surveys ahead of Germany’s September 26th federal election shows the Social Democratic Party with its first polling lead in more than fifteen years, putting Chancellor Angela Merkel’s Christian Democratic Union in second place. Merkel announced in 2018 that she would not stand for a fifth term. The conservative alliance is being led into the election by Armin Laschet, the state premier of North Rhine-Westphalia.
European Central Bank Chief Economist Philip Lane said this week that a discussion the ECB’s Pandemic Emergency Purchase should not commence until autumn.
The German business climate weakened slightly in August amid the spread of the Delta variant and on persistent snags in supply chains, the Ifo Institute reported this week. Its business climate index dipped to 99.4 in August from 100.8 in July, the second monthly drop in a row, signalling a loss of momentum in Europe’s recovery.
JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS
China plans tech IPO ban
The Wall Street Journal reported on Friday that China plans to ban the listing on US exchanges of local firms that collect a large amount of consumer data. Companies that collect less information, such as those in pharma, would likely be allowed to list abroad, the paper reported. Under the new rules, companies would require government approval before listing shares offshore.
This week, US Securities and Exchange Commission Chair Gary Gensler warned that US-listed Chinese firms will need to submit to more scrutiny or their shares will be delisted from US exchanges as early as 2024. While Chinese regulators have said they want to end a standoff with the US on audit requirements, little concrete action has been taken.