Super Dollar at the Expense of Bonds, Commodities and Now Even Stocks

November 18, 2016

The dollar hit overnight highs of JPY 110.94 and 1.0581 per euro. The dollar climbed 0.9% against the loonie, 0.4% relative to the Australian currency, and 0.2% versus sterling.

The dollar advanced 0.4% against the Mexican peso in spite of another 50-basis point increase in the Bank of Mexico’s overnight interest rate to 5.25%. That rate was at 3.0% a year ago.

A wide assortment of other emerging market currencies also remained under selling pressure against the dollar, eliciting central bank intervention in some cases such as Bank Negara Malaysia. The dollar rose 0.2% to a 8-1/2 year high against the Chinese yuan.

The 10-year U.S. Treasury yield is at 2.30% compared to an Election Day close of 1.86%. Japan’s 10-year JGB yield increased three basis points, moving above zero in the process to +0.02%. The British gilt yield climbed four basis points to 1.45%.

Gold and industrial metal prices are in a rout. Gold fell 0.5% to $1,210.7 per ounce versus a close of $1,273.40 on Election Day.

West Texas Intermediate crude oil ticked 0.4% higher to $45.60 per barrel.

Equities, which had been well bid initially after the U.S. election, were mixed overnight but more down than up. While stocks rose 0.9% in New Zealand and Singapore, 0.6% in Japan and 0.4% in Australia, such dropped overnight by 0.5% in China, 0.4% in Indonesia, and 0.3% in South Korea and India, and in Europe markets so far have fallen 1.9% in Italy, 1.2% in Spain, 0.5% in the U.K., France and Switzerland and 0.3% in Germany.

President-Elect Trump is starting to fill out his cabinet nominations. Alabama Senator Jeff Sessions is thought to be the choice for Attorney General, and Mitt Romney is now considered front-runner at State. For Defense, two former generals are high in the running.

In lifting the key Mexican overnight interest rate to 5.25% from 4.75%, Bank of Mexico officials said the move is meant “to counter inflation pressure and keep inflation expectations anchored.” Inflation now exceeds the 3% target, and the peso has been falling in response to Trump’s planned policy changes on immigration and North American trade.

In testimony yesterday, Federal Reserve Chair Yellen all but signaled a likely interest rate hike next month. U.S. inflation finally seems to be rising, partly as a response to global trends. In other price news today,

  • The German producer price index rose 0.7% last month, cutting the 12-month rate of decline to 0.4% from 1.4% in September and 2.7% last May. Mineral fuel costs were 1.1% higher than a year earlier versus an 8.9% on-year drop in August. All energy sources posted a 2.3% monthly rise at the producer level in October.
  • Producer output and producer input prices in New Zealand recorded jumps between 2Q and 3Q of 1.0% and 1.5% last quarter. Inflation could go higher because of the South Island earthquake this month.
  • South Korean producer prices fell just 0.2% in the year to October after posting a 1.1% September-over-September decline.
  • But Icelandic CPI inflation settled back to 0.3% last month from 1.1% in September.

Dutch consumer confidence was unchanged at a 9-month high in November, but consumer spending growth slowed to a 3-month low of 0.9% in September.

In contrast to signs that Fed policy is about to tighten and may have to be normalized more quickly in 2017 than this year, signals from the ECB tilt toward accommodation. ECB President Draghi observed continuing uncertainties in the economic outlook and said all available tools will continue to be used. The ECB Account of the last meeting in September deferred any decision on quantitative easing beyond March to its December meeting. German Bundesbank President Weidmann, a policy hawk, again expressed public concerns about overuse of unconventional monetary stimulus tools.

Consumer confidence in New Zealand rose 3.5% this month, but that was before the earthquake. Real retail sales in New Zealand climbed 0.9% last quarter, a slower pace than in 2Q.

Canadian consumer prices will be released later today. So will the U.S. index of leading economic indicators and the Kansas City Fed manufacturing index. St. Louis Fed President Bullard speaks publicly.

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

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