Animal Spirits Roar Like A Lion To Start The New Month

The euro has extended the pre-weekend decline to test the $1.2025 area that provided support on the last pullback (February 17-18). The market shied away from the $1.20-level of psychological importance, and it holds an expiring option for about 720 mln euros. The low was recorded early in Europe, and it appears to have brought in some buying. Resistance is seen near $1.21.  Sterling is firm within its pre-weekend range. It was unable to reclaim the $1.40-handle despite two tries in Asia. The market has not given up on it, and another thrust looks likely. Beyond it, the $1.4050 area may provide the near-term cap.  


It is as if the easy monetary or fiscal policy is the root of all the economic risks to hear some talking heads. Rising prices are laid at the feet of policymakers. This is to place all the pressure from the demand side, and the situation appears considerably more complicated. Consider oil, for example.OPEC has kept supply off the market, and this will change shortly, including the one million barrel a day unilateral cut by Saudi Arabia that extends to the end of this month. Russia and other producers were to continue to boost output. 

Similarly, the shortage of chips is not a function of monetary or fiscal policy. It could be partly aggravated by the US trade policy that limited sales to Huawei and Semiconductor Manufacturing International Corporation (SMIC). It may be partly a function of the industry structure that gives Taiwan Semiconductor Manufacturing Company (TSMC) a virtual monopoly on the new generation of chips, the wafer of which is reportedly as thin as the length your fingernail grows in three seconds. Computer sales rose 13% last year, and the new 5G smartphones are said to use 30%-40% more chips than 4G. Another example is the near doubling of the cost of sending a 40-foot container from the US to China in the past year. It is a function of the sharp deterioration in the US trade imbalance. The price increase of oil, chips, and shipping seems transitory and not directly related to fiscal stimulus or the Fed's purchases of bonds. 

The US reports the final manufacturing PMI, construction spending, and the February ISM. However, investors are confident of a strong Q1 economic performance and continue to revise GDP estimates higher. Rather than the data, the market is more interested in Fed officials' reaction function, and no fewer than five speak today. The week's highlight will be Powell's comments, which may be the last ahead of the conclusion of the FOMC meeting on March 17. Canada sees its February manufacturing PMI. It stood at 54.4 in January and 51.8 last February. Tomorrow, Canada reports Q4 GDP. It is expected to have risen by 7.2% at an annualized pace. Mexico's manufacturing PMI was below 50 in January, and indeed at 43.0 was well below the 49.0 reading in January 2020. The Mexican economy was contracting before the pandemic struck. Mexico also reports January worker remittances. This has been an unexpectedly positive development for Mexico. Even if remittances also from December, they are expected to remain high. Consider that the monthly average for remittances was $3.38 bln in 2020, while the trade surplus averaged $2.87 bln a month.

View single page >> |

Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.