07 December 2021
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Germany factory orders see sharp decline

By Daniel Richards

  • German factory orders declined -6.9% m/m in October, a far greater decline than the projected -0.3%. Orders were down -1.0% y/y, the first annual drop since September 2020. Weak overseas demand was a key driver of the contraction, while domestic orders recorded 3.4% growth. However, with the rapid rise in Covid-19 cases in Germany in November, the subsequent emergence of the Omicron variant, and the ongoing global supply chain issues, the economy will likely have remained under pressure through the rest of the fourth quarter. The industrial production data for October is released tomorrow.
  • In a signal that it is looking to support growth, the People’s Bank of China said yesterday that it would reduce its reserve requirement ratio by 0.5pp for most banks from December 15. This is the second time this year that the RRR has been cut and the move is aimed at supporting smaller businesses amidst signs that the economy is slowing down. According to the PBC’s statement, the ‘weighted average RRR for financial institutions will be 8.4% after the cut.’
  • The Reserve Bank of Australia left its benchmark cash target rate on hold at 0.1% on Tuesday. The governor, Philip Lowe, had told reporters in November that the bank was unlikely to raise rates in 2022, making the decision widely anticipated. The communiqué stated that the RBA remained ‘committed to maintaining highly supportive monetary conditions to achieve its objectives of a return to full employment in Australia and inflation consistent with the target’, while maintaining that inflationary pressures remained low and manageable. The bank also played down the risk of the Omicron variant of Covid-19, and market sentiment has seemingly moved towards the view that the threat is a manageable one.

Key Economic Data and Events This Week

  • 11:00 Germany industrial production, % m/m, October. Forecast: 1.0%
  • 14:00 Germany ZEW survey, expectations. Forecast: 25.0
  • 14:00 Eurozone Q3 GDP, % q/q (final reading). Forecast: 2.2%

Fixed Income

  • US Treasury markets sold off to the start the trading week in a day with limited top tier economic data. The UST curve bear steepened as the 2yr yields added 4bps and pushed up to 0.6312% while the 10yr yield rose 9bps to settle at 1.4342%, recovering all of its sudden drop from last Friday. Among European bonds price action was more mixed with 2yr bund yields rising compared with no change in the 10yr and long-term bond yields on gilts falling more than short-term yields.
  • In emerging market bonds South Africans were the relative outperformer with 10yr yields fell 11bps to 9.961%. Indian bonds held steady while yields on 10yr Turkish government bonds rose another 23bps to settle at 20.5%.


  • The dollar regained some strength at the start of the week as markets reoriented their views on the impacts of the Omicron variant, helping to support risk assets. The DXY index rose 0.2% to 96.328 with most of the gains coming from EURUSD, which fell 0.27% to 1.1285, and USDJPY, which rose 0.6% to close at 113.48.
  • Sterling recorded some modest gains, up by 0.2%, as the market and policymakers take time to assess the impact of Omicron on the UK economy. Meanwhile commodity currencies all gained, with strong moves in USDCAD, down 0.68% to 1.2756, AUD, up 0.7% to 0.705. Markets will be watching for any change in tone from the RBA in its meeting taking place later today.


  • The Hang Seng closed down-1.8% yesterday, with troubled property developer Evergrande weighing on the index. The tone was generally one of risk-off in the rest of Asia also with concerns over the Omicron variant to the fore; the Nikkei lost -0.4%, the Shanghai Composite -0.5% and India’s Nifty and Sensex both ended the day -1.7% lower.
  • Things were more positive from the open in Europe, with indices buoyed by reports that the Omicron variant was less deadly than previous strains. The FTSE 100 and the CAC were notable gainers, both adding 1.5%, while Germany’s DAX added 1.4%.
  • In the US, the S&P gained 1.2% and the Dow Jones 1.9%. The NASDAQ, still more vulnerable to the prospect of more rapid monetary tightening, saw a more modest 0.9% growth.


  • Energy markets appear less concerned that Omicron will derail oil consumption and prices managed a decent start of the week. Brent futures pushed back up above USD 70/b, rising 4.6% to settle at USD 73.08/b, while WTI gained almost 4.9% to settle at USD 69.49/b.
  • In a sign of confidence for the market, Aramco raised its official selling prices for delivery to Asia and the US, expecting demand to be healthy enough in the coming months to support the higher prices.
  • Elsewhere, Aramco has signed an USD 15.5bn agreement with Black Rock and Hassana Investment Company for a stake in Saudi Arabia’s natural gas pipeline system. The newly formed company will lease the pipelines back to Aramco while the NOC will make use of the funds for upstream capacity development.

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Written By

Daniel Richards Senior Economist

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