Core inflation has never been higher



Yesterday, financial markets retraced a small portion of Friday’s heavy moves as initial catastrophic scenarios over the transmissibility of the new variant of Covid and the characteristics of vaccination and escalation of symptoms failed to materialize over the weekend. -end. Major European stock indices gained 0.5% to 1%, but closed on their best intraday levels. The American Dow Jones achieved a similar performance with the S&P (+1.3) and the Nasdaq (+ 1.9%) outperforming. The US yield curve steepened with daily variations in interest rates ranging from -2.4bp (3 years) to +3.6bp (20 years). German yields gained 0.1bp to 1.9bp, with the belly of the curve underperforming the wings. Spanish, Belgian and German CPI data for November have all accelerated further and once again suggest upside risks for today’s EMU number. Consensus expects a record 4.5% Y / Y for the overall result and an acceleration from 2% Y / Y to 2.3% Y / Y for the baseline measure. Apart from a brief period in early 2022, core inflation has never been so high. EUR / USD closed at 1.1291 yesterday after opening 1.1318 while EUR / GBP closed at 0.8481.

This morning’s Asian session saw much of yesterday’s trading momentum in Europe and the US until the last hour. The Financial Times published an interview with the head of Moderna Bancel who expects a “material decline” in the ineffectiveness of current Covid vaccines against the Omicron variant. Bancel’s comments contrast with more optimistic ones from officials at Pfizer and other healthcare establishments. He sided with them by confirming that it will take about two weeks to have tangible proof of the performance of current vaccines against Omicron. The FT article sparked yet another risk-free market reaction. Asian equity markets turned gains into losses of up to 2%, erasing earlier positivism around Chinese PMIs (see below). Core bonds are benefiting from the US 10-year rate, risking losing the upward trend line since early August (

News headlines

The Chinese manufacturing PMI returned to growth territory in November, rebounding from 49.2 to 50.1. It was the first increase in three months. Activity has calmed down somewhat with the easing of electricity rationing and the significant drop in the prices of certain raw materials. Production returned above the 50 thresholds, while orders declined at a slower pace. Both the input price indices and the prices charged have fallen sharply. The non-manufacturing PMI eased slightly from 52.4 to 52.3. Construction rebounded to a three-month high, rising from 56.9 to 59.1. Activity was stimulated by a resumption of infrastructure projects. Activity in the service sector slowed down, mainly due to a slowdown in services sensitive to social distancing. The yuan traded strongly this morning in the 6.3750 area, close to the mid-November low.

Fed Chairman Powel said that “the recent increase in Covid-19 cases and the emergence of the omicron variant present downside risks to jobs and economic activity and increased uncertainty for inflation “. The virus could reduce people’s willingness to work in person, slowing progress in the job market and intensifying supply chain disruptions. In his remarks, Powell offered no specific indication of the change in the pace of the Fed’s reduction in asset purchases. In her portion of the testimony, Treasury Secretary Yellen remained convinced that the economy remains strong. She reiterated her call for the Senate to approve Biden’s Build Back Better plan and urged lawmakers to raise the debt ceiling because the Treasury could potentially run out of cash after December 15.


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