Weaker-than-Forecast European Industrial Production Lifts Dollar

April 9, 2021

The dollar rebounded 0.2% against its weighted index overnight from a 2-week low. One boost came from a five-basis point rise of the ten-year U.S. Treasury yield, even though other comparable sovereign debt yields also advances strongly. The dollar rose 0.4% against the yen, 0.3% versus the Mexican peso, 0.2% vis-a-vis the Swiss franc and Aussie dollar, and 0.1% relative to the Turkish lira, Chinese yuan, euro, and sterling. The loonie and kiwi remained steady.

In stock market action overnight, share prices lost 1.1% in Hong Kong, 0.9% in China, 0.7% in New Zealand, 0.4% in Taiwan and South Korea but edged 0.2% higher in Japan. U.S. futures, the German Dax and the Paris Cac are modestly higher.

Among commodities, the price of oil is steady, while that of gold fell 0.6%.

Another lift for the dollar came from some dismal February industrial production data.

  • German industrial production dropped 1.6% on month and 6.4% on year, its largest 12-month decline since September. This followed a revised 2% monthly drop in January and was associated with a significant 3.2% plunge in capital goods output.
  • French industrial production, which had also been forecast to increase, instead plunged 4.7% on month and 6.6% compared with the pre-pandemic level of February 2020.
  • Spanish industrial production stagnated in February and record a 2.1% slide compared to a year earlier. The on-year slide was about 60% larger than anticipated.
  • A 3.7% drop in Belgian industrial production was the biggest monthly slide in nine months and slashed the year-on-year increase from 6.0% in January to 0.1% in February.
  • Greek industrial production fell 2.3% on month but was 4.4% above the year-earlier level. December’s output had been up 8.8% on year.
  • Finnish industrial production bucked the dominant trend, jumping 3.4% on month and recording the first year-on-year advance (5.5%) since March 2020.
  • Norwegian industrial production fell 1.2% on month, cutting its 12-month increase from 5.9% in January to 1.5%.
  • Mexican industrial production rose 0.4% in February but was 4.5% lower than a year earlier.
  • Malaysian industrial production slipped 0.3% on month but exceeded its year-earlier level by 1.5%.

Chinese consumer price inflation accelerated 0.6 percentage points to a 5-month high of +0.4% in March, while PPI inflation more than doubled to a 32-month high of 4.4%.  Car sales in China were 74.9% and 75.6% greater in March and the first quarter than year-earlier levels.

Fed Chairman Powell‘s speech yesterday towed the same line as the FOMC minutes. The spike in inflation happening now is perceived to stem from self-limiting causes like base effects as sharp year-earlier declines fall away from on-year comparisons and amid specific price jumps, for example in oil. Monetary officials are looking at a slew of labor market indicators and do not plan to tighten until a full normalization of labor market conditions is in place. Such a process will take years, not months or even a couple of quarters. Former Fed Chair-person and now U.S. Treasury Secretary Yellen wants to see other countries augment fiscal stimulus.

Italian retail sales rebounded 6.6% in February, their biggest monthly rise after January’s drop of 2.7%, but sales were still 5.7% below the pre-pandemic level of February 2020.

The German current account surplus of EUR 18.8 billion in February was 13% narrower than a year earlier. But the monthly average trade surplus of EUR 20.2 billion on a seasonally adjusted basis in January-February compared favorably to a EUR 16.7 billion monthly average in the second half of 2020.

British house price inflation according to the monthly Halifax index accelerated 1.3 percentage points to a four-month high of 6.5% in March.

Swiss unemployment dropped to a 4-month low of 3.4% last month.

Portugal experienced its smallest trade surplus in February since July 2016.

The AIG-compiled Australian service sector purchasing managers index rose 2.9 points to a 33-month high of 58.7 in March. A separate Australian data release today revealed a 21.6% leap in building permits in February after a 19.4% monthly plunge in January.

Indonesian consumer confidence rebounded to a 3-month high in March.

Covid news around the world has been polarized between relief over the roll-out of vaccinations but concern as the case count has accelerated lately in many places. Over the past 24 hours, reported cases rose by more than three-quarters of a million in the world including more than 81,000 in the United States.

Canadian employment exploded upward by 303.1k workers last month, equivalent to a monthly U.S. jobs increase of 2.32 million. The unemployment rate dropped to 7.5% from 8.2% in February and 9.4% in January. Labor market participation, which ordinarily changes at a glacial pace, rose to 65.2% from 64.7%, and average on-year wage earnings imploded to 2.0% from 4.3% in the prior month.

U.S. producer prices (+1.0%) advanced twice as much as expected last month, resulting in a 1.4 percentage point acceleration of the 12-month rate of increase to 4.2%, the most in 114 months. Core CPI also exceeded forecast, but the increase in its 12-month rate of increase was just 0.3 percentage points to 3.1%. Federal Reserve officials have been trying to quell investor concerns about inflation with arguments that the increase is a short-lived reaction to deflationary forces at the start of the pandemic, but the success of their public relations could be undermined lately by actual price data consistently showing bigger price increases than forecast. This risks leaving the impression that they do not have a could understanding of the economy’s pulse.

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


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