April PMI Results, Bold U.S. Policy Proposals, and a 50-Basis Point Central Bank Hike in Russia

April 23, 2021

The weighted dollar fell 0.3% overnight and double that for the week. Against specific other currencies, the dollar lost 0.7% against the Japanese yen, 0.3% relative to the euro, Australian dollar and sterling, and 0.2% versus the Swiss franc, Mexican peso, and New Zealand and Canadian dollars. The dollar held steady against the Chinese yuan and climbed 0.3% additionally vis-a-vis the Turkish lira.

The lira tumbled 3.3% for the week and is almost 15% weaker that it value before the prime minister fired the prior central bank governor last month. That move cast doubt on the Bank of Turkey’s policy independence going forward.

The Central Bank of Russia, by contrast, today raised its interest rate benchmark by more than expected despite increasing voter dissatisfaction with President Putin. An initial 25-basis point rate increase on March 19 had constituted a trend reversal. By last July, the rate had been lowered last year by a total of 200 basis points to 4.25%. In announcing a second consecutive rate hike today, this time of 50 basis points to 5.0%, the Board of Directors responded to the rise of CPI inflation to a 52-month high of 5.8% (versus a target of 4%) and to the first on-year advance of monthly GDP (+0.5% in March compared to -2.5% in February) in a year. In a released statement, officials observe, “The recovery of demand is becoming increasingly steady and in certain sectors exceeds their output expansion capacity. In this context, the balance of risks is shifted towards proinflationary ones.” More hikes seems probable: “The Bank of Russia will consider the necessity of further increases in the key rate at its upcoming meetings.”

In stock market action overnight, a late-session selloff in the United States Thursday extended into parts of Asia and Europe, with the Nikkei closing down 0.6%, and markets in Germany, France, Italy, Spain and Switzerland currently showing losses of between 0.2% and 0.6%.

India‘s market also dropped 0.4%. India faces a humanitarian crisis, with Covid cases and deaths topping 600k and 4k during the past two days and hospitals running out of key basic supplies like oxygen.

The trigger of the U.S. stock market’s drop on Thursday was one of President Biden‘s bold policy proposals, namely a recommended higher capital gains tax on the wealthiest echelon of Americans. This action would reverse a key consequence of the 2018 tax cut and help fund ambitious plans to build back U.S. infrastructure and counter climate change. U.S. stock futures today are modestly higher. The value of a bitcoin was especially vulnerable to Biden’s tax plan and traded below $50,000.

On futures trading, the ten-year Treasury yield is a basis point firmer in contrast to dips of 2 and 1 basis points in its German and British counterparts. Among commodity prices, WTI oil and gold are up 0.5% and 0.3%.

Preliminary April purchasing manager surveys findings were reported for several economies today.

  • Euroland’s composite PMI rose half an index point to a 9-month high of 53.7. Manufacturing set a record high of 63.3, while services edged back above the 50 breakeven threshold to an 8-month high of 50.3. Business sentiment in manufacturing was the strongest since at least 2012, but the survey also underscored intensifying supply delays.
  • Germany’s composite PMI fell 1.3 points to a 2-month low of 56.0 and was below analyst expectations. That country has been grappling with a third Covid-19 infection wave.
  • The French composite PMI reading of 51.7 was up from 50.0 in the prior month and represents a 9-month high.
  • Looser pandemic restrictions in Great Britain were credited for lifting that economy’s composite purchasing managers index by 3.6 index points to an 89-month high of 60.0 and a convergence of services (60.1) on the manufacturing sector (60.7). But the continuing subdued demand for British exports is still a depressant.
  • The Japanese PMI at last moved above 50 but just barely to 50.2, a 15-month high. Manufacturing rose to a 3-year peak of 53.3, but manufacturing stayed bogged down. Such again printed in contractionary territory, matching March’s reading of 48.3.
  • Australia’s composite PMI advanced 3.3 points to a record high of 58.8, but not that this data series only began to be collected by the Commonwealth Bank of Australia in May of 2016. Manufacturing and services each rose to record highs.

In other data highlights today,

Japanese core CPI inflation, which excludes perishable food but not energy, was 0.3 percentage points less deflationary at minus 0.1% ( an 8-month high) in March. Energy posted a 2.3% monthly increase, trimming its on-year drop to 4.3% or half the 12-month decline through January.

British retail sales volume shot up 5.4% in March, the most since last June, and was 7.2% greater than in March 2020. Britain also reported a GBP 28.0 billion public sector deficit last month, which was four times greater than in the year-earlier month and resulted in a GBP 303 billion deficit in fiscal 2020/21. The prior fiscal year had a deficit of GBP 57 billion. Finally, U.K. consumer confidence edged up a point but remained in subzero territory at -15 this month.

Mexican retail sales rose 1.6% in February, most since November, but were 6.3% fewer than their year-earlier level.

Hong Kong business confidence recovered to zero in the second quarter from -17 in 1Q. This was the first non-negative result since the final quarter of 2018. A separate released indicator for this former British colony involved consumer prices, which in March were flat compared to February and 0.5% higher than a year earlier.

In comparisons of March against a year earlier, Taiwanese industrial production advanced 16.8%, and retail sales climbed by a considerably smaller 3.4%.

Investors now await U.S. new home sales data and the IHS-compiled preliminary purchasing manager survey results due later this morning.

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

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