Dollar Rebound Extended 0.3%

February 17, 2021

The dollar is 0.3% stronger on an effective trade-weighted basis. It is up 0.4% against the euro and near the day’s high and touched a 5-month high of 106.22 Japanese yen overnight.

The reviving dollar reflects climbing long-term U.S. interest rates as investors are betting on the Congress approving a pandemic relief package of around $1.9 trillion soon. Fed officials continue to express unconcern about inflation’s medium-term outlook and show no sign of abandoning their very accommodative stance in the foreseeable future. The 30-year Treasury yield is 43 basis points above its end-2020 level.

Equity markets in Taiwan and Hong Kong advanced 3.5% and 1.1% today, while China’s exchange remained shut one more day for the Lunar New Year holiday. Elsewhere, share prices fell 0.9% in South Korea, 0.8% in India, 0.6% in Japan and 0.5% in Australia, and there have been losses so far today in several European stock exchanges including Italy, Switzerland, Spain, the U.K. and Germany.

Historically extreme wintry conditions in much of the United States but particularly in Texas lifted the price of West Intermediate crude oil by another 1.5%.  Gold fell 0.6% and is below $1800 per ounce.

Better-than-forecast Japanese data were reported today.

  • Core private domestic machinery orders, which were forecast to decline, insteady advanced 5.2% on month and 11.8% on year during December.
  • The weakest month for Japan’s trade balance tends to be January, but this year’s deficit that month was only JPY 324 billion, down from 1.315 trillion yen in January 2020. Imports sank 9.5% on year, while exports climbed 6.4%.

British CPI inflation accelerated to a 3-month high of 0.7% in January. Core inflation of 1.4% matched December’s 2-month high. Producer output inflation of -0.2% was negative for an eleventh straight month but its least negative since last March. Producer input price inflation doubled to 1.3%.

Construction output in Euroland fell 3.7% in December, 0.3% last quarter, and 5.7% in 2020 as a whole. The drop between December 2019 and December 2020 was 2.3%. Car sales in the European Union last month were 24% fewer than in the year-earlier month.

South African consumer prices rose 0.3% on month and nudged up to a 2-month on-year high of 3.2%. Core CPI inflation stayed level at 3.3%. South African retail sales (down 0.8% on month and 1.3% on year) did not contract as sharply as forecast in January.

The Bank of Zambia raised its reference interest rate by 50 basis points to 8.5%, marking the first increase since November 2019. The rate during 2020 had be cut 225 basis points in May and another 125 bps in August, but Zambian inflation has been above the 6-8% target and increasingly so of late. A released statement explains that the policy rate could be raised additionally “should inflationary pressures persist” in order to anchor inflation expectations while still lending support to financial system stability and Zambian growth.

Canadian CPI inflation increased 0.3 percentage points to 1.0% in January. Core inflation also topped forecasts.

Treasury-compiled international capital flows in December were reported late yesterday, The long-term U.S. net inflow was a robust $121 billion that month, bringing the 2020 full total inflow to $505.7 billion versus $389 billion in 2019. A broader composite of net long-term and short-term inflows totaled $543.7 billion last year versus only $60.3 billion in 2019 but less than $745,6 billion in 2018.

Today’s menu of U.S. data releases features retail sales, producer prices, industrial production, capacity utilization, the National Association of Home-Builders housing index, and weekly oil inventories and mortgage applications. A 5.3% leap in retail sales smashed above expectations and easily reversed December’s 1.0% decline. The rebound was broadly based. A 1.3% monthly jump in producer prices was four times greater than forecast and doubled the 12-month rate of increase to 1.7%. Mortgage applications last week contracted over 5% but were still over 50% above their year-earlier level. Industrial production and the NAHB index are still to come.

 

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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