Financial Markets Generally Quiet Ahead of FOMC Meeting and President Biden’s Speech on Wednesday

April 27, 2021

The weighted dollar is trading at its overnight low but down less than 0.1% on balance. The U.S. currency is unchanged against the euro and sterling, up 0.1% relative to the yen and 0.1% softer versus the Swiss franc.

U.S. stock futures are little changed. Corporate earnings reports have been mostly solid. Share prices closed down 0.5% in Japan where the Bank of Japan left its stance unchanged. Equities were flat in China and Hong Kong. The German Dax and British Ftse so far have dipped 0.3% and 0.2%. The price of gold is unchanged.

The ten-year U.S. Treasury and British gilt yields firmed two and one basis points, while their Japanese and German counterparts have remained steady. West Texas Intermediate crude oil is 0.6% higher.

Tomorrow’s FOMC policy announcement is not expected to change settings. Powell’s press conference will be combed for any modifications in how officials are viewing the near-term rise in inflation. President Biden’s first address to a joint session of Congress is scheduled tomorrow night and will serve as a State of the Union address in spirit, if not in name.

This month’s meeting of the Bank of Japan Policy Board coincides with an updated publication of the Outlook for Economic Activity and Growth. The settings of the “Quantitative and Qualitative Easing with Yield Curve Control” was introduced initially in September 2016. The targets are -0.1% for short-term interest rates, “around zero percent give-or-take 50 basis points” for the 10-year JGB yield, and an overarching goal of continuing the heavy stimulus until core inflation exceeds 2.0% and is perceived likely to stay above that target in a stable manner. The interest rate targets and guidelines for asset purchases and corporate pandemic relief were not changed, and dovish board member Kataoka again dissented from the 8-1 decision, seeking even more support than being done presently. A sign of the elusive nature of the inflation target was embodied in the revision of projected core CPI inflation this fiscal year to 0.1% from 0.5% projected three months ago. Inflation forecasts for fiscal 2022 and fiscal 2023 of 0.8% and 1.1% were also considerably short of target. Furthermore, Governor Kuroda suggested that full achievement of the inflation goal probably will not occur in fiscal 2024 either.

The Executive Board of the Swedish Riksbank also reviewed its monetary policy stance. That central bank’s repo rate was kept at zero percent, its level since December 2019. The rate had been negative previously from February 2015 and zero percent before that. Securing 2% inflation has been elusive in Sweden, too. A statement released today revises projected growth this year upward by 0.7 percentage points to 3.7% but barely modifies the CPI inflation forecast, which is 1.4% this year, followed by 1.5% in 2022, 1.7% in 2023, and 2.1% around the middle of 2024. Sweden’s economic recover will continue to be uneven across different sectors so long as the pandemic isn’t extinguished. Cost-push inflation will be subdued, and officials believe there will be a need to keep the repo rate at 0 percent throughout the forecast period and complemented with continuing asset purchases.

Swedish data reported today show a rise of unemployment to a near 24-year high of 10.0% last month. The trade surplus narrowed to SEK 14.1 billion in the first quarter from SEK 53.5 billion in 1Q 2020 and SEK 14.6 billion in 1Q 2019. Swedish producer prices posted their fourth consecutive monthly increase of at least 1.0% in row, which lifted on-year PPI inflation to a 23-month high of 3.8% in March from 1.3% in February.

Manufacturing sector business confidence and consumer sentiment in Italy improved in April to 31- and 7-month highs, respectively.

Finnish consumer confidence swung from -3.0 in March to a 35-month high reading of 3.8 this month.

Britain’s monthly distributive trade index leaped from -45 in March to a 34-month high of +20 in April.

South Korean GDP grew 1.6% last quarter and experienced its first on-year increase (1.8%) since a year earlier and largest such advance in five quarters.

Corporate earnings in China were 137.3% greater in the first quarter than in the same quarter a year earlier, which had been depressed by the pandemic. Earnings rose 4.1% on average in 2020.

Danish retail sales catapulted 19.7% in March and posted a record year-on-year increase of 24.2%.

U.S. FHFA and Case Shiller house price indices will be reported momentarily, along with the Conference Board’s measure of consumer confidence.

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


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