A Double Feature for Investors Today of Big Events: Powell then Biden

April 28, 2021

The FOMC wraps up its two-day policy review today. The policy statement, due at 14:00 EDT, will concede a brightening growth picture with accelerating inflation but is unlikely to modify forward guidance that welcomes a period of inflation somewhat above target rather than aiming to quash such quickly. Fed Chairman Powell’s press conference afterward begins at 14:30 EDT (18:30 GMT).

President Biden delivers an important speech before the joint houses of Congress tonight at 21:00 EDT (01:00 GMT) that will lay out the case for passing the proposed $1.8 trillion American Families Plan and update the American people on the accomplishments of his administration in the first 100 days including progress on pandemic and spell out goals for the rest of this year.

In advance of these two awaited events, the ten-year Treasury yield rose another two basis points, but its British and German counterparts climbed by a greater five and three basis points, respectively. The 10-year Japanese JGB yield rose one basis point. Investors are adjusting their sights to the likelihood of a further spike in inflation of indeterminate length.

Most, but not all monetary authorities, are deciding not to counter the rise of inflation. The National Bank of Georgia, like central banks in Russia and Ukraine earlier, today announced its second interest rate increase of 2021. Georgia’s one-week refinancing rate was lifted by 100 basis points to 9.5%, exceeding the end-2019 level of 9.0%. The policy rate had been reduced three times last year between April and August and by a full percentage point is total. In the face of rising and above-target inflation, an initial 50-basis point rate hike was engineered last month. The inflation rate is currently at 7.2%. A released statement identifies a number of factors boosting price pressure: higher oil and food commodity costs, elevated costs of production, and Georgia’s increasingly dollarized economy. Officials conclude with a pledge to “use all available tools to ensure price stability.”

The U.S. dollar recovered 0.1% in weighted terms overnight. The currency advanced 0.2% versus the yen, Australian dollar and sterling and by 0.1% relative to the euro and Swiss franc. There were also dips of 0.1% against the kiwi and peso and no net change relative to the Canadian dollar or Chinese yuan. The Turkish lira rebounded 0.6% but remains weak at 8.18 per dollar.

Asian and European stock markets are mostly firmer,with gains of 0.5% in France and Hong Kong, 1.3% in India, and 0.4% in Germany, the U.K., China and Australia. South Korea’s Kospi fell 1.1%, however, and U.S. futures are marginally lower.

The price of gold fell 0.7% overnight, while that of WTI oil climbed 0.3%.

Trends in Covid-19 new infections and deaths continue to show a widening disparity. Globally, almost 850k cases were reported in the past 24 hours but just over 15k deaths. U.S. cases went up a tad less than 52k but were associated with fewer than 800 deaths.

Japanese retail sales in March outperformed analyst expectations, rising 1.2% on month after a 3.1% advance in February and recording a 5.2% increased relative to March 2020, the biggest 12-month gain since October.

Austria’s manufacturing purchasing managers index rose 1.3 points to 64.7 in April, its highest level in the 23-year history of this data series.

Investor sentiment toward the Swiss economy, according to the ZEW expectations index, also set a record high in April, presumably foretelling strong growth over the coming half year.

Swedish retail sales rose 2.6% last month, producing the largest 12-month rate of increase (9.1%) since early 2007. Norwegian retail sales in March were 6.7% higher than in the same month a year earlier, and the 8.5% on-year increase of Irish retail sales was the most since last September.

Danish business confidence matched March’s level, which had been the best reading since August 2018.

A 4.1% year-on-year rise in industrial production in Thailand last month was the first positive 12-month rate of change in 23 months.

French consumer confidence in April remained at March’s 3-month high, but German consumer sentiment unexpected weakened 2.7 index points to a 2-month low of -8.8 this month.

Among released price data this Wednesday, Australian CPI inflation accelerated 0.2 percentage points to a one-year high of 1.1% in the first quarter but was still well below 2.2% in the first quarter of 2020. Moreover, core consumer price inflation according to the trimmed mean measure edged down 0.1 percentage point to a record low of 1.1%.

Malaysian producer price inflation leaped 4.0 percentage points in March to a 43-month high of 6.7%, but the monthly 0.7% PPI rise was below 1.0% for the first time since November.

British shop prices in March posted the smallest 12-month decline (1.3%) in half a year.

The early-bird estimate of the monthly U.S. trade deficit will be released later this morning, and so will Canadian retail sales figures.

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

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