Mixed Data Signals and Another Central Bank Shifts its Stance Ever So Slightly

July 6, 2021

The dollar slid 0.1% against its DXY weighted index overnight, with drops of 0.9% against the kiwi, 0.6% versus the Australian dollar, 0.3% relative to the yen, and 0.2% vis-a-vis the Mexican peso. The dollar also firmed 0.2% against the euro and loonie and 0.1% against the Swiss franc. The Turkish lira, Chinese yuan and sterling are steady.

The Reserve Bank of Australia from November will reduced weekly bond purchases from A$ 5 billion currently to A$ 4 billion, and said in a released statement following today’s policy review that “the central scenario remains that the condition for a lift in the cash rate will not be met until 2024.” Forward guidance in previous statements had inserted the qualifying phrase “at least” between the words until and 2024. The Official Cash Rate has been at a record low of 0.1% since a 15-basis point cut last November and twin reductions of 25 bps each in March 2020. The target for the 10-year Aussie sovereign debt yield is also 0.10%. The statement in comments about Australia’s current economic situation concedes that “we are in a much better position than we thought we would be in” but goes on to observe continuing Covid risks and to say that considerable further progress is needed toward full employment and sustainable inflation within the 2-3% target. Wages are a key policy litmus test that officials want to see rising at more than 3.0% before they raise interest rates. But the tapering of quantitative easing will begin for end-2021 and be be completed before the OCR is hiked.

Equity markets fell today in Australia, New Zealand, Hong Kong and China and are trading somewhat lower thus far in Germany, France, Italy, Spain and Great Britain. U.S. stock futures are little changed prior to the post-holiday weekend opening.

Ten-year sovereign debt yields are 1-2 basis points lower in the U.S., Germany, U.K., France, Italy, and Spain. Among commodities, the prices of gold and WTI oil each rose 1.4% overnight.

Tuesday brought news of some weaker data:

  • German industrial orders fell in May for the first time in 2021, and the 3.7% drop was the steepest in 13 months and led by the second straight 4%-plus monthly slide in foreign demand.
  • The German and French construction purchasing manager indices remained below the 50 breakeven level in June as such had been each month earlier this year. Germany’s PMI of 47.0 was at a 3-month high, but the French and Italian scores slipped to 4- and 2-month lows of 48.4 and 57.9. Euroland as a whole consequently only matched May’s PMI level of 50.3, signified positive growth but just barely in the construction industry.
  • Hong Kong private-sector purchasing managers index fell 1.1 points to a 2-month low of 51.4.
  • The ZEW-compiled monthly German and Euroland indices of investor sentiment each fell more than 16 index points in July to six-month lows of 63.3 and 61.2. These setbacks occurred in spite of greatly improved perceptions of current economic conditions.
  • Consumer confidence in Taiwan fell to an 11-month low in June.
  • Another sign that this year’s spike in inflationary pressure around the world may be losing steam emerged in the Filipino June CPI report, which revealed a half-percentage point reduction in in inflation to a 6-month low of 4.1%.

The above developments were counter-balanced by other data that improved and/or exceeded analyst expectations. Most notably, retail sales volume in the euro area posted monthly growth of at least 4.0% for the third time in four months, rising 4.6% in May after April’s 3.9% drop. Sales were 9.0% higher than in May 2020. In selected comparisons of retail sales to levels a year earlier, May saw increases of 17.5% in Spain, 18.3% in Romania, 14.3% in France, 7.2% in Belgium, and 5.8% in Hungary but just 2.1% in Austria and a drop of 0.9% in Germany.

Household spending in Japan surpassed its year-earlier level by 11.6% in May, and the monthly drop of 2.1% was almost half as much as analysts were anticipation. A 1.9% on-year advance in Japanese labor cash earnings during May was meantime the most in 35 months.

Spanish industrial production jumped by 4.3% in May and surpassed the year-earlier level by 26.0%.

Mexican private investment recorded its largest year-on-year increase every in April (43.1%).

Egypt’s non-oil private purchasing managers index rose 1.3 index points to a 7-month high of 49.9 in June.

Great Britain’s construction PMI printed at its highest level (66.3) since mid-1997.

The Bank of Israel’s key policy interest rates was left unchanged at 0.10% where such has been since a 15-basis point cut in April 2020.

Still to come: U.S. service-sector and composite PMIs and the U.S. IBD/TIPP optimism index.

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


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