Dollar and Equities Strengthened Overnight

May 21, 2021

Preliminary May purchasing manager survey findings for Euroland show a 39-month composite index high despite marginally slower growth in manufacturing due to intensifying supply chain delays. Service sector activity is benefiting from a relaxation of Covid restrictions, and overall optimism regarding the one-year outlook remained high in May in spite of higher inflation. The French and German composite PMIs reached 10- and 2-month highs, and other parts of the euro area grew even faster.

Britain’s composite PMI this month rose 1.3 index points to 62.0 and set another record high. The sub-indices measuring output prices and business optimism also reached record highs.

In Japan where Covid restraints were reimposed, the May composite PMI printed at a 4-month low of 48.1. April had seen that index finally move back above the 50 threshold between positive and negative growth. The service sector PMI of 45.7 fell 3.8 index points to a 9-month low.

Australia’s composite PMI dipped 0.7 points from a record high in April but remained very elevated at 58.1. Manufacturing rose to a record level, while services settled back 0.6 points to a 2-month low of 58.2.

The dollar climbed 0.3% against the euro overnight, 0.2% versus the peso and its weighted index, and 0.1% vis-a-s the Swiss franc and Australian and New Zealand dollars. The U.S. currency is unchanged against the yen, yuan, and sterling and has dipped 0.1% against the kiwi and loonie.

In stock market action this Friday, share prices rose 1.6% in Taiwan but fell 0.6% in China after Beijing officials complained about a U.S. warship in the South China Sea. The Indian Sensex also rose 1.6%, and Japan’s Nikkei closed 0.8% higher. Equities in Germany, France, Italy and Spain show gains so far today that range from 0.4% to 0.8%, and U.S. futures point to a 0.4% advance at the open.

A cease-fire in the latest Israeli-Hamas military conflict was imposed overnight, but doubts remain that it will last long. Meanwhile, progress has been reported in Iran nuclear talks, which helped lift WTI oil by 1.9%. The price of gold is 0.2% softer in line with the stronger dollar.

The ten-year German bund yield slipped two basis points, while its U.S., British, and Japanese counterparts remain steady.

British retail sales grew much more strongly last month than forecasts, climbing 9.2% overall and 9.0% on month even when excluding automotive fuel. Base effects contributed to a whopping 42.4% leap compared to the level in April 2020.

Italian industrial sales climbed 1.6% on month and 38.1% on year in March.

Swiss industrial production returned to a positive year-on-year change, swinging from a drop of 1.9% in the final quarter of 2020 to a 4.8% increase in the first quarter of 2021.

Consumer sentiment data in May were reported for several economies. The indices for Belgium and Ireland advanced to 41- and 23-month highs. Dutch and British consumer confidence each improved to 14-month highs, while Denmark‘s index was at a 15-month peak. In contrast, worries about Turkish inflation depressed that economy’s consumer confidence to a 2-year low.

Contradictory evidence to investor fears that inflation is rising everywhere emerged today from Japan’s April CPI data release, which showed month-on-month seasonally adjusted consumer price declines of 0.4% overall, 0.5% excluding perishable foods, and 0.7% when excluding energy as well as fresh food. All three measures were also below their April 2020 levels.

CPI inflation has been very benign in Hong Kong, too, printing at just 0.7% in Aapril.

On the other hand, producer prices in South Korea advanced 0.6% in April and resulted in a 5.6% 12-month rate of increase, the most in 114 months. In May 2020, South Korean PPI inflation had been negative 1.8%, by contrast.

And Polish PPI inflation of 5.3% last month was the most in 110 months, while Malaysian CPI inflation nearly tripled to a 49-month high of 4.7%.

Australian retail sales in April climbed 1.1%, the second straight monthly advance of more than 1.0% and twice as much as analysts were forecasting.

Increases of 3.6% on month and 23.7% on year in Canadian retail sales in March also far surpassed market expectations.

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



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