Other Economies Attracting Interest as U.S. Steers an Isolationist Course – Currency Thoughts
Other Economies Attracting Interest as U.S. Steers an Isolationist Course
March 18, 2025
Once again, stock markets in Europe are flashing green, with overnight advances of at least 1.0% in Germany, Italy and Spain. In the Pacific Rim, the Hang Seng of Hong Kong, Sensex of India and Japanese Nikkei closed up 2.5%, 1.5% and 1.2% while markets in Singapore, Taiwan and New Zealand recorded gains of 0.9%, 0.7% and 0.7%. U.S. stock futures meanwhile show marginal declines, and Indonesia’s stock market remained very weak, slumping another 3.8%.
Ten-year sovereign debt yields climbed four basis points in the U.K., three bps in in each of Euroland’s big-four economies, but just two basis points in the United States.
With an overnight low of 1.3004 per pound, the dollar weakened to the $1.3000 threshold against sterling for the first time in four months.
The price of gold rose to another all-time peak of $3038 per ounce. Oil‘s price climbed 1.2%, but Bitcoin slumped 1.7% overnight.
The dollar advanced 0.3% vis-a-vis the yen, shows no net overnight change against the euro or loonie, is 0.1% lower versus the Swiss franc and 0.1% higher relative to sterling and the DXY weighted index.
While investors await a slew of U.S. data releases (import prices, housing starts, and industrial production), today’s main release so far has been the monthly German and Euroland ZEW-compiled index of investor expectations. In March the German index leaped to 51.6 from 26.0 in February and 10.3 in January. This larger-than-forecast reading was the biggest improvement in 26 months and attributed to two things: interest rate cuts by the European Central Bank but even more importantly the dramatic push by Germany’s new government to break free of the fiscal shackles that have hampered growth severely in recent years. Perceptions of current German economic conditions remain very week, albeit at a 5-month high reading of -87.6.
Regarding the euro area, the ZEW expectations index improved to an 8-month high in March of 39.8 from 24.2 in February and a recent low of 9.3 in September 2024. Current conditions held pretty steady at a depressed -45.2. Something else to watch was a leap in the index for inflation expectations going out a year, which leaped to +6.0 from -18.6 in the prior month and a trough in February 2024 of -62.7.
UhOh: Just released U.S. import prices reveal significantly more imported inflation than anticipated. Import prices matched January’s 0.4% monthly increase instead of dipping marginally as analysts were predicting. The impact of tariff hikes will come later. On-year import price inflation had bottomed out at -6.1% in mid-2023 and as low as -0.1% as recently as last September. Instead of printing at 1.6% in February as analysts were expecting, import price inflation rose 0.2 percentage points to 2.0%. The monthly 0.3% rise in non-fuel import costs was the most in 10 months and also 2.0% above a year earlier. Imported fuel costs increased 1.7% on month on top of January’s 3.5% upsurge and 2.8% above their year earlier level. In February 2024, by contrast, the 12-month changes in total, fuel, and non-fuel import prices had each been negative (to wit, -0.9%, -4.3% and -0.6%, respectively). U.S. export prices went up 0.5% on month and 2.1% on year in February.
Euroland’s unadjusted trade surplus imploded to EUR 1.0 billion in January from EUR 15.4 billion in December and EUR 10.6 billion in January 2024. On-year import growth of 7.6% was more than twice the 3.0% rise of exports in the latest month. Much of January’s surplus shrinkage was seasonal in nature. The seasonally adjusted surplus of EUR 14.0 billion was only 200 million euro smaller than in December and also similar to the monthly average of EUR 14.5 billion in 2024.
Japan’s tertiary index of service sector activity fell 0.3% in January, marking its third monthly decline in four months, but the 12-month rate of rise (+1.5%) improved to a 7-month high.
The Central Bank of Armenia’s refinancing rate was left unchanged at 6.75%. This pause interrupts an interest rate reduction cycle that began from a 10.75% level with a 25-basis point cut in June 2023. The rate had been progressively lowered by 150 basis points in 2022, 225 basis points in 2024, and most recently by 25 basis points at Armenia’s prior monetary policy review in February. Today’s decision to pause rate normalization was influenced by an 0.8 percentage point acceleration of consumer price inflation to 2.5% in February. After peaking at 10.3% in mid-2022, inflation had dived as low as -1.7% in February 2024 and been below zero percent for nine of the eleven months from June 2023 until April 2024.
Other U.S. data released subsequently this morning exceeded expectations, partly mitigating the disappointing import price numbers but not enough so to lift U.S. stock futures into green territory. Just prior to the open, futures were even more negative than just before the import price release.
- U.S. industrial production advanced 0.7% in February, more than triple its projected increase. This was the third monthly increase in a row following declines in 4 of the 5 months through last November. After five year-on-year declines in a row, February’s 1.4% 12-month increase was the third on-year rise in a row.
- U.S. capacity utilization increased half a percentage point to a 7-month high of 78.2%.
- U.S. housing starts jumped 11.2% in February, reversing 11.5% drop and almost 9% greater than market expectations.
- Housing permits in the U.S. dipped by a marginally less-than-forecast 1.2% in the latest month.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Armenia, Euroland and German ZEW expectations index, Euroland trade surplus, U.S. import prices and industrial production
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