China Adds Stimulus While U.S. Accelerates Taper, Mulls Rate Hike Timing
Omicron may cause milder illness: study
In Today’s Digital Newspaper
Market Focus:
• Market fears Fed will make policy mistake
• China adds stimulus
• Bitcoin and other crypto currencies prices plunge
• Biden to travel to Kansas City to tout infrastructure plan
China Update:
• The world is decoupling from China
• Biden administration to announce diplomatic boycott of 2022 Beijing Olympics
Trade Policy:
• U.S. trade with Taiwan booming
Livestock, Food & Beverage Industry Update:
• Noodles & Co. determining how much consumers will pay for bowl of cheese-stuffed pasta
Coronavirus Update:
• Omicron may cause milder illness: study
• China discouraging its citizens from traveling
Politics & Elections:
• Former GOP Sen. David Perdue to announce primary bid against Georgia governor
• Chris Christie urges Republicans to move on from Trump, hints of White House run
MARKET FOCUS
Equities today: Global stock markets were mixed to firmer in overnight trading. U.S. stock indexes are pointed toward mixed openings. Asian equities finished mostly lower as Covid variant worries continued to weigh. Asian shares were pressured by a big drop of 20% in property giant Evergrande, as that firm warned it could default on some debt payments. The Nikkei declined 102.20 points, 0.36%, at 27,927.37. The Hang Seng Index was down 417.31 points, 1.76%, at 23,349.38. European equities are seeing gains in early trading despite Asian declines. The Stoxx 600 was up 0.5% with regional markets up 0.3% to more than 1% in early action.
U.S. equities Friday: The Dow declined 59.71 points, 0.17%, at 23,580.08. The Nasdaq dropped 295.85 points, 1.92%, at 15,085.47. The S&P 500 lost 38.67 points, 0.84%, at 4,538.43.
On tap today:
• USDA Grain Export Inspections report, 11 a.m. ET.
• Japan's household spending for October is expected to fall 0.6% from one year earlier. (6:30 p.m. ET)
• Reserve Bank of Australia releases a policy statement at 10:30 p.m. ET.
Biden to travel to Kansas City to tout infrastructure plan, continuing Midwest tour. President Biden will travel to Kansas City, Missouri to promote his signature infrastructure package, signed into law last month. Biden will head to Missouri on Wednesday to discuss how the law “delivers for the American people by rebuilding roads and bridges, upgrading public transit, replacing water infrastructure, and creating good-paying, union jobs,” according to the White House. Biden has been promoting the law in several Midwestern states, including Minnesota and Michigan.
China adds stimulus. The People’s Bank of China said today it would lower the amount of funds banks have to hold in reserve. The 0.5 percentage point cut to the reserve requirement ratio would release about $188 billion into the financial system in a bid to cut financing costs for businesses and support a slowing economy. The move, which puts the institution at odds with other central banks around the world, comes as the country faces sluggish economic growth and problems in the property sector.
While Fed waited too long to taper, will they now go to fast to reverse, including rate hikes? That seems to be what some traders and markets are suggesting, looking at a Federal Reserve that stuck with its transitory determination on inflation way too long. Just four weeks ago, the Federal Reserve set in motion carefully telegraphed plans to gradually wind down a bond-buying stimulus program by June. Officials are making plans to accelerate the process at their policy meeting next week, ending it by March instead. The abrupt shift opens the door to the Fed raising interest rates next spring rather than later in the year to curb inflation, marking a significant policy pivot by Chairman Jerome Powell, says the Wall Street Journal (link). With this move, Powell would be focusing the Fed’s efforts more on restraining inflation and less on encouraging employment to return to its pre-pandemic levels. Inflation has surged this year — to 5% in October from a year earlier, according to the Fed’s preferred gauge — amid strong demand for goods and services and supply-chain bottlenecks associated with reopening the economy,
Inflation watch: “Back in the 1970s, the Carter administration deregulated the airlines and the Reagan team fired striking air traffic controllers, changing the course of inflation expectations. The Biden team is pursuing a different tack, barring federal contracts to non-union shops, and enhancing subsidies to unionized over non-unionized manufacturers.” — Dr. Vince Malanga, president, LaSalle Economics, Inc.
Market perspectives:
• Outside markets: The U.S. dollar index is slightly higher ahead of U.S. trading, with only the euro showing weakness against the greenback. The yield on the 10-year U.S. Treasury note has firmed to trade around 1.40% with a mixed tone in global government bond yields. Gold and silver futures are seeing light pressure in electronic action, with gold around $1,782 per troy ounce and silver around $23.55 per troy ounce.
