Differentiated Growth and Covid Prospects According to Efficiency of Vaccine Roll-Outs

March 25, 2021

The dollar has been taking its cue lately from vaccine news. The United States has handled the roll-out much better the Europe. Britain had been getting vaccinated at a good clip, too, but now faces a possible EU ban of vaccine exports to the U.K.. Japan’s Covid spread has also picked up lately. The proliferation of more infectious virus variants creates a strongly perceived correlation between getting a population vaccinated quickly and growth prospects this year. The United States is winning that race, and that is also leading to a widening interest rate advantage for the dollar. Overnight gains in the U.S. currency were not particularly large, but they have been broadly based and include a 0.1% uptick against the DXY trade-weighted index.

Share prices recovered 1.1% in Japan but fell 1.5% in India and 0.1% in China and Hong Kong this Thursday. European stock markets so far have lost some modest ground, while U.S. stock futures have risen slightly.

Ten-year British gilt and German bund yields are two basis points softer. Their U.S. counterpart is steady and above 1.60%.

The stalled barge in the Suez Canal still hasn’t been cleared, but news of higher U.S. oil inventories last week depressed the price of West Texas Intermediate by 1.4% today. Gold is 0.2% softer.

A quartet of central banks are reviewing monetary policy today. The Filipino central bank overnight repo rate was left unchanged at 2.0%, and officials at the Swiss National Bank also left monetary policy settings unchanged. The other two reviews occurring at the Bank of Mexico and South Africa Reserve Bank will be reported later.

  • The key interest rate at Bangko Sentral ng Pilipinas was cut five times in 2020 for a total reduction of two percentage points. The most recent cut in November was the smallest one, just 25 basis points, but had not been expected. After today’s policy meeting, a statement was released. Officials warn that “the recent surge in virus infections and challenges over mass vaccination programs continue to temper prospects for domestic demand.” Although the latest reading of CPI inflation was above the 2-4% target corridor, this spike is attributed to higher oil prices and supply-side bottlenecks whose influence will fade. Officials expected inflation to move marginally below the 3% target mean next year.
  • The Swiss National Bank’s key interest rate has been deeply negative ( at -0.75%) since January 2015 and that very accommodative stance has been reinforced by a willingness to intervene as needed to suppress strength in the Swiss franc. Today’s statement reiterates that despite some recent depreciation, the franc remains overvalued. A second Covid wave weakened Swiss growth last autumn, and GDP is projected to expanded only 2.5-3% this year. The forecast of inflation in the near term was revised up slightly; by the fourth quarter of this year, CPI inflation is projected at 0.6%, a half-percentage point above the forecast issued three months ago. However, the newly projected inflation converges fully upon the previous predicted path by the first half of 2023, and at the end of 2023 is projected still well below 1% at 0.6%.

Consumer confidence in Germany improved sharply to a five-month high of -6.2 in April from -12.7 in March and -15.6 in February. However, this rise was measured before Germany’s Covid outbreak took a bad turn for the worse and compelled authorities to extend lockdown measures.

Likewise, a seven point rise in French business sentiment to a reading of 97 should be taken with a grain of salt. The improvement was concentrated in services and retail, where confidence more recently was dealt a blow from Europe’s poor handling of vaccine deployment.

Spanish producer price inflation leveled off in February. After accelerating from -4.1% in October to -1.5% by December and +0.9% in January, such settled back marginally to 0.8% last month.

Swedish producer price inflation turned positive in February for the first time in a year, swinging from -0.8% in January to +1.3% last month. The energy component was 6.6% higher than a year ago.

South African PPI inflation of 4.0% in February was up from 3.5% in January and 0.5% last June, and it represents the greatest producer price inflation in a year.

Icelandic producer prices fell 0.5% on month and slowed 0.6 percentage points to a 2-month low of 6.3% on year in February.

In the euro area during the twelve months through February, M3 money expanded 12.3% powered by forceful asset purchases and a negative interest rate. However, growth in loans to households of 3.0% and private sector credit (5.1%) was much slower. Lending to non-financial firms accelerated marginally to a 7.1% year-on-year pace.

Hong Kong’s trade deficit of HKD 14.699 billion last month was HKD 24 billion smaller than the year-earlier deficit due to a 30.4% resurgence of exports when compared to the pandemic-depleted level of February 2020. Thailand’s trade surplus of $7.25 billion last month was 73% wider than a year earlier.

The British distributive trades index compiled by the Confederation of British Industry failed to improve in March as analysts were anticipated but instead remained extremely depressed at -45.

U.S. real GDP growth last quarter versus 3Q was unexpectedly revised up 0.2 percentage points to 4.3% at an annualized rate. That still represents a large momentum loss after growth of 33.4% last summer and resulted in a 2020 average contraction of 3.5%, more than enough to offset positive growth of 2.2% in 2019. The revision to the quarterly growth rate in 4Q stemmed from greater unplanned inventory building, and the core PCE price deflator of 1.3% was further below the Fed’s 2% target than analysts were anticipating.

U.S. new jobless insurance claims last week of 684k came in well below market expectations of 730k was was the fewest since the week of March 14, 2020. Continuing jobless insurance claims dropped below 4.0 million for the first time in a year as well.

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

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