Dollar Strengthens against Euro after ECB Announcement

December 8, 2016

The dollar advanced 1.3% against the euro, 1.0% versus the Swiss franc, 0.5% relative to the Aussie dollar, 0.3% vis-a-vis the yen and sterling and 0.2% against the Mexican peso and Chinese yuan.

ECB interest rates were left unchanged. The non-standard asset purchase program was extended nine months in duration but reduced to EUR 60 billion per month from EUR 80 billion as of April. Steps were taken to loosen eligibility requirements of assets purchased. GDP is projected to rise 1.7% this year and next, followed by 1.6% in 2018 and 2019, while total CPI inflation is put at 0.2% in 2016, 1.3% in 2017, 1.5% in 2018 and 1.7% in 2019. Even at 1.7%, such falls short of the ECB’s medium-term goal of below but close to 2.0%, so Draghi emphasized that by no means should today’s announced changes be considered a policy tapering. In fact, the Governing Council is prepared to raise the size and/or length of the asset purchase program again if the moderate recovery falters or if the perceived progress toward the inflation goal does not emerge of if financial conditions evolve in a way that’s inconsistent with securing the inflation target. Interest rates of zero on the refinancing rate, 0.25% on the ┬ámarginal lending facility and negative 0.40% were last reduced at the March 2016 meeting.

The National Bank of Serbia’s key interest rate was left unchanged at 4.0%.

The National Bank of Ukraine’s policy interest rate was kept unchanged at 14.0%.

There’s been a further rotation from bonds to stocks. 10-year sovereign debt yields are up by 10 basis points in Italy, 6 bps in Germany, 5 bps in France and the United States, 4 bps in the U.K., 3 bps in Switzerland and 2 bps in Japan.

Japan’s Nikkei closed 1.5% higher. Several Japanese indicators were reported.

  • Real GDP growth last quarter was revised downward from 2.2% at a seasonally adjusted annualized rate from 2Q reported initially to 1.3%. That left on-year growth at just 1.1%, down from 2.1% over the prior four quarters.
  • The GDP price deflator in Japan fell 0.2% between the third quarters of 2015 and 2016.
  • The customs trade balance in the first twenty days of November showed a surplus of JPY 157 billion compared to a deficit of JPY 662 billion a year earlier, as imports ┬áplunged 19.8% while exports fell only 2.3%.
  • The current account surplus printed at JPY 1.72 trillion in October versus JPY 1.40 trillion a year earlier. In seasonally adjusted terms, the surplus widened to JPY 1.929 trillion from JPY 1.477 trillion the month before.
  • There were 2.5% fewer Japanese bankruptcies last month than in November 2015.
  • The economy watchers index rose 2.4 points to an 11-month high of 48.6 in November.

Stocks have risen in Europe, including gains of 1.7% in Spain, 1.4% in Germany, 0.6% in France and 0.2% in Britain. Asian share prices also went up by and large today.

China’s trade surplus narrowed to $44.61 billion in November. That’s a 2-month low following $49.06 billion in October and $41.99 billion in September. Exports, which had recorded seven on-year declines in a row including one of 7.3% in October, were 0.1% higher in October. Import growth was 6.7% after dips of 1.9% in September and 1.4% in October.

West Texas Intermediate crude oil recovered 1.4% to $50.45 per barrel. Comex gold dipped 0.3% to $1,173.50 per ounce.

New U.S. jobless insurance claims last week stayed low at 258K and averaged 252.5K over the last four weeks.

Canadian housing starts slipped 4.3% to 184K in November. Building  permits climbed 8.7%, however, and capacity usage in the third quarter of 81.9% exceeded analyst expectations and the 2Q level.

In the year to November, consumer prices rose 0.6% in The Netherlands, 3.3% in Mexico but edged 0.1% lower in Ireland.

Australia recorded a A$ 44.61 billion trade deficit in October, 21% wider than in September.

Britain’s Royal Institute of Chartered Surveyors’ house price balance index showed continuing improvement in November, printing at 30%, up from 23% in October, 18% in September, 13% in August and 5% in July.

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

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