Dollar Strengthens, Bond Prices and Mexican Peso Fall

November 10, 2016

Large protests against the U.S. election results erupted in several U.S. cities overnight, including N.Y.C., Chicago, Oakland and Seattle.

President-Elect Trump will travel today to Washington to meet President Obama at the White House to begin the transition of administrations.

On the premise of a more stimulative U.S. fiscal policy, a likely federal funds rate hike next month and more increases to follow in 2017, sovereign debt yields, which had risen sharply on Wednesday, climbed additionally by another nine basis points in Germany, eight bps in the U.K., and 3 bps in Japan. A 3-bp increase is also discounted in U.S. futures.

The dollar jumped 2.4% against the Mexican peso and 1.7% relative to the New Zealand dollar overnight. The U.S. currency also advanced by 0.9% against the yen, 0.6% versus the loonie, 0.4% relative to the euro and Swiss franc and 0.1% vis-a-vis the Australian dollar, Chinese yuan and sterling.

After yesterday’s U.S. stock market¬†rally, share prices recovered 6.7% in Japan (a whopping 1,093 points on the Nikkei), 3.3% in Australia, 2.3% in Taiwan and South Korea, 1.7% in Hong Kong, 1.6% in Singapore, and 1.4% in China. Equities in Europe have risen so far today by 1.6% in Greece, 1.3% in Italy, 1.1% in France, 0.9% in Switzerland and Germany, 0.7% in Spain and 0.5% in Britain.

While WTI crude oil fell 0.6% to $44.99 per barrel, Comex gold rose 0.6% to $1,281.60 per ounce.

Three central bank policy reviews resulted in the following actions:

  • The Reserve Bank of New Zealand’s Official Cash Rate as expected was cut from 2.0% to a record low of 1.75%. Weakening the kiwi was a major objective of this move, and more easing remains possible.
  • Bangko Sentral ng Pilipinas left the Filipino overnight reverse repo rate at 3.0%, calling inflation “manageable.”
  • The National Bank of Serbia’s key policy rate was kept at 4.0%. Among other factors, previous easing moves most recently enacted in July have improved prospects for inflation to rise back into target.

Japanese economic data released overnight showed

  1. A 3.3% slump in core domestic machinery orders in September following a 2.2% drop in August. Public sector orders plunged 10.3%, while export orders went up 1.4% on month. On-year growth in core domestic machinery orders slipped to 4.3% in September. Export orders were 16.7% below year-earlier levels.
  2. Machine tool orders recorded a larger 8.9% on-year drop in October, most in three months.
  3. The M2 money stock advanced 3.7% on year in October, up from 3.4% in the third quarter but the same soft pace as in 2015. Broad liquidity growth accelerated somewhat, too.
  4. Stock and bond transactions with the rest of the world generated a JPY 901 billion net capital outflow last week, down from an outflow of JPY 1.257 trillion the week before.

A summary of the Bank of Japan’s October 31 Policy Board meeting was published. Such notes that the momentum toward the 2% inflation target had weakened somewhat lately.

Italian and French industrial production in September recorded respective on-month declines of 1.1% and 0.8%. French output was also 1.1% lower than in September 2015, while Italy’s production had increased 1.8%. Finnish industrial production recorded a 3.5% 12-month advance after a 1.9% drop the month before.

Britain’s Royal Institute of Chartered Surveyors house price balance index continued to improve in October, printing at 23.0% after 18% in September, 13% in August and 5% in July.

In the year to October, consumer prices fell 0.4% in Ireland and 0.5% in Greece but rose 0.4% in The Netherlands, 0.9% in Portugal and 3.7% in Norway. Norwegian producer prices dived 4.5% in the year to October.

The Greek jobless rate rose 0.1 percentage point to 23.4% in August. Malaysian unemployment stayed level at 2.6% in September.

South African factory output increased 1.5% in September but was 0.1% below its year-earlier level.

Home loans in Australia, up 1.6% in September, reversed only half of August’s decline.

Weekly U.S. jobless claims are due today, and so to are Canadian new home price figures. Peru’s central bank is holding a policy review today.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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