Large Rise in Dollar and Sovereign Debt Yields

March 12, 2021

Yesterday was a momentous day for the Biden Administration. He signed the nearly $1.9 trillion American Rescue Plan on the one-year anniversary of last year’s Covid lockdown and then gave his first prime time address to the nation, setting a goals for vaccinations and a start of permissible family gatherings.

Overnight, the trade-weighted dollar climbed 0.4%, and the ten-year Treasury yield rose six basis point on net to 1.60% and briefly touched 1.61%. Ten-year sovereign debt yields in other countries climbed 7 basis points in Canada, 6 bps in Great Britain, 5 bps in Australia, 3 bps in Germany and France and 2 basis points in Japan.

Selected bilateral dollar gains so far today amount to 1.3% against the Turkish lira, 0.9% against the Mexican peso, 0.8% versus the New Zealand dollar, 0.7% relative to sterling, 0.6% vis-a-vis the yen and Swiss franc, 0.5% against the euro and Aussie dollar, and 0.2% relative to the yuan and loonie.

Equity market movements in the Pacific Rim saw Hong Kong’s Hang Seng index slump 2.0% after the Beijing government unanimously approved tighter restraints on the former British Colony’s elections. The Indian market dropped 1.0%, but advances were made of 1.7% in Japan, 1.3% in New Zealand, 1.4% in South Korea and 0.5% in China’s Shanghai Composite index. In Europe, the German Dax is down 0.6%. Tech stock futures in the U.S. were depressed by the renewed climb of long-term rates, but the S&P and DOW are only showing marginal net moves.

The price of gold, which often moves inversely with the dollar, has fallen today by 1.2% so far, and WTI oil has dipped 0.2%.

Year-on-year U.S. producer price inflation in February of 2.8% overall and 2.5% in the core index accelerated less than forecast. Price pressure was concentrated in energy.

Industrial production in the euro area rose 0.8% in January, four times more than forecast. As a result, a 26-month streak of year-on-year declines was broken as output exceeded the January 2020 level by 0.1%.

The U.K. released several economic indicators:

  • A supply-side estimate of GDP in January tumbled 2.9% on month due to new social restrictions. GDP in November-January fell 1.7% and was 9.2% lower than a year earlier.
  • Industrial production in January dropped 1.5%, the first monthly decline since April, and 4.9% compared to January 2020’s level.
  • Factory output in January dropped 2.3% on month and 5.2% on year.
  • Construction output surprised analysts with a 0.9% increase that cut the 12-month rate of decline to 3.0%.
  • The British merchandise trade deficit shrunk to GBP 9.826 billion in January from GBP 14.315 billion in December, reflecting a 22.8% dive in imports. The goods and services trade balance stayed in the red for fifth straight month but, at just GBP 1.63 billion was the narrowest deficit in that streak.

Turkish President Erdogan presented a set of economic reforms that de-emphasized price stability as a near-term policy priority. The remark seemed to put pressure on the central bank not to raise interest rates next Thursday, which analysts had thought will happen, and it subjected the lira to downward pressure today.

The preliminary estimates of German CPI inflation last month of +0.7% from January and 1.3% on-year (most since March 2020) were confirmed in the revised report.

Spanish consumer prices fell 0.6% in February and were unchanged from a year earlier. Retail sales in Spain also got reported today, showing a 7% monthly slump and the largest on-year slide (9.5%) in eight months.

Japan’s Ministry of Finance reported results of its quarterly business sentiment survey. For all large companies that participated, sentiment swung from 5.5 in the final quarter of 2020 to minus 15.2 this quarter, but respondents anticipate improvement to -0.7 in the second quarter of 2021 and +6.9 in 3Q.

New Zealand’s purchasing managers survey of manufacturers saw a sharp drop from January’s 58.0 reading to a score of 53.4 in February.

Foreign direct investment in China was 34.2% greater in January-February than a year earlier when that country was the first to be gripped by the Covid-19 pandemic.

Czech industrial production fell 0.4% in January, cutting the 12-month rate of rise by nearly two-thirds to 0.9%.

Manufacturing output in Hong Kong was below its year-earlier level for a fifth straight quarter. The decline was by 6.0% in the final quarter of 2020 and by 5.8% on average for the whole year after a slim 0.4% uptick in 2019.

Industrial production in India slumped to a 1.6% year-on-year drop in January. Analysts had anticipated about a 1% increase. Another negative Indian report involved CPI inflation, which accelerated to a 3-month high of 5.03% in February versus 4.06% in January. The prior peka in October had been 7.6%.

Retail sales in Brazil fell 0.2% in January, producing the first year-on-year decline (-0.3%) since mid-2020.

Turkish industrial production rose 1.0% in January and was 11.4% greater than a year earlier. Retail sales went up 0.3% on month and 2.0% on year.

Canadian labor market statistics for February were better than anticipated. The jobless rate fell 0.8 percentage points to an 11-month low of 8.2% and bringing the cumulative decline from the recent peak last May to 5.5 percentage points. January’s 213k loss of jobs was more than reversed by a 259k increase, and average hourly wage earnings continued to normalize, falling to 4.3% from 5.9% in the prior month. Meanwhile, capacity utilization in Canada climbed to 79.2% last quarter from 76.5% in 3Q and 70.7% in 2Q. At end-2019, the quarterly capacity usage rate had been 82.1%.

Mexican industrial production only ticked 0.2% higher in January, resulting in more than a doubling of the year-on-year decline to 4.9%.

Late Thursday came the expected news that the Central Reserve Bank of Peru‘s Board of Directors kept that bank’s policy interest rate unchanged at 0.25%. In 2020, the rate had been cut 100 basis points each in March and April. Peru is feeling the effects of a second wave of the pandemic, and officials expect sub-potential GDP growth this year and next.

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

Tags: , , , ,


Comments are closed.