Dollar Lifted By Domestic Terrorism on Several Fronts

January 28, 2021

There’s been a similar dynamic to the attempted U.S. insurrection on January 6 and the more recent psychological frenzy pushing up a few stocks like Game Stop but depressing broader conventional elements of the market place. There’s an anarchist mad-as-hell-and-not-going-to-take-it thinking behind each of these developments that pit the little guys against the establishment. In the backround, fears persist that the roll-out of Covid vaccinations is progressing to slowly to corral the epidemic, which has been further weaponized by more contagious variant strains that are believed to be also more deadly. From that fear comes doubt that the second half of 2021 will see the kind of robust economic growth that has been assumed previously. For the most part, U.S. Republican politicians haven’t abandoned Trumpism. Most are standing by their man and assuming the successful obstructionist tactics used when Obama and Clinton were president. Doubt has been cast on the size and timing of another pandemic relief fiscal package.

In this stew, the dollar rose overnight by 0.7% and 0.6% against the Australian and New Zealand dollars, 0.6% versus the Mexican peso, 0.3% relative to the loonie and Swiss franc, 0.2% against the yen and 0.1% versus the euro.

Share prices in the Pacific Rim tumbled 2.6% in Hong Kong, 2.2% in New Zealand, 2.1% in Indonesia, 1.9% in China and Australia, 1.8% in Taiwan, 1.5% in Japan, 1.7% in South Korea, and 1.3% in Singapore. European markets and U.S. futures have been steadier, yet trading even there looks fragile.

The ten-year British gilt yield dropped two basis points, and its U.S. and German countereparts are each a basis point lower. The prices of oil and gold each slipped 0.4% overnight.

U.S. real GDP growth slowed from 33.4% quarter-on-quarter at an annualized rate in 3Q to 4.0% in the final quarter of 2020. That result roughly matched analyst expectations and left GDP 2.5% below its year earlier level. Calendar year growth in 2020 was negative 3.5% following a 2.2% rate in 2019. Positive contributions to the 4% growth last year included 1.7 percentage points from personal consumption, 3.4 percentage points combined from non-residential and residential investment, and 1.0 percentage points from inventory changes. These were offset by drags of 1.5 percentage points from net exports and 0.2 percentage points from government expenditures. Between the final quarters of 2019 and 2020, the PCE price deflator went up just 1.2% (1.4% core).

An advance estimate of the U.S. trade deficit last month was reported at $82.466 billion compared to $69.243 billion in December 2019. Exports fell 2.6%, while imports rose 4.7%.

New U.S. jobless insurance claims of 847k last week were lower than forecast and marked the second consecutive weekly reduction, but the 4-week moving average still climbed over 16k to 868k.

Economic sentiment in the euro area slipped 0.9 points to a 2-month low of 91.5 in January. Last year’s weakest level in April was 67.8, down from a pre-pandemic reading of 104.0 in February. In January, industrial sector sentiment improved to a 17-month high, and construction printed at a 10-month high. But retail, services and consumer confidence dropped to 7-, 6-, and 2-month lows, respectively.

Business sentiment in January hit 2-month lows in Denmark, Italy, Greece and Austria and a 6-month low in Portugal but a 2-month high in South Korea, a 17-month high in Finland and an 11-month high in Sweden, the Netherlands and Iceland.

Consumer confidence this month printed at a 2-month low in Austria and Italy but an 11-month high in Sweden and a 10-month high in Portugal.

Japanese retail sales posted a second straight monthly drop in December, this time of 0.8%, and that resulted in the first year-on-year decline (0.3% since September.

Swedish retail sales sank 4.9% last month, resulting in its first year-on-year drop (0.6%) since last April. Norwegian retail sales dropped 5.7% in December, which trimmed the rate of increase to a 7-month low of 8.0%.

German CPI inflation swung from -0.3% in November and December to a 10-month high of 1.0% this month, as a temporary VAT cut expired and energy prices rose.

Belgian CPI inflation slowed 0.15 percentage points to 0.26% in January.

South African producer price inflation matched November’s 9-month high of 3.0%.

Spanish unemployment dipped just 0.1 percentage point to 16.1% last quarter and remained will above 13.8% in the final quarter of 2019. Singapore’s 3.2% jobless rate last quarter was below 3.6% in the prior quarter but above 2.3% in the final quarter of 2019.

Between the final quarters of 2019 and 2020, Australian export prices went up 0.8%, while import prices fell by 7.3%.

Filipino real GDP advanced 5.6% in 4Q but was still 8.3% below the level in the final quarter of 2019.

The Central Bank of Chile’s policy interest rate was maintained at 0.50%. There were a pair of cuts totaling 125 basis points in March 2020 that lowered it to that level.

Still to come: U.S. new home sales, index of leading economic indicators, and K.C. Fed monthly manufacturing survey.

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


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