Second Thoughts About Monday’s Euphoria as Spotlight Shines on Price Data – Currency Thoughts
Second Thoughts About Monday’s Euphoria as Spotlight Shines on Price Data
May 13, 2025
Nothing has been consistent in this year’s eruption of trade tensions. The scale-back in tariffs that buoyed financial markets yesterday were couched in a temporary context and left net tariff increases since the start of this year still quite significant. Investors await U.S. CPI data this morning, wondering how much they might reflect increased tariff and knowing that more substantial impact will unfold in coming months.
Yesterday’s dollar gains have been trimmed especially against the euro, which rebounded 1.4% against the U.S. dollar. The dollar also fell overnight by 0.6% versus the Australian and New Zealand currencies, 0.5% relative to the Swiss franc and sterling, 0.4% vis-a-vis the Mexican peso but just 0.1% against the Japanese yen.
Just prior to the release of U.S. consumer prices, stock futures showed mixed changes with the DOW down 0.5% but the Russell 2000 up 0.2%. Hong Kong’s Hang Seng index closed down 1.9%, and the Indian Sensex gave back 1.6%. But stock markets gained 1.6% and 1.4% in Taiwan and Japan, while the Shanghai Composite edged 0.2% higher. In Europe so far, equities are up 0.8% in Spain but just marginally in Germany, France and the U.K.
The 10-year Treasury yield had shed three basis points, in contrast to upticks in 10-year British, French and Spanish 10-year sovereign debt yields. The Japanese JGB yield ticked down a basis points. The BOJ’s early summary of what was decided at the April 30-May 1 Board meeting has few surprises. Policy is on pause but perhaps only for a short while. Officials haven’t stepped away from the forecast that wage and price inflation will continue to move upward and their commitment to raising their interest rate if and as that expectation is realized.
Prices for oil (+1.0% overnight), gold (+0.9%) and Bitcoin (+0.8%) were all showing green just price to the U.S. CPI release.
As things turned out, tariffs failed to discernibly affect April consumer prices, and overall CPI inflation unexpectedly dipped another 0.1 percentage point to 2.3%. That’s down 0.7 percentage points since January and its lowest since a reading of 1.7% in February 2021. On-year changes in energy (-3.7%), non-energy services (3.6%) and food (2.8%) were each more disinflationary than in March, and core inflation held steady at March’s four-year low of 2.8%.
Reported price data from other economies today also were encouraging for the most part:
- Czech CPI inflation of 1.8% last month confirmed the preliminary estimate which had bee at an 85-month low.
- Romanian consumer prices rose less than 0.1% on month, the least in 11 months and resulting in a 6-month low 12-month 4.86% rate of increase.
- Indian CPI inflation of 3.16% in April was at a 69-month low.
- Portuguese CPI inflation rose 0.2 percentage points but remained benign at 2.1%.
- Dutch CPI inflation of 4.1% was the most since December but no higher than a preliminary estimate.
- British average weekly wage inflation slowed to a 4-month low of 5.5% in March.
Like many other hard data reports, the U.S. CPI figures are conveying resilience, but the same cannot be said about the soft survey-derived U.S. data such as today’s report on small business sentiment, which fell in April by 1.6 additional index points to a six-month low of 95.8 and well below last December’s reading of 105.1.
Among other data announced today, The ZEW Institute’s monthly survey of investor expectations and perception of current conditions in Germany and the whole euro area revealed a sharp rebound in sentiment about the future but continuing gloom about present circumstances. Regarding Germany, the expectations index recovered to a 2-month high this month of +25.2 from a 21-month low in April of -14.8, but the index for current conditions fell 0.8 points to a 2-month low and very depressed reading of -82.0. In the case of Euroland, the expectations index of +11.6 followed a 28-month low of -18.5, and current conditions printed at -42.4, better than -50.9 in the previous month. The index for inflation expectations in Euroland of -15 in May was its most deflationary since a reading of -18.6 in February.
British same-store sales leaped 6.8% on yea in April, that largest 12-month increase in 39 months.
Turkey’s current account deficit of $12.3 billion in the first quarter of 2025 was 27% wider than a year earlier.
Japanese money growth slowed additionally to 0.5% year-on-year last month from 1.1% in the first quarter, 1.7% in 2024 and 2.5% in 2025.
The Westpac measure of Australian consumer sentiment recovered to a 2-month high this month, but National Australia Bank’s measures of business confidence and business conditions in April remained significantly weak.
Unemployment in South Africa remained sky high last quarter at 32.9% after a 6-quarter low of 31.9% in the final quarter of 2024.
Germany’s current account surplus last quarter of EUR 75.3 billion was 9% smaller than a year earlier despite a wider-than-expected March surplus of EUR 34.1 billion.
At the opening bell, the more encouraging-than-expected U.S. CPI report lent more support to small-cap stocks than the S&P 500.
Copyright Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland and German ZEW expectations index, U.S. CPI, U.S. small business sentiment
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