Yen Strengthens as Markets Begin Yearend Positioning

December 19, 2016

The U.S. electoral college votes today and is widely expected to make Donald Trumps victory last month official.

The dollar fell 0.9% against the yen. Japan reported another set of robust trade data. The customs trade surplus widened to JPY 536 billion in November, highest so far this year. Seasonally adjusted exports and imports posted monthly increases of 4.3% and 3.4%, respectively. Export volume to China was 16% greater than a year earlier. The unadjusted trade surplus was JPY 153 billion versus a deficit if 387 billion yen in November 2015.

The Bank of Japan Board began its last scheduled meeting of 2016. The decision will be announced Tuesday. Today’s trade data supports the view of optimists on the Board, content with the current policy stance and confident that yen depreciation and stronger export markets will strengthen Japanese growth and mitigate the need for more monetary stimulus.

The dollar is unchanged against the euro, sterling and yuan, up 0.6% versus the Aussie dollar, 0.4% relative to the loonie but off 0.2% vis-a-vis the kiwi and Mexican peso. The dollar firmed 0.2% against the Swiss franc. Traders are beginning to wind down activity, taking their profits on the dollar’s post-election appreciation.

Gold rose 0.3% to $1,141.30 per ounce. WTI crude oil edged 0.1% higher to $51.95 per barrel.

Ten-year sovereign debt yields have dropped four basis points in the U.S. and Germany, 3 bps in Canada, and 2 bps in Britain and Switzerland. By exception, the 10-year Japanese JGB yield firmed a basis point.

Stock markets in the Pacific Rim fell 0.9% in Taiwan and Hong Kong, 0.8% in Singapore, 0.2% in South Korea and China and 0.1% in Japan but climbed 0.6% in New Zealand and 0.5% in Australia. European share prices are little changed in Germany, France, Britain, Italy or Switzerland but down 0.7% in Spain. U.S. stocks opened higher. In spite of modest declines reported by Markit Economics in the U.S. composite and services purchasing manager indices in December, the data suggest the fastest quarterly growth rate in a year.

Construction output in the euro area posted gains in October of 0.8% from September and 2.2% from a year earlier. Those changes compare with third quarter advances of 1.7% from 2Q and 3.2% on year.

Labor costs in Euroland accelerated to an on-year rise of 1.5% last quarter from 1.0% in 2Q but still exceeded 1.3% in the third quarter of 2015. There was wide variation among members of the single currency area, however. Labor costs increased 2.5% in Germany, 3.6% in Portugal, and 1.4% in France but fell 0.5% in Italy.

Germany’s business climate according to the IFO Institute index improved to a 33-month high in December of 111.0 from 110.4 in November and a 2016 low in February of 106.0. Current conditions were at a 58-month high, and expectations rose marginally further. Gains were seen in construction, wholesaling and manufacturing, while retail held steady. Germany’s central bank anticipated faster growth to be reported for the fourth quarter of 2016.

55 of 70 Chinese cities experienced¬†rise in property prices last month. China’s Academy of Social Services is projecting GDP growth next year of 6.5%, a tad less than seen this year.

New Zealand’s Performance of Services index rose 1.3 points in November to a 3-month high of 57.9. New Zealand consumer sentiment this quarter printed at a 7-quarter high, and the business activity index and business sentiment measure¬†each rose in December. Building permits shot up 2.6% in October after edging 0.2% higher in September.

The government in Australia released its Midyear Economic and Fiscal Outlook, revising current budget deficits somewhat higher but not changing the view that a surplus will reemerge by 2020-21. Growth next fiscal year is expected at 2.75%, and inflation this fiscal year will be at a sub-target 1.75%.

Belgian consumer sentiment rose two points to negative five in December, and producer prices in Portugal fell 1.0% between November 2015 and last month. In the same interval, Icelandic harmonized consumer prices rose 0.6%, and Poland’s PPI increased 1.7%.

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

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