Dollar Strengthened Modestly Overnight

February 16, 2021

The dollar rose 0.2-0.4% against the euro, yen, Swiss franc, sterling, and Canadian, Australian and New Zealand dollars.

Japan’s Nikkei-225 equity index, which jumped 1.9% Monday and closed above 30,000 for the first time since 1990, extended that advance by 1.3% this Tuesday. This rise had been ignited by news of a stronger-than-expected 3.0% fourth-quarter GDP growth rate (12.7% annualized versus the 4.0% annualized U.S. pace). Japan’s December tertiary index of service sector activity revealed a second-straight monthly decline, this time of 0.4%, but the measure rose 2.8% in 4Q from 3Q.

China and Hong Kong remained closed today, observing the Lunar New Year holiday. Share prices closed up 1.0% in New Zealand, 0.7% in Australia, 0.5% in South Korea and 0.4% in India.

It was Europe’s turn today to release preliminary fourth-quarter estimates of GDP growth.

  • For the whole euro area, real GDP fell 0.6%. That was the third decline in the past four quarters and left GDP 5.0% below its year-earlier level and down 6.8% on average in 2020 as a whole.
  • Within Euroland, real GDP last quarter fell 2.0% in Italy, 1.3% in France, 4.3% in Austria, and 0.1% in the Netherlands but rose by 0.4% in Spain, 0.4% in Portugal, 0.2% in Finland and Belgium, and 0.1% in Germany.
  • Among other European economies reporting GDP figures, GDP last quarter increased 5.3% in Romania, 1.1% in Hungary, 0.6% in Denmark and Norway, 0.5% in Sweden, and 0.3% in the Czech Republic but fell 0.7% in Poland.
  • GDP in all the above economies both within Euroland and outside that union was weaker than the level in the final quarter of 2019.

Employment in the euro area advanced 0.3% last quarter but was 2.0% lower than in the final quarter of 2019. The average level of jobs in countries using the euro was 1.8% fewer in 2020 on average than in 2019.

Euroland’s ZEW expectations gauge of investor sentiment toward the economy improved for a third straight month, printing at a 5-month high and greater-than-expected 69.6 in February. The reading in November had been 32.8. The companion index measure current conditions in the euro area was again less negative at -74.6 versus -78.9 in January and -89.8 six months ago in August. For Germany, the ZEW current situation index was more negative in February at -67.2 after -66.4 in January, but the German expectations index (71.2) climbed to a 5-month high (71.6), mirroring the euro area’s experience.

European equities are trading marginally lower.

America’s historically bitter cold temperatures lifted the price of West Texas Intermediate crude oil by another 0.4%. The price of gold has softened 1.2%, but the cost of a bitcoin finally broke through resistance at $50,000.

Ten-year sovereign debt yields climbed today in much of Europe and the United States. Through the first eighth of 2021, the U.S. Treasury yield has risen 34 basis points, and its German counterpart has advanced 21 basis points.

Minutes from this month’s Reserve Bank of Australia review of monetary policy confirmed that the 0.10% Official Cash Rate is unlikely to be raised before at least 2024 and that quantitative stimulus is being continued in part to guard against an unwelcome significant appreciation of the Australian dollar. Forward guidance ties future policy to forthcoming data. Officials need to see the labor market tighten and inflation to enter the 2-3% target in a sustainable way before considering a less accommodative stance.

Trade surpluses in 2020 totaled  EUR 63.58 billion in Italy and EUR 58.05 billion in the Netherlands, up respectively from EUR 56.12 billion and EUR 55.37 billion in 2019.

In the United States, the Empire State manufacturing index jumped to a 5-month high of 12.1 in February from 3.5 in January.

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

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