Bond Market Slide Weighing on Dollar and Stocks

January 10, 2018

Rising long-term interest rates caused by growing optimism about global growth prospects is now depressing the dollar and stocks. The 10-year Treasury yield is 18 basis points above the end-2017 level just seven business days into 2018. Another Treasury market depressant has been an apparent Chinese decision to suspend purchases of U.S. government debt. The sovereign debt sell-off isn’t limited to the United States. The 10-year German bund yield advanced 7 basis points today and has risen 11 bps this year, and the 10-year JGB yield has doubled to 0.08%.

The dollar fell across the board this Wednesday morning, loosing 1.1% against the yen, 0.6% versus the euro and Swiss franc, 0.5% against the kiwi, 0.4% relative to the Australian dollar and yuan, 0.2% vis-a-vis the loonie and 0.1% versus sterling.

In futures trading, U.S. share prices have slipped. Bourses closed down 0.9% in New Zealand, 0.8% in Taiwan, 0.6% in Australia, 0.3% in Japan, and 0.4% in South Korea. European equities have declined so far by 1.0% in Germany, 0.6% in Switzerland, and 0.5% in France.

Commodity prices, in contrast, are well bid. Gold has risen 0.9%, and WTI oil is 0.8% higher so far today.

There’s been a large 7.6 magnitude earthquake in the Caribbean Sea east of the Yucatan, and Tsunami alerts have been made. Another natural disaster being watched are the mudslides in Southern California.

Chinese consumer prices rose 0.3% on month in December and by 0.1 percentage point to a 1.8% 12-month rate of increase. But PPI inflation decelerated 0.9 percentage points to a 13-month low of 4.9%.

British industrial production expanded 0.4% in November and by a greater-than-forecast 2.5% from a year earlier. A surprisingly robust 1.2% increase in September-November average production versus the prior 3-month period exceeded expectations. Factory output went up 1.4% in September-November and was 3.9% above the year-earlier level. Construction rose 0.4% on month in November, matching the gain in industrial production and manufacturing.

However, Britain also announced disappointing trade figures for November. The merchandise trade deficit widened to a greater-than-forecast GBP 12.23 billion from GBP 11.68 billion the month before, and the total goods and services shortfall was GBP 2.8 billion in November, up from GBP 2.27 billion in October.

French industrial production, which had soared 1.7% on month in October, settled back 0.5% in November as expected, but the on-year advance of 3.8% surpassed forecasts. Finnish and Swedish industrial output increased 6.6% and 3.4% between November of 2016 and November 2017.

Between end-2016 and end-2017, Norwegian consumer prices rose 1.6% (1.4% core), and producer prices went up 7.3%. Czech CPI inflation was at 2.4% last month, same as in November. Czech GDP rose 0.5% on quarter and 5.0% on year in 3Q17.

The National Bank of Poland’s two-day policy review ended today with a decision to maintain a 1.5% reference interest rate. Such has been at 1.5% since a pair of 50-basis point cuts in January and March of 2015 and had been reduced previously from 4.75% prior to January 2012 to 2.5% by July 2013.

The Bank of Israel also has scheduled a monetary policy announcement today.

The SACCI index of South African business sentiment rose to an 11-month high of 96.4 in December from 95.1 in November and a recent low in August of 89.6.

There was an 8.3% upsurge in U.S. mortgage applications last week. Still to come is the U.S. monthly IBD/TIPP Optimism index.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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