Bracing for the Potential of More Disruptive U.S. Releases Today
May 13, 2021
Last Friday brought the biggest monthly under-performance of U.S. jobs relative to analyst expectations, and yesterday’s consumer price report crushed market forecasts. Instead of monthly and yearly rises of 0.2% and 3.6%, the total CPI jumped 0.8% on month and to a 151-month year-on-year high of 4.2%. Even worse, core CPI recorded its largest monthly advance in 39 years, and its greatest 12-month increase since early 1996.
Forecasting errors of historic magnitude have shaken investor confidence that officials have a firm grasp of what’s happening in the U.S. economy, and that raises doubts that President Biden will be able to pursue his fiscal plans or that the Federal Reserve can stay the course of continuing stimulus at its present level. In light of the rather unique circumstances of last year’s global recession and the uneven, pandemic-influenced recovery that will ensue, it’s not surprising the historically large disparities are occurring between economic forecasts and actual data trends, but that doesn’t diminish the potential peril that today’s U.S. release of monthly producer prices and weekly jobless insurance claims may create.
In overnight market action, stock markets took their cue from Wednesday’s U.S. bloodbath, with share prices closing down 2.5% in Japan, 1.8% in Hong Kong, 1.3% in South Korea, 1.5% in Taiwan, 1.2% in New Zealand, 1.0% in China and 0.9% in Australia. Losses so far in Europe total 2.1% in the U.K., 1.8% in Spain, 1.4% in Germany and Italy and 1.0% in France. U.S. futures point to a drop at the open.
The ten-year U.S. Treasury yield gave back a basis point from yesterday’s 1-month high after the Fed Vice Chairman Clarida reaffirmed the central bank’s forward guidance and in light of the resumed operation of the Colonial Oil Pipeline. The price of West Texas Intermediate crude retreated 2.7%. Ten-year sovereign debt yields rose six basis points in Italy, five bps in Spain, three basis points in the U.K. and France, two bps in Germany and a basis point in Japan overnight.
The dollar benefited yesterday from investor flight to safety and rose a further 0.1% on a weighted basis overnight. In bilateral terms, the dollar is unchanged against the euro, loonie, kiwi, yuan and peso, up 0.2% relative to the Australian dollar and 0.1% versus sterling, but down 0.1% against the yen and 0.2% vis-a-vis the Swiss franc. A particularly large dollar move overnight has been a 0.7% jump against the Turkish lira, which at 8.4909 per USD is very close to last month’s record low.
Not much foreign data have been released. From Japan came news that the economy watchers index, which in March had risen to 49.0 from 41.3, fell back to 39.1 in April. Japan also reported a JPY 2.65 trillion current account surplus in March compared to JPY 1.93 trillion a year earlier. The just-completed fiscal year current account surplus of JPY 18.2 trillion was only slightly smaller than the surplus of JPY 18.9 trillion in fiscal 2019. A third Japanese report revealed an abrupt slowdown in bank lending growth, which fell from 6.2% year-on-year in each of the past two quarters to 4.8% last month.
Price news today saw Irish CPI inflation accelerate from zero percent in March to a 14-month high of 1.1% in April. Romanian CPI inflation increased 0.2 percentage points to a 15-month high in April of 3.24%, but food price inflation in New Zealand remained tame at 0.7%, down from 2.9% last December and 4.2% in the middle of 2020.
Foreign direct investment in China was 38.6% greater in January-April than during the first four months of 2020. That’s sharply greater than the 2020-over-2019 average rise of 6.2%.
Britain’s Royal Institute of Chartered Surveyors’ monthly house price balance index improved to 75% in April from 62% in March, 59% in February and 49% in January. April’s score was the best in 392 months.
In central banking news, the National Bank of Serbia‘s discount rate was left at a record low of 1.0%, where such has been since December’s last of four cuts made in 2020. Reductions of 25 basis points were made in April, June and December after an initial 50 basis point cut in March. Monetary policies are also being reviewed today in Mexico, Peru and Chile.
JUST IN: U.S. jobless claims and producer price data were each to the side of market expectations that would add to market doubts that the Fed will put off an interest rate increase for as long as its forward guidance is now suggesting.
- New jobless insurance claims of 473k last week were somewhat fewer than forecast. Both that level and the four-week average of 534k represent post-pandemic lows.
- Producer prices advanced 0.6% on month and lifted the on-year change to a 125-month high of 6.2%. PPI inflation had been negative in early 2020 and didn’t move above zero percent until July. The 0.6% monthly increase in April followed a 1.0% jump in the prior month and was twice what analysts were forecasting.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Japanese current account, National Bank of Serbia, U.S. PPI and jobless insurance claims
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