Markets Looking for Clues to How Central Banks React to Spike in Inflation

May 27, 2021

In analyzing foreign exchange movement, the calendar year divides into three seasons, with the middle summer period –when trading volume oftentimes thins and dollar movements can beĀ  erratic and unrepresentative at times — lying between the U.S. Memorial Day and Labor Day weekends. The dollar is approaching the end of the winter-spring with a trivial 0.3% net uptick against its weighted DXY index. But before the Memorial Day holiday break, some important U.S. economic data releases will transpire, covering GDP, durable goods orders, jobless insurance claims, pending home sales and the K.C. Fed manufacturing survey today and personal income, personal spending, the PCE price deflator, the advance estimate of U.S. trade, and the Chicago regional purchasing managers survey tomorrow.

Since closing Wednesday in NY, the dollar has declined 1.1% versus the kiwi, 0.3% relative to the Aussie dollar, Chinese yuan and Turkish lira, 0.2% versus the Mexican peso and 0.1% vis-a-vis sterling. The U.S. currency has alternatively risen 0.2% against the Japanese yen and 0.1% versus the Canadian dollar and euro, while dollar/Swiss shows no net change in value.

Prices for WTI oil and Comex gold are down 0.9% and 0.3%.

Ten-year sovereign debt yields have risen 4 basis points in the U.K. and by 2 bps each in the United States and Germany.

New Zealand share prices slumped 1.0%, but other stock markets around the Pacific Rim including a 0.4% rise in China and a 0.3% dip in Japan closed narrowly mixed. U.S. equity futures are somewhat lower after most gains Wednesday were squandered in the final hour of trading.

The Bank of Korea policy board as expected left its base rate unchanged at a record low of 0.5%. There had been two cuts in 2020 to this level, an initial 50-basis point reduction in March followed by a 25-bp cut in May. A statement released today revises up projected Korean growth and CPI inflation this year to 4% and 1.8% but cites “underlying uncertainties surrounding the path of COVID-19 and modest inflationary pressures on the demand side” to defend its decision not to taper the accommodative monetary stance.

Data released overnight prior to the aforementioned U.S. events include:

  • Slowdowns in Icelandic CPI inflation to a 2-month low of 4.4% and PPI inflation to a 9-month low of 4.1%.
  • A 30-month high in South African PPI inflation of 6.7% in AprilĀ  from 5.2% in March, 3.0% at end-2020 and 0.3% in May 2020.
  • The strongest levels in Italian consumer confidence since February 2020 and manufacturing business confidence since November 2017.
  • Sweden‘s best reading for consumer confidence and business sentiment in just over a decade.
  • Only a 2-month high in German consumer sentiment, which printed at a more negative level than analysts were anticipating.
  • On-year growth in Chinese corporate profits of 57% in April compared to 92% in March, resulting in an average advance of 106% in January-April versus 4.1% in full-2020.
  • On-year growth of more than 20% in Hong Kong exports and imports last month.
  • Switzerland’s smallest trade surplus since December of CHF 3.291 billion in April but a 18.5% year-on-year increase in the surplus to CHF 14.1 billion in January-April from the surplus in the first third of 2020.
  • A 6.3% increase in Australian business capital investment last quarter, resulting in its first year-on-year rise in more than a year.

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

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