Dollar Up and Equities Down After Weak European GDP Data

April 30, 2021

The dollar advanced overnight by 0.8% against the Turkish lira, 0.3% relative to the Mexican peso and kiwi, 0.2% versus the euro, Aussie dollar and weighted dollar index, and 0.1% vis-a-vis sterling. The dollar also slipped 0.2% against the Canadian dollar and 0.1% versus the Japanese yen. Relationships against the Chinese yuan and Swiss franc stayed steady.

Equity markets in Asia closed down 2.0% in India and Hong Kong and 0.8% in China and Japan. U.S. stock futures and European markets have slipped too.

West Texas Intermediate crude oil fell 1.8%, while the price of gold firmed 0.2%. Ten-year British gilt and German bund yields edged a basis point lower, even as the 10-year U.S. Treasury yield rose a basis point.

It’s monthend, which means a lot of economic data are being released.

A double-dip Euroland recession was confirmed. Real GDP in the joint-currency area fell 0.6% in the first quarter after the prior quarter’s slide of 0.7%. GDP was also 1.8% below its year-earlier level and 5% below the level in the first quarter of 2019. Negative quarter-on-quarter growth was deepest in Portugal (-3.3%) and Germany (-1.7%). GDP fell quarterly by 0.5% in Spain and 0.4% in Italy but rose 0.4% in France. Modestly positive growth was also recorded in Austria and Finland.

Mexican 1Q 2021 GDP growth slowed to 0.4% from increases of 3.3% in 4Q 2020 and 12.4% in 3Q 2020. The latest year-on-year GDP growth rate was negative 3.8% and hasn’t exceeded zero percent since the first quarter of 2019.

On a brighter note, Taiwanese GDP grew 3.1% last quarter, resulting in the greatest on-year leap (8.16%) since the third quarter of 2010.

Swedish GDP rose 1.1% last quarter, trimming the year-on-year decline to just 0.2%. That was the fourth sub-zero on-year change in a row.

Euroland unemployment slid 0.1 percentage point to a 9-month low of 8.1% in March but was a full percentage point greater than in March 2020.

CPI inflation in the euro area accelerated 0.3 percentage points to 1.6% in April, due mainly to a 10.3% on-year advance in energy prices. That component, by contrast, had plunged 9.7% in the 12 months to March 2020. Core CPI inflation in Euroland actually eased 0.1 percentage point both compared to the prior month and the same month a year earlier.

Several Japanese economic indicators were reported overnight:

  • Industrial production rose 2.2% in March and 3.0% in the first quarter, solidifying the upward trend that has been developing. Output was 4.0% higher than a year earlier but still suffered a 9.5% average plunge in fiscal 2020 which ended in March.
  • Consumer confidence in Japan dipped 1.4 index points to a 2-month low and very depressed 34.7 reading.
  • But housing starts (up 1.5% on year) recorded a 12-month increase for the first time in 21 months. Construction orders recorded a robust 12.5% increase.
  • The jobless rate dropped 0.3 percentage points to an 11-month low of 2.6% in March.
  • Tokyo core CPI inflation of minus 0.2% in April was lower than expected, and total CPI inflation in Japan’s largest city moved more deeply into the red at -0.6%.
  • Finally, the manufacturing purchasing managers index in April improved to 53.6, signalling the fastest rate of improvement in three years.

China’s NBS government-authorized purchasing manager indices each weakened to two-month lows in April, 51.1 in the case of manufacturing and 54.9 for non-manufacturing industries. The privately compiled manufacturing PMI rose to a 4-month high of 51.9, however. China will be shut for the extended labor day holiday early next week, and Japanese Golden Week holidays will resume.

Compared to a year earlier, South Korean retail sales and industrial production advanced by 10.9% and 4.7% in March, and construction output posted its smallest drop (5.7%) in three months.

Australian producer prices rose by a comparatively tame 0.4% last quarter but enough to yield their first year-on-year increase (0.2%) since the same quarter a year earlier.

In South Africa, private sector credit fell 1.5% on year in March, marking the first such drop since April 2010 and accompanied by a halving of on-year M3 money growth to 3.6% versus 7.5% in February. Lastly, a 52.8 billion rand trade surplus in March was the largest ever.

Turning back to Europe,

Belgian PPI inflation more than doubled to 8.0% in March from 3.6% in February, 0.3% in January and -2.1% in December.

Portuguese retail sales were 0.1% fewer in March than a year earlier, the smallest decline in a 5-month streak of on-year drops. Portuguese industrial production was 5.0% greater than the level in March 2020, the biggest on-year advance in 35 months.

Swiss retail sales shot up 22.1% in March, the largest monthly increase in 10 months, and were 22.6% greater than when Covid restraints on social gathering were first imposed. A 16-point increase in the KOF Swiss leaders index to 134 points to strong growth in coming months and compares with a lowly 51.7 reading last May.

French CPI inflation accelerated 0.2 percentage points to 1.3% in April, a 10-month high and up from zero percent at end-2020. French household consumption fell 1.1% in March but still managed to post an average 1.2% advance in the first quarter.

Italian CPI inflation rose to a 2-year 1.1% high in April, but core CPI inflation actually lessened to 0.3%.

Spanish retail sales were 14.9% greater in March than a year earlier, their biggest on-year rise in two decades.

A 5.9% monthly jump in Dutch retail sales last month was the most in 4 months.

And from the United States and Canada, investors learned that

  • The quarterly U.S. employment cost index rose 0.9% in 1Q, 0.2 percentage points more than forecast. Compared to a year earlier, the ECI rise of 2.6% was still less than 2.8% in the prior year through 1Q 2020.
  • Personal income catapulted 21.1% in March and reflected the American Rescue Act.
  • A 4.2% rise in U.S. personal consumption last month was the most in 11 months. Both income and consumption rose marginally faster than expected.
  • U.S. inflation measured by the monthly PCE price deflator jumped 0.8 percentage points to 2.3% in March, but core PCE inflation rose by a lesser 0.4 percentage points to 1.8% and was still below the 2% target.
  • Monthly Canadian GDP estimated from the supply side  grew 0.4% in February, a tad less than forecast and masking a sharp drop in industrial production of 1.2% from January and 3.9% compared to February 2020.
  • Canadian producer price inflation jumped further to 10.6% in March from 7.1% in February. Non-energy producer prices were 8.1% higher than a year earlier.

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

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