Dollar Strengthens With Fed Perceived Likely to Widen Disparity Between its Policy Stance and Those of Other Central Banks
April 22, 2022
Federal Reserve Chairman Powell and other Fed policymakers continue to go out of the way to encourage speculation that a series of 50-basis point interest rates are on the way. The European Central Bank is also shifting priorities but transitioning at a much slower pace. The Bank of Japan is dug in, committed to an ultra-stimulative stance for some time longer. Yen depreciation is seen as undesirable collateral damage, however, and unconfirmed reports have emerged of talks between U.S. Treasury Secretary Yellen and Japanese Finance Minister Suzuki to consider coordinated intervention to counter selling pressure against the yen.
The weighted DXY dollar index touched a fresh multi-year high overnight and is up 0.3% on balance. The dollar climbed overnight by 1.1% against the Aussie dollar and sterling, 1.2% versus the kiwi, 0.8% vis-a-vis the Chinese yuan, 0.6% relative to the Mexican peso and Canadian dollar, and 0.2% against the euro and Swiss franc.
Share prices are ending the week on a soft note, falling 1.6% in Japan, 1.2% in India, 1.6% in Australia, and 0.9% in South Korea. Equity markets in Germany, France, Italy and Spain are down 0.9% or more, and U.S. DJIA and SPX futures have slipped, too.
West Texas Intermediate oil, gold, and Bitcoin prices are 1.4%, 0.5% and 0.3% lower.
Canadian producer prices shot up 4.0% in March, their greatest monthly leap since 1956, and that lifted on-year PPI inflation to 18.5%, highest since the final month of 1974.
Japanese core consumer prices (excluding perishable food) climbed 0.4% on month and to a 34-month year-on-year high of 0.8%. If energy is also excluded as most countries do when estimating underlying inflation, core inflation would have risen 0.3 percentage points but have remained under zero percent at minus 0.7%. The 12-month increase in energy prices of 20.8% was the most since January 1981.
Irish wholesale price inflation of 4.4% in March was only a 3-month high, but the 2.5% monthly increase of the WPI was the most in 28 months.
Sri Lankan PPI inflation of 18.9% in February was at a 56-month high.
Malaysian consumer price inflation remained at February’s 5-month low of 2.2% last month.
CPI inflation in Hong Kong edged up 0.1 percentage point to a benign but 3-month high of 1.7%. Such crested in July 2021 at 3.7%.
Very elevated inflation also featured prominently in preliminary findings of April purchasing manager surveys reported today for Australia, Japan, Euroland and Great Britain. The other theme and greatest surprise from the reports is that service sector strength partly offset the heavy hit absorbed by manufacturers from Russia’s unprovoked war against its southern neighbor, Ukraine. While overall composite PMIs indices were above market expectations at the start of the second quarter, the outlook going forward remains worrisome due to the spike in inflation, the rise in interest rates, persistent supply disruptions, and the shock to business and consumer confidence from the uncertain evolution of Putin’s war.
Euroland’s composite PMI rose 0.9 points to a 7-month high of 55.8. The manufacturing PMI fell to a 15-month low but was higher than forecast at 55.3, while services climbed 2.1 points to an 8-month high of 57.7. Inflation was at a record high. The prognosis of Euroland’s two-speed expansion is suspect.
Between the two largest economies using the euro, France’s situation looks sounder than Germany’s. The French composite PMI climbed 1.2 points to a 51-month high of 57.5. Services also hit a 51-month high, and manufacturing printed at a 2-month high of 55.4. Both services and manufacturing results were better than analyst forecasts. In Germany, the manufacturing PMI fell 2.8 points to a 20-month low of 54.1, and an 8-month high in the services index failed to fully offset that drag. The composite PMI fell 0.6 points to a 3-month low of 54.5.
The French presidential election this Sunday between incumbent Macron and his challenger Le Pen looks too close to call and has vast implications for France but also the future evolution of Putin’s war.
Japan’s composite and services PMI preliminary readings for April of 50.9 and 50.5 were at 4-month highs and above market expectations, as was the 2-month low in manufacturing of 53.4. Inflation readings were at an 8-year high, while business confidence declined to an 8-month low.
Australia composite PMI rebounded 1.1 points in April to a 2-month high of 56.2. Manufacturing and services printed at respective 5- and 2-month highs. businesses remained confident but not to the extent seen in March.
Great Britain’s composite and service-sector PMIs slipped in April to 3-month lows, while manufacturing inched 0.1 point higher to a 2-month high. Record inflation was experienced, and orders came close to flat.
In other data news this Friday,
British retail sales tumbled 1.4% on month in March, almost five times more than predicted. This slashed the year-on-year increase to 0.9% from 7.2% in February and 9% in January. British consumer confidence has plunged to its weakest level since July 2008.
Euroland’s unadjusted current account swung back to a EUR 11.43 billion surplus in February from a EUR 2.55 billion January deficit but was considerably smaller than the surplus of EUR 23.3 billion in February 2021. As a percent of GDP the surplus over the last 12 reported months of 2.1% was only slightly below the 2.4% ratio over the previous 12 months through February 2021. In seasonally adjusted terms, the surplus of EUR 20.8 billion in February was similar to that of EUR 21.6 billion in January.
Euroland’s government deficit-to-GDP ratio fell from 7.1% in 2020 to 5.1% in 2021. That enabled the fiscal debt-to-GDP ratio, which had ballooned from 83.8% in 2019 to 97.2% in 2020, to settle back to 95.6% last year. Outstanding debt in the final quarter of the year exceeded 150% in Italy and Greece and 100% of GDP in Portugal, Belgium, Spain, and France.
Canadian retail sales ticked 0.1% higher in February, resulting in a 3-month low in its on-year increase of 7.4%.
Business confidence in Hong Kong sank 9 index points in 1Q 2022 to a five-quarter low but, at -8, was not nearly as depressed as its reading of -37 in the second quarter of 2020.
JUST IN: The IHS-compiled U.S. April purchasing manager survey early finding include a 7-month high in manufacturing, which continues to reap pent-up demand but 3-month lows in the services index and overall composite PMI. There was also a six-month low in business confidence.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, Euroland current account, Euroland debt and fiscal deficit ratios, Japanese CPI, purchasing manager surveys