Holding Pattern Ahead of U.S. Data Getting Released Tomorrow and Friday

May 26, 2021

Not much data have been released today, but action is likely to pick up later in the week with the release of several key U.S. indicators such as GDP, personal income and spending, durable goods orders, trade deficit, and U. Michigan consumer sentiment index.

That said, investors have become less fearful about the risk that central bankers might raise interest rates sooner than they have implied. The U.S. ten-year Treasury yield of 1.56% is down from 1.69% on May 12, and the 30-year bond yield has fallen 15 bps to 2.25% in that span. Ten-year sovereign debt yields are currently down from yesterday by 4 basis points in France, Spain, and the Netherlands and by 3 bps in Germany, the U.K. and Italy.

A slew of Fed officials this week have reaffirmed the party line shared by most other central banks that higher inflation lately stems from special factors like a shortage of computer chips and relative price shifts like that in oil, all of which will prove temporary.

The Monetary Policy Committee at the Reserve Bank of New Zealand as expected left the Official Cash Rate unchanged at a record low of 0.25%. The OCR has been at that level since a 75-basis point cut in March 2020. It was cut by a total of 75 bps in May and August of 2019, and has not exceeded 1.75% since November 2016. Officials reaffirmed that an OCR hike before 2022 is doubtful and appealed for patience, and the kiwi has responded positively to that message:

The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained near the 2 percent per annum target midpoint, and that employment is at its maximum sustainable level. The Committee agreed it will take time before these conditions are met.

Aside from a 1.1% drop against New Zealand’s currency, the U.S. dollar is narrowly mixed today, with declines of 0.3% against the Australian dollar, Turkish lira, and Chinese yuan, 0.2% relative to the Mexican peso and 0.1% versus sterling. The dollar also shows gains today of 0.2% against the yen and its weighted index (which nonetheless remains not far from its 2021 low. There have been upticks of 0.1% against the euro and loonie and no net change in the Swiss franc.

The price of gold moved above $1900 per ounce for the first time in several months, and the cost of a bitcoin recovered to more than $40,000. WTI oil slipped 0.4%.

U.S. stock futures are up about 0.3% after falling moderately on Tuesday. Share prices rose in Asia but are down slightly in Europe. Markets in Singapore and Indonesia were closed for Vesak Day, which celebrates the birthday of Buddha.

Mexican first-quarter GDP growth was revised upward to 0.8% from 4Q 2020, which was still slower than in the prior two quarters and two week to prevent the streak of negative year-on-year growth from extending to eight quarters.

French consumer confidence rose two index points to a 15-month high in May, and manufacturing business sentiment printed at a 32-month high of 107, up from 104 in April, 99 in March and 77 last June.

Investor sentiment toward Switzerland had already been in record territory and improved 3.9 index points further in May.

Belgian business confidence climbed to a 166-month high of 6.5 in May from 4.4 in April and -12.1 last November.

South Korean business sentiment in April remained at March’s ten-year high level.

Japan’s indices of leading and coincident economic indicators in March were each revised a bit lower but still constitute 40- and 15-month highs.

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

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