Focus in Last Week of February to Be on U.S. Economic Policy

February 22, 2021

U.S. stock futures this Monday point to a lower open, with the S&P index down 0.8% and the Nasdaq off 1.4%. Share prices closed down 1.5% in China, 1.2% in New Zealand, 1.1% in Hong Kong and 0.9% in South Korea, while in Europe, equities are thus far down 0.5% or more in the U.K., Germany, Italy, and Spain.

The U.S. 10-year Treasury yield’s uptrend was extended another four basis points so far today, bringing the cumulative advance since December 14th to 48 basis points or 53% from 0.89% back then. The ten-year British gilts and Japanese JGB yields are 2 and 1 basis points higher today.

The dollar lost a modest 0.1% on a trade-weighted basis overnight. It’s down 0.4% against the yuan, 0.3% relative to the New Zealand and Australian currencies, and 0.2% versus the euro and sterling but up 0.9% relative to the Mexican peso and 0.1% versus the yen and Swiss franc.

From a record peak of $58,354, the cost of a bitcoin has slumped to $54,941 today.

Prices for WTI oil and Comex gold are 0.8% and 1.0% stronger.

U.S. fiscal policy and monetary policy will both be front and center in this week’s news.

  • Time is becoming urgent to legislate a fresh pandemic relief package in Congress. President Biden and congressional Democrats seek a $1.9 trillion measure, preferably with some bipartisan support but without such if it has to be that way. The flattening out of weekly new jobless claims at levels that represent the direst part of the Great Recession is troubling even though other data point to stronger first-quarter growth. Pandemic case and death figures have fallen, but the emergence of more resilient mutant strains of Covid-19 and public resistance against full participation in getting vaccines cast doubt on the economic outlook further into 2021.
  • Fed Chairman Jay Powell will be presenting his semi-annual testimonies before Congress on the U.S. economy and Fed policy (these testimonies formerly know as the Humphrey-Hawkins testimony) have at times been significant market movers. Powell presents to the Senate Banking Committee on Tuesday, followed by the House Financial Services Committee on Wednesday.

Among today’s data releases, the German IFO business climate survey for February has been most prominent. Euroland’s largest economy was surprisingly robust this month despite tighter lockdowns against Covid. The overall index improved 2.1 index points to a 4-month high of 92.4. Both expectations at a 4-month high and current conditions at a 2-month high improved over January levels. Among industrial sectors, manufacturing improved the most. Services and construction also picked up momentum, while trade fell to a 9-month low.

Japanese corporate service prices in January dropped 0.6% on month and recorded a 0.5% year-on-year decline for the third time in the past four months. Over the 12 months through January 2020, by contrast, the CSP index had climbed 2.2%.

Other price data reported today included a jump in Hong Kong CPI inflation to 1.9% in January (a 9-month low) from -0.7% in December. This swing largely reflects temporary pandemic relief measures that were imposed in January 2020 that no longer are embodied in the year-on-year comparison. Serbian producer prices were 1.9% lower than a year earlier in January, and that economy’s CPI inflation slid 0.2 percentage points to an 8-month low of 1.1% also in January. Irish producer price inflation last month remained substantially negative at -12.6%.

Norwegian unemployment averaged 5.0% last quarter, down from 5.3% in the third quarter of 2020 but above the 3.9% mean in the final quarter of 2019.

The Greek current account deficit ballooned from EUR 2.7 billion in 2019 to EUR 11.2 billion last year.

Irish consumer confidence weakened to a 3-month low of 64.9 in January. It’s reading just before the pandemic was 85.2 in February 2020. In Turkey, by contrast, confidence in the manufacturing sector rose 2.3 index points to a 33-month high of 109.3.

Taiwanese GDP advanced 1.4% last quarter to 5.1% above its year-earlier level.

As expected, the monthly fixings of the People’s Bank of China’s 1-year and 5-year lending prime rates remained unchanged at 3.85% and 4.65%, respectively. They have been at that level since cuts totaling 30 and 15 basis points last February and April. There is some market chatter that Chinese monetary officials are becoming uneasy with the yuan’s upward drift.

Today’s menu of U.S. data releases features the Chicago Fed National Activity Index, the Dallas Fed regional manufacturing monthly survey, and the index of leading economic indicators.

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

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