15 December 2021
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Higher Nov PPI raises pressure on the Fed to accelerate tapering

By Daniel Richards

  • US PPI surged 0.8% m/m in November, taking the annual rate to a higher than forecast 9.6% y/y.  Core PPI (excluding volatile food and energy prices) also accelerated to 7.7% y/y from 6.8% in October.  The data increases pressure on the Fed to address inflation concerns at the conclusion of today’s meeting.  There is an expectation that tapering will be accelerated from January, allowing more flexibility to raise rates earlier in 2022. The Fed will also release updated economic projections and a new Dot Plot that is likely to show at least two rate hikes in 2022 compared with the more balanced outlook in the previous version.
  • Separately, the Senate approved an increase in the debt ceiling by USD 2.5tn, which should be sufficient to fund the government through next year.  The House will likely approve the legislation, which should then be signed into law today.
  • China retail sales came in softer than expected in November, rising 3.9% y/y against a Bloomberg consensus forecast of 4.7% and down from 4.9% in October.  Industrial production accelerated slightly from October to 3.8% y/y in November, slightly higher than the market had expected. However fixed asset investment and property investment missed estimates.  Overall the data this morning confirms the economy is slowing after continued Covid disruptions and a deteriorating property market.
  • The headline UK unemployment rate fell to 4.2% in the three months to October, down from 4.3% the previous reading. This was in line with consensus projections and showed a labour market that was not unduly troubled by the ending of the pandemic-related furlough scheme which came to an end at the close of September. While there was an apparent slowdown at the start of October, things picked up subsequently, and workers on company payrolls rose by 257,000 in November to exceed pre-pandemic levels by some half a million. The jobs market will likely take a knock from the spread of the Omicron variant in the UK and the related restrictions, however, and UK hospitality has cautioned that its takings could drop by 40% in December, with the week to December 11 already showing a 13% drop in trade. The Bank of England is due to set the Bank Rate this week, with the likelihood being a hold at 0.1% given the resurgent Covid threat overshadowing the recovery in the labour market to date.
  • In parliament, PM Boris Johnson had to rely on opposition MPs to pass his “Plan B” to tackle the spread of the coronavirus in the UK, after almost 100 MPs from his own Conservative Party voted against the measure. The measures include the requirement to show vaccine certificates to enter nightclubs and other large venues in England. 63 Tory MPs also voted against mandatory vaccinations for NHS and social care staff in England. A by-election in North Shropshire, considered a safe seat for the Conservatives, is scheduled for tomorrow with Liberal Democrats currently the favourites to win.  A loss would increase the likelihood of a leadership challenge for Boris Johnson.

Today’s Economic Data and Events

  • 11:00 UK CPI inflation, % y/y November. Forecast: 4.8%
  • 17:30 US retail sales advance, % m/m November. Forecast: 0.8%
  • 17:30 US Empire manufacturing, December. Forecast: 25.0
  • 23:00 US FOMC rate decision (upper bound). Forecast: 0.25%

Fixed Income

  • US Treasury markets saw yields rise yesterday ahead of the FOMC meeting decision tonight, where an acceleration of tapering and signals for more rate hikes next year are becoming more likely. The 10-yr added 2.6bps to 1.4411 while the 2-year rose by 2.4bps to 0.6568.
  • The Hungarian central bank hiked its benchmark interest rate by 30 bps yesterday, taking it to 2.4%. Inflation has risen to a 14-year high and central bank officials have been vocal in their planned commitment to curbing price growth, though the hike was somewhat softer than the anticipated 2.5%.
  • The State Bank of Pakistan raise its target rate by 100bp to 9.75%, more than most economists had expected, as it seeks to combat inflation. Interest rates have been hiked 275bp since September.


  • The dollar index rose 0.3% against its basket yesterday, taking it to 96.571. While off the all-time highs of 96.875 seen in November it remains at high levels given the expectation for more rapid monetary tightening in the US than elsewhere.
  • Ahead of the big central bank decisions this week there was little change amongst the majors yesterday. GBP added 0.1% to 1.3231, while the EUR and the Yen lost -0.2% to 1.1259 and 113.7 respectively.
  • The Turkish lira depreciated 4.1% against the USD yesterday, taking it to a new all-time low close of TRY 14.38/USD. At one point the currency had lost over 7% to 14.75 before intervention by the central bank. The currency has sold off sharply in recent months as the central bank has enacted rate cuts while inflation has exceeded 20%. The next rate decision is due on Thursday, when a further 100bps cut is anticipated.


  • Asian equities followed the previous day’s European and Americas stocks movements into the red yesterday, with all major benchmarks ending the day lower. The Hang Seng was a notable loser, dropping -1.3% on the day, while the Shanghai Composite and the Nikkei lost -0.5% and -0.7% respectively. India’s Sensex lost -0.3%.
  • A notable gainer yesterday was Turkey’s Borsa Istanbul 100 which added 2.7%, taking it to nearly 50% gains over the past three months. The index has tracked the lira’s sharp depreciation over the past several months.
  • In Europe, the Omicron variant continued to weigh on sentiment as the Dax lost -1.1% and the FTSE 100 -0.2%. In the US, the NASDAQ was the biggest loser, dropping 1.1% while the Dow Jones ceded -0.3% and the S&P 500 -0.8%.


  • Oil prices initially climbed yesterday following Monday’s losses as a bullish demand projection in the morning supported prices, but ceded these gains later in the session with Brent futures closing down -0.9% to USD 73.7/b and WTI losing -0.8% to USD 70.7/b. There was a bearish signal as Brent crude for February fell into contango began to trade at a discount compared to March, suggesting that oversupply is imminent.
  • The IEA has also said that global oil markets have returned to surplus and that an excess of supply coming online will widen the overhang next year as its demand projection has been revised down by 100,000 b/d for through the rest of 2021 and 2022. Nevertheless, the body expects that demand growth will only be moderately impacted by the spread of the Omicron variant which it anticipates will ‘temporarily slow, but not upend, the recovery in oil demand.’ Jet fuel in particular will be negatively affected given new restrictions on international travel.

Click here for charts and tables

Written By

Daniel Richards Senior Economist

Khatija Haque Head of Research & Chief Economist

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