Stocks and Dollar Falter as Sovereign Debt Yields Resume Their Rise

February 18, 2021

Overnight dollar losses range from 0.7% against sterling to 0.4% relative to the Aussie and New Zealand dollars, 0.3% versus the euro, Swiss franc and peso and 0.2% relative to the yen and loonie. The trade-weighted dollar is 0.3% softer.

Ten-year sovereign debt yields are up four basis points in the U.K., lifting the pound against most currencies, and by two basis points in Germany and the United States.

After the extended Chinese holiday, that country’s share prices rose 0.6% today, but stocks elsewhere in the Pacific Rim dropped 1.6% in Hong Kong, 1.5% in South Korea, 0.7% in India, 0.4% in Indonesia and New Zealand and 0.2% in Japan. European stock markets (particularly the British Ftse at -0.6%) are somewhat lower, and so are U.S. futures.

The Texas deep freeze continues to lift the price of West Texas Intermediate oil, which touched a 3-month high of $62.26 per barrel and remains 0.7% higher on net after settling back a bit. The price of gold is up 0.4% but not far from a 3-month low.

Yesterday’s FOMC minutes were dovish in tone. Recent upward pressure on inflation stems from transient factors and will not deter Fed officials from resisting the temptation to taper policy stimulus within the next few years.

The Board of Governors of Bank Indonesia as expected authorized a 25-basis point cut of its seven-day reverse repo rate to 3.5%, which brings the cumulative reduction since the start of last year to 150 basis points. The previous easing was done just 3 months ago. A released statement observes low inflation, which at 1.55% and expected to stay within target, a stable exchange rate, and a resilient external sector and financial system. Monetary policy is being coordinated with fiscal policy to promote Indonesia’s recovery. Real GDP fell 2.1% in 2020 and was 4.3% below its year-earlier level in the final quarter. Projected growth this year was revised slightly lower.

Priorities are different at the Central Bank of Turkey, which is again experiencing a vicious cycle of accelerating inflation and lira depreciation. Inflation expectations are higher, fed additionally by elevated food prices. From January to May of 2020, officials cut their one-week repo rate five times by a total of 375 basis points, only to reverse course with a trio of sharp hikes of 200 bps last September, 475 basis points in November and 200 bps in December. The rate was increased further this year at the January meeting or today’s, but a released statement warns of further tightening if that becomes necessary. Officials promise not to ease their stance until they see compelling evidence of falling inflation and signs to suggest that the downtrend will not be a temporary one.

Australian January labor statistics were more encouraging than expected. The jobless rate fell 0.2 percentage points to a 9-month low of 6.4% and 0.6 percentage points below October’s level. Employment increased 21.1k, including 59k full-time positions, but labor participation edged marginally lower.

Several countries reported price data:

  • U.S. import prices leaped 1.4% last month, most in 107 months, resulting in the largest on-year advance (0.9%) in 27 months. Imported fuel cost 7.4% more than in December, and all other items advanced by 0.8% on month.
  • U.S. export prices climbed 2.5% on month and 2.3% from a year earlier, which represents an acceleration from January 2020’s on-year 0.4% pace.
  • Irish CPI inflation was negative for a tenth straight month, but January’s 12-month 0.2% decline was the least in 9 months.
  • Likewise, a 3.0% on-year drop in Portuguese producer prices was the smallest in 10 months.
  • Polish PPI inflation accelerated 0.6 percentage points to a one-year high in January of 0.7%.
  • Swedish CPI inflation jumped from 0.5% in December to a 23-month high of 1.6% in January.
  • Philippine retail price inflation, by contrast, dipped 0.2 percentage points to a 7-month low of 1.1% but for December.

Dutch consumer confidence in February matched January’s -19 reading but remained quite a bit softer than the historical mean of -7. Danish consumer sentiment dropped 1.1 index points to a 3-month low of -5.2 in February.

But in Turkey, consumer confidence improved to a 30-month high, and Belgian consumer sentiment edged up 1.0 point to a 2-month high of -9. Such printed at -26 half a year earlier.

Hong Kong experienced its highest unemployment rate (7.0% in the three months to January) since February-April of 2004.

U.S. building permits soared 10.4% last month to 1.881 million, which was 22.5% greater than the number of permits in January 2020 and the highest level since May 2006 not long before the sub-prime housing market bust that brought on the Great Recession. Housing starts fell 2.3% to a 2-month low.

There were 100 thousand more new U.S. jobless insurance claims last week than forecast. At 865k, that level represented a 4-week high, and the prior week’s number of claims got revised sharply upward from 793k reported initially to 848k.

The Philly Fed manufacturing index had risen from a 3-month low of 9.1 in December to an 11-month high of 26.5 in January and then retreated less than feared to a reading of 23.1 this month.

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

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