On Friday, the South African Steve Biko Academic Hospital Complex published a study on records of 466 patients from the current wave and 3,976 from previous bouts of infection. The study showed that just 4.5% of patients with Covid-19 died during their hospital stay in the current wave compared with an average of 21% in earlier waves. Fewer people were admitted to intensive-care units (admissions to intensive-care units dropped to 1% of patients from 4.3%), and hospital stays were significantly shorter (hospital stays averaged 4 days compared with 8.8 in previous waves). The rate of admissions climbed rapidly but began to decline within 33 days of the first analyzed, the study said.
Hawkish FOMC minutes
The Fed is absolutely expecting to end Quantitative Easing in March with the first federal funds rate hike potentially right after. Current fed fund futures market pricing is indicating about a 2-to-1 chance of the first hike coming in March, according to the CME’s FedWatch Tool. Traders figure the next increase would come in June or July, followed by a third move in November or December. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate and at a faster pace compared to Oct. 2017. During that 2017-19 reduction, the Fed allowed a capped level of proceeds from the bonds it holds roll off each month while reinvesting the rest. The central bank started by allowing $10bn of Treasuries and mortgage-backed securities each quarter to roll off, increasing by that much each period until the caps reached $50bn. The program was intended to get the balance sheet down considerably but was short-circuited by global economic weakness in 2019, followed by the pandemic crisis in 2020. In all, the reduction amount to only about $600bn. The current size is $8.5trn.
The US economy added 199k jobs in December according to the Establishment survey, compared to an expected increase of +450k. The number was also well below the ADP jobs report which came in at +807k vs. +410k expectations and vs.+505k in Nov. Employment in leisure and hospitality continued to trend up in December (+53k). According to the Household survey, the number of unemployed dropped by 483k in Dec. and the unemployment rate slumped to 3.9% (vs. analysts’ consensus of 4.1% and down from 4.2% in Nov.). The participation rate came in at 61.9%, in line with expectations (Nov. participation rate was revised higher to 61.9%). Wage growth was very strong at +4.7% y-o-y (vs. consensus of +4.2%), and Nov. was revised up (from +4.8% to +5.1%). As a recap, during 2021 job growth averaged 537k per month. Employment increased by 18.8m since April 2020 but is down by 3.6m, or 2.3%, from its level before the onset of the pandemic in February 2020.
Dec. Markit US Composite PMI came in at 57.0 ahead of Nov. reading at 56.9. Markit Services PMI was just ahead of expectations at 57.5. Notably, the Dec. ISM Manufacturing PMI fell to 58.7, the lowest level since January 2021, from 61.1 in Nov. While softer, underlying components were healthy. Delivery times and prices paid for materials were still elevated but both fell to their lowest levels in more than a year. The ISM employment gauge rose to an eight-month high, and the new orders index eased just slightly to a healthy 60.4. In the Euro zone, Dec. IHS Markit Composite PMI sank to 53.3 from 55.4 in Nov., its lowest since March. The Services PMI dropped to an eight-month low of 53.1 from Nov. 55.9 with the employment index falling to 53.6 from 55.4 as services firms increased headcount at the slowest pace since May. On the contrary, the Manufacturing PMI stayed resilient at 58.0 with some price pressures receding thanks to easing supply chain bottlenecks.
Inflation in Europe
Inflation in the Euro zone rose to 5% in Dec. from 4.9% in Nov., a record high for the currency bloc and well ahead of analysts' expectation for 4.7%. The main driver continues to be energy prices up 26% y-o-y. However, inflation excluding food and fuel prices, rose to 2.7% in Dec. from 2.6%, while a narrower measure that also excludes alcohol and tobacco products held steady at 2.6%. Both figures were just above expectations and ECB’s 2% inflation target.