Awaiting U.S. Import Prices, Jay Powell’s Speech and Fed’s Beige Book

April 14, 2021

The dollar fell 0.7% overnight against the New Zealand dollar and 0.5% relative to the Turkish lira and Australian dollar. But more senior dollar relationships such as the euro, yen, Swiss franc, sterling, and yuan, the dollar is barely changed and down just 0.1% in weighted terms.

For the first time in years, markets have become very sensitive to inflation data. Investors aren’t convinced that this year’s elevation of prices will be temporary and insignificant in size, and they are concerned that central bankers will not be comfortable maintaining very accommodative stances for as long as their forward guidance is suggesting. In that regard, three developments today are of special interest: the release of U.S. import and export prices in a half hour, Fed Chairman Powell’s speech to the Economic Club, and the release of the Fed Beige Book on U.S. regional economic conditions since the last FOMC meeting.

Accelerating inflation was uppermost on the minds of policymakers at the National Bank of Belarus, who today announced a 75-basis point hike in their refinancing rate to 8.5%. During the first half of 2020, the rate had been cut 25 basis points in Jranuary, 75 bps in May and 25 bps in June to a record low of 7.75%, and today’s move was the first increase since early 2015. Inflation is currently 3.5 percentage points above the central bank’s medium-term target.

The Bank of Namibia, however, left its interest rate benchmark unchanged at 3.75%, having cut it by a total of 275 basis points during 2020 in five moves.

Investors are also keen to learn more U.S. first-quarter corporate earnings reports. In stock market action overnight, share prices climbed 2.1% in Indonesia, 1.4% in Hong Kong, 0.7% in Australia and New Zealand, and 0.6% in China. But Japan’s Nikkei closed down 0.4% and the British Ftse and German Dax are marginally lower so far.

Ten-year sovereign debt yields slipped a basis point in France, Italy, Spain, Japan and Germany. In contrast, the 10-year U.S. Treasury yield is a basis point firmer.

Bitcoins touched a new record high price of $63,729.50, and WTI oil rose 1.0% overnight.

The EU has handled Covid-19 vaccinations more clumsily than the U.K., U.S., and many other governments around the world, and that is having a negative impact on economic recovery. Industrial production in Euroland sank 1.0% in February, its largest monthly drop in 10 months and resulting in the largest on-year slide (1.6%) since October. Among the five largest economies using the euro, industrial production fell in February by 1.8% in Germany, 4.8% in France and 1.3% in the Netherlands, while holding unchanged in Spain and rising just 0.2% in Italy.

Swedish CPI inflation climbed 0.3 percentage points to a 15-month high of 1.7% in March.

Spanish CPI inflation jumped to a 23-month high of 1.3% in March from zero percent in February and -0.8% as recently as November.

Finnish CPI inflation also rose to 1.3% last month from 0.9% in the prior two months and -0.3% last April.

Analysts had been forecasting a rose of 2.5-3% in core domestic Japanese machinery orders during February but were instead surprised that such had dropped 8.5% on top of a 4.5% slide in January. The latest 12-month rate of decline was 7.1%.

GDP growth in the final quarter of 2020 in South Korea was revised upward by 0.1 percentage point to 1.2% compared to 3Q. GDP fell 1.2% from the year-earlier quarter and recorded negative calendar year growth (-1.0%) in 2020 for the first time in 22 years.

In Singapore, real GDP last quarter went up 2.0% in annualized terms from 4Q 2020 and also edged 0.2% higher than the first quarter 2020 level. That broke a string of three on-year declines in a row.

On-year growth in South African retail sales turned positive in February, swinging to +2.3% from -3.7% in January.

The quarterly drop in British labor productivity during 4Q 2020 has been revised to 4.3% from 4.5%. Productivity was 0.7% lower than in the year-earlier quarter and posted an average rise of 0.4% in 2020.

U.S. mortgage applications recorded their sixth straight weekly drop last week, falling 3.7%.

What a difference a year made in U.S. import and export prices! At the height of the pandemic in March 2020, import prices had dropped 2.4% on month and 4.2% on year, led by plunging imported fuel costs that tumbled 26.6% on month and 36% on year. Last month, import prices rose 1.2% on month and 6.9% on year, as fuel costs climbed 6.3% from February and 54.3% compared to a year earlier. The increase in import prices slightly exceeded expectations and also included a 0.8% price advance in non-fuel items, which were 3.8% higher than in March 2020. Meanwhile, U.S. export price inflation swung from negative 3.5% in March 2020 to +9.1% in March 2021. Both import prices and export prices have now recorded fourth straight monthly increases of at least 1.0%.

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

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