Awaiting U.S. Data and Wednesday’s FOMC Developments

March 16, 2021

Data releases in Asia and Europe were light this Tuesday, but U.S. retail sales, industrial production, import prices, capacity utilization, and NAHB housing index are due shortly. Today is also the first of a two-day FOMC policy review that will include the quarterly update of macroeconomic and interest rate forecasts as well as Chairman Powell’s news conference.

In market action overnight,

  • The trade-weighted dollar ticked 0.1% lower. The dollar rose 0.3% versus sterling and 0.2% against the Australian dollar but slipped 0.3% relative to the Swiss franc, 0.2% against the euro and peso, and 0.1% vis-a-vis the Canadian dollar. The yen and yuan are unchanged on balance.
  • Following Monday’s extended rally in U.S. equity prices, stocks climbed in Asia and are higher too in Europe. The S&P and DOW, which set new record highs on Monday, have marked time in futures trading, while the Nasdaq is higher.
  • West Texas Intermediate oil retreated by a further 1.4% overnight, while gold edged 0.2% higher.
  • Ten-year U.S. Treasury, British gilt, and Japanese JGB yields drifted a basis point lower, but expectations of higher inflation this year around the world remains a dominant theme.

Minutes from this month’s Reserve Bank of Australia policy meeting reiterate that the climb of inflation will likely be self-limiting due to labor market slack and reaffirm that 2024 is the earliest likely timing for the onset of interest rate tightening.

January’s rise of Japanese industrial production was revised up by a marginal 0.1 percentage point to 4.3% and still left such 5.2% below its year earlier level. Capacity usage increased 4.7% in the latest month but remained down 2.9% against the same month a year earlier.

Italian CPI inflation in February (+0.1% on month and a 20-month high of 0.6% on year) was unrevised from its preliminary estimate. Core inflation last month ticked up marginally to 0.9%.

French CPI inflation in February had been estimated initially as down 0.1% on month and +0.4% on year but has been revised higher to unchanged on month and up 0.6% on year.

The ZEW Institute‘s monthly estimate of investor sentiment toward the German economy rose to a 6-month high of 76.6 in March, well above 39.0 in November and 27.7 at the start of 2020 and almost as strong as September’s 20-year high of 77.4. The index for perceived current conditions improved 6.2 points versus February but remained deeply negative at -61.0 compared to -9.5 at the beginning of 2020.

Regarding Euroland, the ZEW expectations index printed at a 205-month high of 74.0 this month versus 69.6 in February, but current conditions rose 4.8 index points to -69.8.

South African consumer confidence, which bottomed in the second quarter of 2020 at -33, extended its recovery by three index point to a one-year high of -9 this quarter.

Unemployment in Hong Kong averaged 7.2% in December-February, representing the highest 3-month average since March of 2004 and a rise of 3.0 percentage points from March 2020.

New home price inflation in Australia slowed further to 3.6% last quarter from 4.5% in 3Q 2020 and 7.4% in the first quarter of last year.

In German regional elections this past Sunday, the Green Party in Baden-Wuerttemberg and Social Democrats in Rhineland-Palatinate were the big winners, and Chancellor Merkel’s Christian Democratic Union was the predominant loser. However, defections from the CDU did not migrate to the extreme-right anti-immigration AfD Party, whose voter share dipped slightly in each case while remaining above 10.0%.

U.S. Treasury monthly capital flow data showed another big $90.8 billion net long-term capital inflow in January and a huge jump in the more aggregated long-term plus short-term net inflow from $8.0 billion in December to $106.3 billion in the subsequent month.

A 3.0% plunge last month in U.S. retail sales was six times greater than analyst expectations and the largest monthly decline in ten months. For theĀ  latest 3-month period (Dec-Feb), sales increased 1.8% compared to Sept-Nov’s level and 6.0% higher than a year earlier. Excluding motor vehicles, sales had been expected to have held steady but instead tumbled 2.7% in February, led by an 8.4% plunge in department store sales.

Powered mostly by fuel, U.S. import prices rose 1.3% in February, their third monthly advance of at least 1.0%, and recorded the largest 12-month rate of increase (3.0%) in 28 months. The size of February’s increase was aligned with expectations more or less. Fuel prices jumped 11.1%, lifting their cumulative gain since October to slightly more than 35%, while non-fuel import prices went up 0.4% on month, less than half as much as in January. U.S. export price inflation picked up faster than expected and more than doubled in February to a 32-month high of 5.2%.

Still to come: U.S. industrial production, capacity utilization, and NAHB index.

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


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