Spotlight on Central Banks, Fresh Data and, as Always, Covid

April 15, 2021

The uncertain delayed roll-out of the J&J one-shot Covid vaccine is creating consternation, especially in light of high rates of new cases in many places.

The National Bank of Ukraine’s policy interest rate was raised a full percentage point to 7.5%. This was the second straight tightening and twice the size of the initial 50-basis point advance in March. Four reductions in the first half of 2020 had totaled 650 basis points. A statement from NBU policymakers revises projected growth and inflation in 2021 higher and suggests that more tightening may become necessary in order to realign inflation with the 5% target by a year from now. Consumer price inflation has accelerated to 8.5% currently, albeit due mainly to factors that officials believe to be temporary. The chief economic risk is posed by the Covid pandemic, but the statement also notes other dangers: an escalation of the military conflict in eastern Ukraine or on the country’s borders, volatile global capital markets, and a dramatic deterioration in the terms of trade.

Last month’s two percentage point high in the Central Bank of Turkey‘s one-week repo rate to 19% prompted Prime Minister Erdogen to fire the TCMB governor, which in turn triggered a big depreciation of the lira. This was the fourth rate increase since September, bringing the cumulative advance to 10.75 basis points. At the ensuing policy review today presided over by Governor Kavcioglu, the rate level was left at 19%. A released statement warns that “demand and cost factors, supply constraints in some sectors, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook.” As of March, CPI inflation was 16.2%, a 20-month high, and PPI inflation in Turkey had climbed to a 26-month high of 31.2%. The statement promises to keep the policy rate “at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is reached.”

At a third monetary policy review today, the Bank of Korea key interest rate was kept at a record low of 0.5%, where it’s been since a pair of cuts last year of 50 basis points initially and another 25 bps two months later in May. Officials now expect growth and inflation to slightly exceed their forecasts made back in February but caution that “there is still a high level of uncertainty surrounding the path of COVID-19 and inflationary pressures on the demand side are forecast to be modest.”

The Federal Reserve Beige Book, released Wednesday afternoon, highlighted faster rates of U.S. growth and inflation and foreshadowed U.S. data released today.

Analysts had been expecting solid U.S. data reports today but not as strong as the actual figures. Retail sales soared by a spectacular 9.8% in March and were 27.7% higher than in March 2020 when restrictions on social gathering first went into effect. For the first quarter as a whole, sales climbed 7.7% from 4Q 2020 and 14.3% compared to a year earlier.

New U.S. jobless insurance claims last week, which had been expected to drop about 45K to 700k, instead tumbled 193k to 576k from a slight upwardly revised 769k in the prior week. Since the onset of the pandemic, the previous lowest weekly total of new jobless insurance claims had been 658k in the week of March 20, 2021.

The monthly Philly Fed and Empire State manufacturing indices printed at 50.2 and 26.3, respectively in April. Each result exceeded market expectations.

Prior to the these U.S. data, the dollar was showing a 0.1% overnight weighted downtick to a 4-week low. The U.S. currency was unchanged against the euro, peso and sterling, up 0.2% against the Swiss franc and Canadian dollar, and down 0.7% versus the kiwi, 0.5% relative to the Aussie dollar, 0.2% vis-a-vis the yuan and 0.1% against the Japanese yen.

Before the U.S. data, share prices in the Pacific Rim had firmed 0.5% in India and  Indonesia, 1.3% in Taiwan, and 0.1% in Japan but fallen 0.5% in China, 0.4% in Hong Kong and 1.0% in New Zealand. European stock markets were marginally firmer. U.S. stock futures are now up 1.0% in the case of the Nasdaq and 0.5-0.6% in the Dow and S&P 500.

Since Wednesday’s close, 10-year sovereign debt yields have dropped 5 basis points in the U.K., 4 bps in the United States, and 2 bps in Germany. Gold is 0.6% firmer, while WTI oil is down 0.4%.

Among data released earlier in other countries,

Preliminary estimates of German, French, and Italian CPI inflation in March were confirmed. Such were respectively at a 13-month high of 1.7% in Germany, a 13-month high of 1.1% in France and a 22-month high of 0.8% in Italy.

Wholesale price inflation catapulted to a 102-month high in India of 7.39% in March from 4.17% in February and 1.22% at the end of December. The fuel component was 10.25% in March compared to minus 8.72% at the end of 2020. Wholesale prices for food and manufactured goods picked up to a lesser extent.

Australian labor statistics were much stronger in March than analyst expectations. The jobless rate fell 0.2 percentage points to a 1-year low of 5.6%. Employment climbed 70.7 thousand on top of an 88.7k increase in February, and the labor participation rate unexpectedly rose 0.2 percentage points to 66.3%.

In Canada, producer prices advanced 1.6% on month and accelerated to a 9.4% 12-month rate of increase in March. Manufacturing sales and new orders in February, on the other hand, fell by 1.6% and 6.6% from January levels.

Just in: Unlike the jobless claims and retail sales figures, U.S. industrial production underwhelmed expectations. An increase of 1.4% in March followed a 2.6% drop in February and was only half what analysts had been anticipating. Compared to the level a year earlier, production was only 1.0% higher, and capacity utilization of 74.4% in March was 0.1 percentage point less than in March 2020.

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

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