• Crude oil futures are moving higher ahead of U.S. trading, with U.S. crude trading around $68.15 per barrel and Brent around $71.75 per barrel. Crude prices were also higher in Asian trading, with U.S. crude up $1.46 at $67.72 per barrel and Brent up $1.43 at $71.31 per barrel.
• Bitcoin and other crypto currencies saw their prices plunge, with Bitcoin losing over 10% in value at one point. Ideas of a tighter U.S. monetary policy sooner apparently helped to sink the cryptos.
• NWS weather: Gusty winds and lake effect snow to impact the Great Lakes and Interior Northeast through early Tuesday... ...Strong to severe thunderstorms and heavy rain possible today across portions of the Southeast and Lower Mississippi Valley.
CHINA UPDATE
— The world is decoupling from China. "China’s surprisingly rapid slowdown is eliciting familiar warnings that, as China goes, so goes the global economy. Only China may not matter as much as it once did. Not so long ago most economies were growing in close step with China. But in recent years those links weakened, then collapsed during the pandemic. Most dramatically, the correlation between gross domestic product growth in China and other emerging markets fell since 2015 from nearly perfect (over 0.9) to barely visible (under 0.2). In the second quarter this year, China grew significantly slower than other emerging markets for the first time in three decades, which may be a sign of things to come," Morgan Stanley Investment Management Chief Global Strategist Ruchir Sharma writes in the Financial Times (link).
— Biden administration is expected to announce a diplomatic boycott of the 2022 Beijing Olympics this week. The move would still allow U.S. athletes to attend.
TRADE POLICY
— U.S. trade with Taiwan is booming, as the self-governing island cashes in on surging demand for its computer chips and lures factories back from China, where many exports to the U.S. including electronics are subject to 25% tariffs. Taiwan’s exports to the U.S. are up about 70% since 2017, the year before the Trump administration imposed the Chinese tariffs. U.S. exports to Taiwan have climbed about 35% from pre-tariff levels to $35 billion annually, also a record.
The biggest trigger for the rising trade between Taiwan and the U.S. has been the tariffs on Chinese goods, which the Biden administration has kept in force, the Wall Street Journal notes.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— Noodles & Co. is conducting an experiment: determining how much consumers will pay for a bowl of fat, cheese-stuffed pasta. The company priced its new Tortelloni dish at $8 when it was introduced in June. That made it more expensive than core dishes on the menu, but Noodles’ costs were rapidly rising, and executives wagered that customers would splurge. The dish sold well. Now, as wages and ingredient costs rise further, Noodles plans to lift the price by another 25 cents. Restaurants, along with manufacturers, clothing makers and chemical producers, are wrestling with how much of their own expenses they can pass along to customers as costs for wages, ingredients and transportation climb. Link for details via the WSJ.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 265,932,082 with 5,257,985 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 49,085,393 with 788,364 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 470,297,846 doses administered, 198,962,520 have been fully vaccinated, or 60.61% of the U.S. population.
— Omicron may cause milder illness: study. A small study conducted during South Africa’s current Omicron outbreak found a pattern of milder illness than in previous waves of Covid-19, though scientists caution it is still too early to be sure of the variant’s severity. A study of 42 patients hospitalized in South Africa's Omicron hot spot found a relatively low number of them needed oxygen, while U.S. regulators expressed hope that vaccines can prevent the variant from causing severe disease.
But scientists in South Africa said Omicron appeared to spread more than twice as quickly as Delta, thanks to a combination of contagiousness and an ability to dodge the body’s immune defenses. A past infection may also offer little defense against Omicron.
— China has been discouraging its citizens from traveling throughout the pandemic, suppressing essential tourism revenue across the world.
POLITICS & ELECTIONS
— Trump-backed former GOP Sen. David Perdue will announce primary bid against Georgia governor this week. Former Sen. David Perdue plans to announce he’ll challenge Georgia Gov. Brian Kemp, setting up a GOP primary clash in one of the nation’s top battleground states. Perdue, who was recruited to run against the governor by Donald Trump, intends to make his announcement Monday via video and file his paperwork at the same time, according to Politico, citing sources briefed on the plans. The former senator has discussed getting additional fundraising and endorsement support from Trump and that it will be forthcoming, the sources said.
— Chris Christie urges Republicans to move on from Trump, hints of White House run. Former New Jersey Gov. Chris Christie helped build Donald Trump up in the 2016 presidential primary. He says it’s time for the Republican Party to move on from the former president and his stolen election claims. The blunt ex-prosecutor and governor has been test-driving his anti-Trump message as part of a public relations blitz around the release of his new book Republican Rescue, separating himself from the lion’s share of Republicans who still see Trump as their leader.