While the Pfizer CEO said let’s wait for the data in coming weeks before speculating, the CEO of Moderna said this in the FT with regards to the change in efficacy of its vaccine, “I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to…are like, ‘This is not going to be good.'” Delta resulted in a drop too so another decline should not be a surprise but the bottom line with the vaccines is to keep us out of the hospital and alive, not to eradicate Covid at least until there is global herd immunity. Emphasis on ‘global’ which we’re obviously far away from. Either way, we’re not shutting down again and hopefully most of the world doesn’t either and we’ll push thru the 3 plus months until new vaccines attack the new variant.
To the economic data, China said its state focused November manufacturing PMI rose to just above 50 at 50.1 from 49.2 in October as power came back on and infrastructure spending picked up again. Price pressures eased but coal and iron ore, key components here, have been all over the place. The non manufacturing component (which includes the under stress residential construction/real estate sector) was little changed at 52.3 from 52.4 but likely the Caixin private sector index will reflect what’s really going on. Construction did pick up and Chinese officials are definitely trying to get unfinished projects done. As we take state sector China data with a grain of salt, the Shanghai comp was little changed but the H share index in Hong Kong did selloff by 1.5% but more so in response to the Moderna comments.
Somewhat dated, Japan’s unemployment rate fell to 2.7% from 2.8% in October but for the wrong reasons as both the size of the labor force and number of employed fell as did the participation rate. Also, the jobs to applicant ratio fell to 1.15 from 1.16. The Japanese vaccination rate is now up to 77% but the manufacturing sector is dealing with all the supply challenges that the rest of us are. Japanese yields did fall but inflation breakevens were little changed.
The yen is higher as energy prices fall and there is now a tight relationship between the two with Japan importing most of their needs. The dollar is also down against the euro, pound, Swiss franc and Mexican peso and again is not a safe haven today. So maybe the recent rally in the dollar was just an interest rate differential play after all? The US dollar is up against the Canadian and Aussie$ but maybe that’s just a commodity trade with oil prices lower.
WTI in white/Yen in orange
On the heels of the hot German CPI yesterday and followed by the read in France, the Eurozone November CPI rose 4.9% y/o/y, up from 4.1% in October and above the estimate of up 4.5%. The increase from last month was .5% vs the forecast of up .1%. The core rate accelerated to a 2.6% gain vs 2% last month and 3 tenths more than expected. A 27.4% jump in energy prices led the headline gain but non energy industrial goods prices rose 2.4% y/o/y and service prices increased by 2.7% y/o/y. In response, the 5 yr 5 yr euro inflation swap is up by 3 bps to 1.87% and if it wasn’t for the Moderna comments, they’d be up a lot more today.
Yes, maybe this is temporary but all this QE and negative rates throughout the region is not a good place to be in even if it slows. It is definitely not a focus of anyone, I will repeat my concern that the European bond market is a tinder box of danger if inflation is not transitory.
EUROZONE Core CPI y/o/y
5 yr 5 yr Euro Inflation Swap