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G10 Macro Rates Market Analysis – Weekly Review – 22nd February 2021

Monday, February 22, 2021

With the Pacific G10 Macro Rates Team 
Last week real yields in the US finally increased (nominal – inflation), it also correlated to equities peaking. They (equities) have stopped viewing higher rates as a positive reflection of growth, towards one of an unsustainable tax on the economy. Whether rising real yields is a permanent feature, will be key to equity market direction for the next few months.

Part of the answer to this story is reflected in the higher PPIs in the UK and USA. The question, will these feed through the chain-weighted index to the consumer level CPI, depends on the balance of companies’ pricing power relative to spare capacity in the labour market?

Additionally, the refocusing of global GDP on products and manufacturing vs services as Covid19 restrictions bite was reinforced this week by data from the world’s primary widget makers – Germany and Japan. The economic debate surrounding what happens to inflation when the lockdown restrictions are lifted, and the focus shifts back to spending money on services has been left to another day.

North America
US: Disappointment from the worse than expected Jobless claims number and a negative revision the previous week’s number was quickly dismissed by the market with positive numbers form a stellar Jan core retail sales print coming in at +6.1% (0.8% exp., -2.1% rev.) reflecting the $600 December stimulus cheques (checks) that were paid out in early Jan. The Feb empire manufacturing showed strength at +12.1 (6 exp., 3.5 rev.) and Jan industrial production +0.9% MoM (0.4% exp., 1.6% rev.) Feb PMIs were expansionary and stable to slightly positive. Jan imports and export prices were both higher than expected and Jan core PPI was much stronger than expected at +1.2% MoM (0.2% exp., 0.4% rev.) and +2.0% YoY (1.0% exp., 1.1% rev.)

Canada: Jan CPI was strong at +0.6% MoM (0.5% exp., -0.2% rev.) bringing the trimmed mean +1.8% YoY (1.6% exp., 1.6% rev.) Dec core retail sales dropped -4.1% MoM (-2.4% exp., 2.1% rev.)

Eurozone: Dec industrial production was weaker, reflecting lockdowns. 4Q GDP was better than expected at -0.6% QoQ (-0.7% exp., -0.7% rev.) resulting in -5.0% YoY (-5.1% exp., -5.1% rev.) and if in line with other countries, will be revised up. French 4Q unemployment dropped to +7.7% (8.9% exp., 8.8% rev.). German Feb PMIs reflected stronger manufacturing at the expense of services, with manufacturing hitting the blow out figure of +60.6 (56.5 exp., 57.1 rev.) The Feb ZEW survey reflected the lockdown with expectations improving significantly and the current situation measure dropping.

Sweden: Swedish Jan core CPI -0.7% (-0.9% exp., 0.6% rev.) and 1.8% YoY (1.7% exp., 1.2% rev.) The Riksbank minutes of its Feb.9 meeting were unequivocally dovish with one member explicitly linking currency strength as impetus to move to a negative policy rate.

Norway:  No tier 1 data


4Q GDP printed better than expected, as has been normal for manufacturing orientated export countries, at +3.0% QoQ (2.4% exp., 5.3% rev.) annualizing at +12.7% QoQ (10.1% exp., 22.9% rev.) Jan exports, and core machine orders reflecting a stronger manufacturing environment.


With the British royal family taking up most of the journalistic space there was limited space left to cover the economy. However, for those who made the effort, there was much of interest to dig through. Housing prices have stabilised; Jan CPI was stronger than expected at -0.2% MoM (-0.4% exp., 0.3% rev.) with the annual measure +0.7% YoY (0.6% exp., 0.6% rev.) with RPIx at +1.6% YoY (1.4% exp., 1.4% rev.); and PPI showed pricing pressures building with output PPI +0.4% MoM (0.2% exp., 0.3% rev.) and input MoM +0.7% MoM (0.5% exp., 0.8% rev.).

Several speeches by BoE members have shown a switch in positioning in the views between the external members vs the internal ones. The external members have moved from being more dovish (worried about the lack of growth) to a hawkish tone, with the most dovish (external) member now ruling out negative rates as a central case.

Jan core retail sales reflected the new lockdown at -8.8% MoM (-2.1% exp., 0.4% rev.) and -3.8% YoY (2.7% exp., 6.4% rev.)

Jan public sector net borrowing improved at +8.0b (22.0b exp., 33.4b rev.) and Feb PMIs reflected stronger manufacturing at the expense of services.


Australia: Feb consumer confidence is still high 109.9 (111.4 rev.) and Jan employment figures were positive with full time +59.0k (35.7k rev.) and unemployment dropped to +6.4% (6.5% exp., 6.6% rev.). The participation rate also dropped to +66.1% (66.2% exp., 66.2% rev.) reflecting households’ taking more than their usual amount of holiday, a prelude to the northern hemisphere summer?

Australia PMI’s were expansionary but slightly lower than the previous month and retail sales picked up to +0.6% MoM (2.0% exp., -4.1% rev.)

New Zealand:  No tier 1 data

 For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below  

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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