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INSIDE DEBT
WEDNESDAY, NOVEMBER 10, 2021
U.S. consumer prices post largest annual rise since 1990
TOP NEWS
Surging gasoline, food prices fan U.S. inflation; labor market tightening
U.S. consumer prices accelerated in October as Americans paid more for gasoline and food, leading to the biggest
annual gain in 31 years, more signs that inflation could stay uncomfortably high well into 2022 amid snarled global
supply chains. The CPI jumped 0.9% last month after climbing 0.4% in September, the Labor Department said. That
hoisted the annual CPI increase to 6.2%, the biggest year-on-year rise since November 1990. Core CPI gained 0.6%
last month after climbing 0.2% in September. It jumped 4.6% on a year-on-year basis, the largest increase since August
1991. Inflation pressures are also brewing in the labor market, where an acute shortage of workers is driving wages
higher. The Labor Department said initial claims for state unemployment benefits fell 4,000 to a seasonally adjusted
267,000 for the week ended Nov. 6. That was the lowest level since the middle of March in 2020. Separately, the
Commerce Department said that wholesale inventories increased 1.4%, instead of 1.1% as estimated last month.
Wholesale inventories jumped 13.1% in September from a year earlier.
China's factory inflation hits 26-year high as power crunch bites
China's factory gate inflation hit a 26-year high in October as coal prices soared amid a power crunch in the country's
industrial heartland, further squeezing profit margins for producers and heightening stagflation concerns. The PPI
climbed 13.5% from a year earlier, faster than the 10.7% rise in September, the National Bureau of Statistics said in a
statement. It matched a pace not seen since July 1995. The PPI inched up 2.5% on a monthly basis, compared with the
1.2% uptick in September. Consumer price rises also quickened, although at a slower pace than factory gate prices. CPI
rose 1.5% in October year-on-year, compared with September's 0.7% rise. Core inflation stood at 1.3% rise in October
from the previous year. Meanwhile, data released by the People's Bank of China showed banks extended new loans of
826.2 billion yuan in October, down sharply from 1.66 trillion in September. The new loans were higher than 689.8 billion
yuan a year earlier.
Fed's Daly: Inflation will moderate, uncertainty requires us to wait
San Francisco Fed President Mary Daly said she expects high inflation to moderate once COVID-19 recedes, and
repeated that it would be "quite premature" to raise rates now or even to speed up the Fed's bond-buying taper. Any
interest rate hikes would be expected to start after the bond-buying winddown is complete, with the slightly majority of
Fed policymakers as of September believing that they should not begin before 2023. That timeframe is drawing criticism
from some quarters for potentially putting the U.S. central bank behind the curve on fighting inflation. Commenting on a
government report, Daly said that the data shows high inflation, but believed it is being driven by supply-chain
bottlenecks and high consumer demand for goods that will pass as COVID-19 fades. Fed monetary policy cannot affect
supply-side issues, Daly said, and if it tightens policy now that could actually raise the cost of investments and actually
slow progress on addressing bottleneck issues.
1
Government advisers cut German growth forecasts, see more inflation
Economic advisers to the German government cut their growth forecast for next year, creating a policy headache for the
three parties that are in talks on forming Germany's new government. The advisers cut their 2021 growth outlook to
2.7%, down from the 3.1% they expected in March, but raised their outlook for next year by six percentage points to
4.6%. The darkening mood blamed by the advisers on supply-chain bottle necks and inflationary pressure afflicting the
global economy is likely to create additional problems for the would-be coalition parties in carrying out promises of
transformational investments into greening the economy and a return to strict debt limits from 2023 without raising taxes.
The advisers also said in their report that they expected the current inflationary spurt to continue well into 2022. Inflation,
driven by high input prices, would come in at 3.1% this year, and at 2.6% in 2022.
Europe's pandemic productivity growth surge may wane: ECB study
Euro zone labour productivity growth surged at the onset of the pandemic as firms rushed to adapt digital technologies
but much of the gains are at risk of erosion, an ECB study showed. Europe's productivity growth has been anaemic for
years, keeping a lid on overall economic expansion and some economists hoped that a rapid adaption of digital
solutions could be the COVID-19 pandemic's silver lining. Data so far suggest that this is happening as labour
productivity is now more than 2% higher than in the final quarter of 2019, even if it has declined somewhat since the
onset of the recovery, the ECB said in an Economic Bulletin article. As containment measure forced businesses to halt
many face-to-face interactions, usually low productivity tasks, activity was redistributed, accounting for 30% to 40% of
the labour productivity growth, the ECB said.
DEEP DIVE
ANALYSIS-Flexible inflation targets a recipe for bond market turbulence
For markets trying to navigate the pathway for stickier-than-expected inflation, a move to asymmetric price targets at the
world's two biggest central banks may be a recipe for wild and increasingly frequent bond price swings.
COLUMN-A winter of market confusion: Mike Dolan
If any investor tells you they are sure of what happens next in macro markets, they are likely to be fibbing. Such is the
confusion in policy and investment circles right now over the course of inflation, output, jobs, financial prices and central
bank policy that the next 3-6 months is likely impossible to predict with any conviction.
PROMOTION
LiveChats on the Reuters Global Markets Forum (Nov 11) - To view all scheduled chats and join the conversation,
click here
Viraj Patel, global macro strategist at Vanda Research, speaks on the global outlook in Q4, expectations for central
bank policy and the impact on asset prices (1600 GMT/1100 ET).
