Little Overnight Change in Dollar as Long-Term Rates Rise Further

February 3, 2021

Aside from declines of 0.6% and 0.3% against the New Zealand and Australian dollars, the U.S. currency’s net overnight movements have been minuscule including zero change versus the yen and yuan and upticks of 0.2% relative to the euro and a 0.1% versus the Swiss franc and sterling.

Ten-year sovereign debt yields increased two basis points in the United States and Germany and by a single basis point in the U.K. and Japan overnight.

The price of silver rebounded 2.3%, and gold edged 0.3% higher. WTI oil advanced 1.0%.

Equities closed up 1.1% in South Korea, 1.0% higher in Japan and +0.9% in Australia and India. Share prices have appreciated so far today by 2.6% in Italy, 1.3% in Spain, and 0.5% in Germany. Italy’s market improvement followed news that former European Central Bank President Mario Draghi has been appointed by the country’s president to be prime minister of the next government coalition and thereby avert calling an election.

Central banks in Thailand and Iceland left their policy stances unchanged.

The Bank of Thailand’s policy rate has been at 0.5% since May. It was cut three times last year, each time by 25 basis points. A released statement observes recovery but also great uncertainty with downside risk related to Covid containment. Officials may ease further in future but are retaining “limited policy space” so that they can act at the most appropriate time.

Officials at the Central Bank of Iceland left the 7-day term deposit rate unchanged at 0.75%. This record low level has been in place since October. Five cuts last year reduced the rate level by a total of 225 basis points from 3.0% at the beginning of the year. In a released statement, officials revised the size of last year’s contraction of GDP downward, but note is also made that the continuing drag of Covid hangs over the outlook for exports. After cresting at the start of 2021, officials expect Icelandic inflation to recede relatively quickly thereafter.

Today’s biggest data surprise was ADP estimated January rise of 174k private sector workers last month in the United States. That flips December’s 123k drop and is 3-1/2 times greater than analysts were forecasting.

Euroland consumer prices and producer price data were both reported today. The CPI’s 12-month change swung from a record subzero pace of minus 0.3% in each of the prior four months to +0.9%. A temporary VAT cut imposed last July ended in December, but even with this known distortion, the 0.9% increase is almost twice street estimates and represents an 11-month high. Core CPI inflation increased from a record low of +0.2% in December to 1.4%. Producer prices in the euro area climbed 0.8% in December, and their 1.1% 12-month rate of decline was smaller than November’s 1.9% on-year drop and the 2020 average decline of 2.6%.

Many purchasing manager surveys for January were published today. The bulk of these involved service sector activity and included composite manufacturing and services results.

  • Euroland’s services and composite PMI scores printed at 2-month lows of 45.4 and 47.8. While a tad above preliminary estimates, these sub-50 scores at the start of 2021 suggest that real GDP is likely to contract somewhat for a second straight quarter.
  • All of the individual service sector PMI readings of Germany, France, Ireland, Spain and Italy were also below the 50 threshold. The roll-out of Covid vaccines in the euro area has been even slower than in the U.K. or United States.
  • Japan‘s services PMI printed at a 5-month low of 46.1 and marked the twelfth straight sub-50 reading, signifying a year of deterioration. The composite PMI fell to a 4-month low of 47.1.
  • China‘s composite and service sector Caixin-compiled PMI indices were 52.2 and 52.0. While above 50 in each of the past nine reported months, January’s readings were the lowest in the improvement sequence.
  • The British composite and service-sector PMIs (41.2 and 39.9) reflected the double whammy of Covid and Brexit and suggest a sharp contraction of GDP this quarter.
  • India‘s composite and service PMIs printed at 2-month highs of 55.8 and 52.8.
  • Russia‘s composite and service PMIs (52.3 and 52.7) follow three straight months of sub-5o scores and indicate the fastest rate of improvement since September.
  • Australia‘s composite and services PMIs dipped to 2-month lows by continued to exceed the 50 threshold by a comfortable margin with readings of 55.9 and 55.6.
  • The composite and service sector PMIs of Brazil, by contrast, sank below 50 to 6-month lows of 48.9 and 47.0.
  • Sweden‘s service-sector purchasing managers index rose 2.7 index points to a 26-month high of 59.3 in January and lifted that economy’s composite PMI score back above 60 to 60.2.

Non-oil purchasing managers indices in Saudi Arabia and Egypt rose in January to a 14-month high of 57.1 and a 2-month high of 48.7, respectively. The non-oil PMI reading in the United Arab Emirates matched December’s 16-month high of 51.2. Lebanon‘s private PMI index fell 2.2 points to a very depressed and 5-month low of 41.0.

Private sector purchasing manager indices rose in Hong Kong, Singapore and South Africa to a respective 2-month high of 47.8, a 21-month high of 52.9, and a 3-month high of 50.8.

New Zealand’s fourth-quarter labor market data release showed a 0.4 percentage point decline in the jobless rate to 4.9%, rises of 0.4% on quarter and 1.6% on year in labor casts, an accelerated rate of jobs growth, and a labor market participation rate of 70.2%.

Australian building permits leaped 10.9% in December, marking the fourth straight month-on-month increase.

Turkish CPI inflation accelerated 0.4 percentage points to a 17-month high of 14.97% last month. Producer price inflation was even more elevated at 26.16%, the most in 20 months.

The U.S. non-manufacturing purchasing managers index will be reported shortly.

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


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