Dollar Is a Touch Softer
June 23, 2021
The dollar is 0.1% softer against its DXY weighted index. The greenback slid 0.3% overnight against the Canadian, Australian and New Zealand dollars, 0.2% versus sterling and 0.1% relative to the yuan but firmed 0.1% against the yen and is unchanged against the euro, Swiss franc and Turkish lira.
Equity markets are mixed. Share prices closed up 1.8% in Hong Kong, 1.5% in Taiwan, but unchanged in Japan. U.S. stock futures also barely moved overnight, by declines so far today of 0.8% in Italy and 0.7% in Germany, France and Spain have occurred.
Ten-year sovereign debt yields fell three basis points overnight in Germany, France, Italy, Spain and the Netherlands but show no net change among U.S. Treasuries and Japanese JGBs.
Among commodity prices, WTI oil and gold firmed 0.7% and 0.3%. The move in oil followed yesterday’s report of a big drop in U.S. inventories last week.
The first findings of June purchasing manager surveys were reported today for Euroland, Japan, Australia, and Great Britain.
Euroland’s composite PMI jumped 2.1 points to a 180-month high of 59.2 but also reflected the fastest growth of input price inflation since September 2000. Manufacturing remained at May’s record high. Service sector activity increased 2.8 index points to a 167-month high of 58.0. Within the euro area, the composite PMI of Germany advanced to a 123-month high of 60.4, while the French PMI edged marginally higher to an 11-month high of 57.1.
Japan’s composite purchasing managers index dropped a point to a 5-month low of 47.8, marking a second consecutive sub-50 score and reflecting a contraction of activity for the fourth time in five months. Manufacturing fell 1.5 points to a 4-month low of 51.5. Although rising by 0.7 points, Japan’s service-sector PMI remained well below the breakeven 50 level at 47.2.
Australia’s composite PMI score of 56.1 was consistent with robust activity in June, but it was 1.9 points below May’s level and at a 3-month low. The slower rate of expansion reflects Covid concerns and supply-side constraints on meeting rising demand. The factory and services PMIs in June also printed at 3-month lows.
Britain’s composite PMI had touched a record high of 62.9 in May. June saw a 1.2-point retracement to a 2-month low of 61.7 amid record high inflation readings. Service sector optimism was strong but not as much as in the prior three months due to capacity bottlenecks.
The U.S. current account deficit widened $20.7 billion to a 56-quarter high of $195.8 billion in the first quarter of 2020. It’s size was lower than forecast, but such reflected a $13.4 billion downward revision to the prior quarter’s deficit. As a percent of nominal GDP, the current account gap in 1Q 2021 increased to 3.6% from 3.3% in 4Q 2020, 3.1% in 2020 and 2.0% in 2019. Last year’s current account deficit size of $647 billion was up from $480 billion in 2019, $395 billion in Obama’s final year of 2016 and $336 billion in 2013. A larger merchandise trade deficit accounted for about three-quarters of the incremental growth in the current account deficit last quarter, and lessening net investment income was responsible for most of the rest.
Consumer price inflation in South Africa accelerated 0.8 percentage points to a 30-month high of 5.2% in May. The South African Reserve Bank has set a CPI inflation target of 3-6%. Core inflation in May was 3.1%.
CPI inflation in Singapore, which ended 2020 at zero percent, rose to an 89-month high in May of 2.4%.
Mexican retail sales dipped 0.4% in May, but the 30.1% increase from the same month a year earlier was the most ever.
Following monthly increases of 4.8% in February and 3.6% in March, Canadian retail sales dropped 5.7% in April, but the 12-month rate of increase more than doubled to 56.7% from 24.7% in the prior month and 2.5% in January.
Taiwanese industrial production and retail sales were respectively 16.5% and 2.8% greater in May than a year earlier.
In central banking news today,
The gist of Fed Chairman Powell’s Tuesday testimony to Congress explained that while inflation has picked up more than had been anticipated, the reasons all reflected transitory forces, and officials are expecting inflation to subside to where they want. A broad and inclusive recovery of the labor market is sought before exiting the current expansionary policy stance.
The National Bank of Georgia, whose policy interest rate was hiked by 50 basis points in March and a full percentage point to 9.5% in April, was left unchanged at that level at this month’s policy review. That’s almost two percentage points above the latest year-on-year rate of CPI inflation in Georgia.
Officials at the Czech National Bank doubled their 2-week repo rate to 0.50%, marking its first hike in 16 months. 2020 had begun with an ill-timed 25-basis point hike in February, just before the pandemic hit. That move was quickly reversed with a pair of cuts totaling 125 basis points in March and an additional 75-basis point reduction in May 2020. Today’s tightening represents a response to rising inflation, which at 2.9% is pressing against the ceiling of the central bank’s 1-3% target range.
Still ahead: U.S. new home sales and the IHS-compiled U.S. purchasing managers survey.
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.