Another Down Day Looms in U.S. Equities

May 20, 2021

U.S. stock indices fell on the first three trading days of this week, and futures point to a further slight loss at the open. FOMC minutes from the April 27-28 meeting revealed some committee members itching to begin considering a discussion on when to start tapering stimulus if U.S. data continue to show rapid improvement toward the central bank’s mandated goals of price stability and full employment.

The dollar also softened overnight, losing 0.5% against the Turkish lira, 0.3% verus the Swiss franc, Mexican peso, and Australian dollar, 0.2% relative to the yen, euro, and DXY weighted index, and 0.1% via-a-vis the loonie and kiwi.

Share prices rebounded 1.5% in New Zealand and 1.3% in Australia but lost 0.6% in Taiwan, 0.7% in India, 0.5% in Hong Kong and 0.1% in China. Japan’s Nikkei eked out a 0.2% gain, equities so far show moderate advances in Germany, France and Great Britain.

Ten-year German bund and British gilt yields are up two basis points, while their U.S. and Japanese counterparts show no net change on the day.

The price of WTI oil fell by a further 1.1%, and gold slid 0.5%. Cryptocurrencies maintain their recent soft tone.

Core private domestic Japanese machinery orders bounced up 3.7% in March after February’s 8.5% tumble and posted an average 5.3% drop last quarter. Government machinery orders fell by a steeper 10.8% in 1Q, while receding Covid restrictions around the world boosted foreign machinery orders by 31.4% in the quarter.

Japan’s JPY 255 billion customs trade surplus in April exceeded analyst expectations, thanks to a 38% on-year leap in exports. But seasonally adjusted exports were only 2.5% greater than in March, resulting in a sharply lower seasonally adjusted surplus of JPY 65 billion last month after JPY 372 billion in March.

Construction output in the euro area rose 2.7% in March but only 0.3% in the first quarter

Euroland’s current account surplus narrowed sharply in seasonally adjusted terms to EUR 17.8 billion in March from EUR 25.9 billion in February and EUR 36.0 billion in January. Over the past twelve reported months, however, the non-adjusted surplus of EUR 269.4 billion (or 2.4% of GDP) exceeded the surplus of EUR 242.2 billion (and 2.0% of GDP) experienced from April 2019 through March 2020.

Having only moved back above zero percent last December, German producer price inflation accelerated to a 115-month high of 5.2% in April. The energy component was 10.6% greater than a year earlier, and non-energy PPI inflation rose to 3.6% from 2.4% in March and 1.4% in February.

The Confederation of British Industries’ monthly industrial trends survey for May revealed a 25-point favorable swing in the orders index to a 41-month high of +17.

Dutch unemployment of 3.4% in April was down from a 2020 high of 4.6% in August and constitutes a one-year low. Unemployment in Hong Kong dropped to a 5-month low of 6.4% in February-April.

Australia reported mixed labor market data. The jobless rate fell unexpectedly to a 14-month low of 5.5% last month, but such mainly reflected a lower labor participation rate which dropped 0.3 percentage points to 66.0%. Moreover, employment also dropped unexpectedly by 30.6k in the month following a rise in the first quarter of almost 200k.

Officials at the People’s Bank of China once again left their 5-year and 1-year loan prime rates unchanged. Such have been at 4.65% and 3.85% for the past year following a pair of cuts in February and April of 2020.

Officials at the Central Bank of Sri Lanka likewise made no change in their policy interest rate of 4.5%. Its been at that level since the last, and deepest, cut in a sequence of five reductions engineered in 2020 between January and July. A released statement defends the appropriateness of monetary stimulus, citing a third wave of the Covid-19 pandemic, inflation that is expected to remain within the 4-6% target, and a resilient balance of payments.

Just In: U.S. data reported at 12:30 GMT this morning convey a mixed picture. New jobless insurance claims last week again fell to a pandemic low, but at 444k were closed to expectations and still high historically. Moreover, continuing jobless insurance claims unexpectedly rose by 111k to 3.731 million in the week of May 8th. Separately, the monthly Philly Fed manufacturing diffusion index dropped by by a sharp 18.7 points to a 3-month low of 31.5 in May.

Still to come: The U.S. index of leading economic indicators and the result to the monetary policy meeting at the South African Reserve Bank.

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

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