2
CHART OF THE DAY
MARKETS TODAY
TREASURIES: Treasury debt yields shot higher as the market was battered by the biggest annual gain in U.S.
consumer prices in 31 years and a weak 30-year bond auction. Inflation expectations soared, with the five-year
breakeven inflation rate reaching a record-high 3.113% and the 10-year breakeven rate rising to 2.72%, the highest
since May 2006. The Treasury Department sold $25 bln in 30-year bonds at a high yield of 1.940%. The bid-to-cover
ratio was 2.20. Benchmark 10-year notes dropped 1-2/32, yielding 1.56%. 2-year notes dipped 7/32 to yield 0.51%. 5-
year notes slipped 24/32, yielding 1.22%.
FOREX: The dollar index jumped sharply, hitting its highest level since July 2020, after U.S. consumer prices surged to
their highest rate since 1990, fueling speculation that the Federal Reserve may raise interest rates sooner than
expected. The dollar index climbed 0.99% to 94.884, after reaching a high of 94.876, its highest level in more than 15
months. The euro was last down 0.97% at $1.1479, after earlier touching $1.1480, its lowest level since July 21, 2020.
The British pound dipped 1.10% to $1.3405. Against the Japanese yen, the dollar rose 0.95% to 113.92 yen.
CORPORATES: Corporate bond spreads widened after U.S. consumer inflation surged to its highest since 1990, raising
concerns that the Fed will tighten monetary policy sooner than expected. The CDX-IG.37 index widened by 1 bps to 51
bps.
STOCKS: Wall Street ended the session in negative territory as investor risk appetitive was curbed by surging consumer
prices, which stoked worries of a protracted wave of hot inflation. Electric vehicle maker Rivian Automotive surged
29.1% as it made its splash as a publicly traded company in an offering expected to raise nearly $107 billion. Apple fell
1.9%. Microsoft was down 1.5%. The Dow fell 241.69 points, or 0.67%, to 36,078.29, the S&P 500 lost 38.54 points, or
0.82%, to 4,646.71 and the Nasdaq dropped 264.41 points, or 1.66%, to 15,622.13.
C&E: Oil prices slumped, hit by a surge in the dollar after U.S. President Joe Biden said his administration was looking
for ways to reduce energy costs amid a broader surge in inflation. U.S. crude inventories rose by 1 million barrels in the
most recent week, short of estimates for a 2.1 million build in crude stocks. U.S. crude slumped 3.42% to $81.27 a
barrel. Brent fell 2.56% to $82.61 a barrel. Gold added 1.10% to $1851.63 an ounce.
3NEX DATA
LATAM NEWS
Brazil Oct inflation highest in almost 20 years as fuel costs rise
Brazilian consumer prices jumped in October by the most in nearly two decades, driven in part by rising fuel costs, which
pushed annual inflation to 10.67%. Consumer prices measured by the benchmark IPCA index rose by 1.25% last month,
government statistics agency IBGE said, above the median economist forecast of 1.05%. That was the fastest inflation
rate for the month since October 2002, when consumer prices rose 1.31%. Inflation in Brazil this year has been driven
partly by a drought that has sapped hydroelectric power generation and pushed up energy bills as well as a weakening
real currency. In an attempt to get inflation back under control, the central bank has increased interest rates aggressively
this year to 7.75%.
LATAM MARKETS
4EYE ON ASIA
POLL- India October inflation likely stable, gives RBI room on rates
India's retail inflation likely hovered near a six-month low in October as higher food and fuel prices were offset by an
overall favourable comparison with prices one year ago, leaving the central bank room for now to leave interest rates
steady. The median forecast from Reuters poll of 43 economists predicted inflation edged down to 4.32% from 4.35% in
September. If realised, it would mark the fourth consecutive month inflation has been within the Reserve Bank of India's
(RBI) tolerance band of 2%-6%. Poll respondents again highlighted inflation was subdued mainly because of
comparisons with a stronger period one year ago, and the current mild trend is expected to continue only for a few more
months.
POLL- Malaysia's GDP likely contracted in Q3 on renewed COVID-19 curbs
Malaysia's battered economy likely slipped back into contraction in the third quarter as coronavirus-induced restrictions
brought economic activity to a near-standstill, a Reuters poll found. After bouncing back from its worst recession in more
than two decades in the second quarter, the economy shrank 1.3% in July-September from a year earlier, according to
the median forecast of 20 economists in the poll. Renewed COVID-19 lockdowns dampened a nascent economic
recovery, pushing Malaysia's central bank to slash its 2021 growth forecast to 3.0%-4.0% from 6.0%-7.5% previously.
The government expects Malaysia's economy to grow 5.5%-6.5% next year, driven by normalisation of economic
activity, resumption of projects, higher commodity prices and strong external demand.
ASIA ECON WATCH (For Nov 11)
Japan Corp Goods Price MM for Oct: Expected 0.4%; Prior 0.3%
Japan Corp Goods Price YY for Oct: Expected 7.0%; Prior 6.3%
Australia Employment for Oct: Expected 50.0k; Prior -138.0k
Australia Participation Rate for Oct: Expected 64.9%; Prior 64.5%
Australia Unemployment Rate for Oct: Expected 4.8%; Prior 4.6%
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The Financial and Risk business of Thomson Reuters is now Refinitiv.
INSIDE DEBT is produced by Reuters in partnership with NEX and ICAP.
Edited and compiled by Sravanthi Bhamidi in Bengaluru.
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