Lacking Much Direction

August 3, 2021

The dollar drifted lower overnight, losing 0.4% against the peso and kiwi, 0.2% versus the Swiss franc, yen, Aussie dollar and sterling, and 0.1% relative to the euro and weighted DXY index. The dollar is unchanged against the yuan and 0.6% firmer against the Turkish lira.

At an intra-day low of 1.15% and 1.17% currently, the ten-year Treasury yield is hovering not far above its six-month low. The 10-year Japanese JGB yield is also one basisĀ  point softer on net for the day.

U.S. stock futures are marginally firmer. Covid concerns persist, as new cases yesterday climbed to nearly 86k. On the other hand, corporate earnings reports for the second quarter have been robust. Now investors await U.S. data releases later today for factory orders, auto sales, the NY regional PMI, and the IBD/TIPP optimism index. In other equity markets today, share prices fell 0.5% in Japan and China but climbed 1.7% in India. The Paris Cac is 0.7% stronger, while the German Dax has slipped 0.1%.

Among commodity prices, oil is down 1.6%, and gold has slid 0.6%.

Inflation data out today have been unsettling. For example, Turkey’s 27-month high in CPI inflation last month exceeded expectations and was accompanied by a 20-month high of 44.9% in producer price inflation.

A 1.4% monthly jump in euro area producer prices in June was the fifth advance of at least 0.9% in the past six months and caused its 12-month rate of increase to swell to 10.2%, most since the 1980s.

South Korean CPI inflation rebounded in July back to the recent high of 2.6%.

The Central Bank of Armenia became the latest monetary authority to raise interest rates in the face of accelerating inflation, which has climbed to a 5-year high. A 50-basis point hike in Armenia’s refinancing rate to 7.0% brings that benchmark’s cumulative rise to 150 basis points since May and 275 basis points since last December.

But Tokyo July consumer prices that were 0.1% lower in July than a year earlier served up another reminder that it is harder to crack a deflationary mindset than an inflationary one.

Officials at the Reserve Bank of Australia are not under the illusion that transitory rises in certain prices points to a more general andĀ  more entrenched inflation problem. This month’s policy review resulted in unchanged interest settings of 0.10% on the Official Cash Rate and the 10-year sovereign debt yield, which is being imposed by a program of sovereign debt purchases totaling A$ 5 billion weekly for the coming month and $4 billion weekly thereafter. Officials do not expect their 2-3% medium-term inflation to be met in a sustaining way before 2024 and will not lift the OCR until that happens.

Consumer confidence in Switzerland shot up 14.3 index points in the third quarter to an 11-year high. In Taiwan, consumer confidence improved to a 16-month high in July, but Mexican consumer sentiment only remained at June’s 21-month peak.

Among purchasing manager surveys for July reported today,

  • Irish manufacturing conditions slipped back 0.8 index points to a 3-month low of 63.2 that within the euro area was surpassed only by the Dutch, German, and Austrian economies.
  • The Egyptian and Saudi non-oil PMIs fell to 2- and 3-month lows of 49.1 and 55.8, but their U.A.E. counterpart improved to a 2-year high of 54.0.
  • The Absa-compiled South African manufacturing PMI reading plunged 13.9 index points to a 14-month low of 43.5.
  • Canada’s manufacturing PMI dropped 0.3 points to a 5-month low — but still robust — reading of 56.2.

Brazilian industrial production had risen for the first time in four month in May but then flat-lined in June, which depressed the 12-month rate of increase to 12.0% from 34.7% as recently as April.

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

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