Dollar Marking Time Ahead of the Release Shortly of U.S. Data and Later of FOMC Minutes

February 16, 2022

Minutes of the late January FOMC meeting get released today at 14:00 EST (19:00 GMT). Investors hope for further clues to how aggressively the committee will be raising the federal funds rate.

Tensions along the Ukraine/Russian border remain high. While some Russian troops have been pulled back, other parts of the deployment continue to be fortified. There’s been no diplomatic breakthrough. Putin is still insisting upon a pledge to never admit Ukraine into NATO.

The Central Bank of Namibia became the latest monetary authority to abandon its pandemic-induced record low interest rate amid rising inflation. The policy rate has been lifted from 3.75%, where it had been since a cut in August 2020, to 4.0%. CPI inflation is currently at 4.6%.

U.S. equity futures point to a moderate drop at the open following yesterday’s strong advance. Stock markets in Asia had extended the upward rally of Tuesday, with share price gains today of 2.0% in South Korea, 2.2% in Japan, 1.5% in New Zealand and Hong Kong, 1.6% in Taiwan, and 1.1% in India. But key European stock markets so far show retrenchments of around 0.3%.

The weighted dollar index is 0.1% softer in early trading, with losses of 0.4% against the loonie, 0.2% versus the Australian dollar, and 0.1% vis-a-vis the euro but rises of 0.3% against sterling and 0.1% versus the yen.

Ten-year sovereign debt yields are three basis points lower in the U.K. and down a basis point in the United States and Germany.

The price of West Texas Intermediate oil increased 1.5% overnight. Energy continues to be a major driver of U.S. and global inflation. U.S. imported fuel prices leaped 60.3% between January 2021 and last month.

A 2.0% leap in U.S. import prices last month was the greatest monthly advance in 129 months. Import price inflation accelerated to 10.8%, just 0.9 percentage points below November’s 122-month year-on-year high. U.S. exports jumped 2.9% in January, a record monthly advance that extended its 12-month increase to 15.1%. In January 2021, import and export prices had recorded 12-month increases of only 1.0% and 2.5%.

U.S. retail sales shot up 3.8% in January, almost twice as much as forecast after a December Omicron-related decline of 2.5%. Sales in the last three reported months were up 1.7% relative to the average level in August-October. January sales exceeded their year-earlier level by 13.0%.

The 30-year U.S. fixed rate mortgage yield of 4.05% was 22 basis points higher than in the prior week and the highest in 27 months. Mortgage applications fell over 5.0% during the week.

In other inflation news today,

  • British CPI inflation ticked 0.1 percentage point higher to a 358-month high of 5.5% despite a 0.1% monthly dip of consumer prices during January. Core inflation of 4.4% rose a tad more than forecast.
  • British producer-output inflation of 9.9% in January was up from 9.3% in December and -0.2% in January 2021. Producer input prices increased 0.9% on month and 13.6% on year.
  • Chinese consumer prices, which had retreated 0.3% in December, rose 0.4% in January, but the 12-month rate of CPI increase fell to a 4-month low of 0.9% from 1.5% in December and a 15-month high of 2.3% in November.
  • Chinese producer price inflation slowed to a 6-month low of 9.1% last month, still well above 0.3% recorded in the year to January 2021.
  • South African CPI inflation eased to 5.7% in January from a 58-month high of 5.9% the month before. Core CPI inflation there ticked up 0.1 percentage point to a 15-month high of 3.5%.

Industrial production in Euroland rose 1.2% on month in December, four times as much as forecast and following a 2.4% advance in November. However, December’s increase was uneven both from a sector standpoint (led by a 2.6% advance in capital goods) and when examined regionally. Output growth was led by gains of 10.3% in Ireland, 1.8% in Belgium and 1.1% in Germany, but monthly declines were recorded of 1.0% in Italy, 0.6% in Spain and 0.2% in France. Total industrial production in the euro area was 1.6% above the December 2020 level and posted an average 7.8% increase in 2021 as a whole.

GDP growth in Norway nearly stalled last quarter with a rise of just 0.1% after the third quarter’s 3.9% climb. GDP was also 5.4% above the level in the final quarter of 2020.

Greek unemployment of 12.8% in December was three percentage points below its end-2020 level and the lowest in 138 months.

South African retail sales rebounded 6.4% in 2021 after dropping by 7.1% in 2020. Sales in December were 3.1% higher than in the final month of 2020.

Just In: U.S. industrial production advanced 1.4% last month, more than three times expectations, and its year-on-year increase was lifted to a 2-month high of 4.1% from an upwardly revised 3.8% in December. The unexpectedly big monthly rise was powered by a 9.9% upsurge in utilities, the most in at least a half century. Mining output went up 1.0%, whereas factory output edged up only 0.2% after a 0.1% dip in the prior month. U.S. capacity utilization rose a whole percentage point to 77.6% in January.  In conjunction with retail sales and import and export prices reported earlier, these new reports present no obstacle to Fed tightening next month and often afterwords.

U.S. equity trading opened mixed, with the S&P higher but the DJIA and Nasdaq lower.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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