Holidays Dampen Activity… Contrasting Sentiment Continues Around Dollar and Equities

February 16, 2018

Friday saw Lunar New Year market closures in China, which won’t reopen until February 22, Taiwan, Hong Kong, Singapore, Indonesia, South Korea and Malaysia. Moreover, U.S. fixed income markets will shut early ahead of the 3-day Presidents Holiday. Canada will also be closed Monday (Family Day).

Equities continue to rebound, climbing 1.2% in Japan, 1.0% in New Zealand and so far 1.1% in Spain, 1.0% in Italy, 0.8% in France and Greece, 0.6% in the U.K., 0.5% in Switzerland and 0.4% in Germany. It’s unclear if this week’s sharp climb proves to be a dead cat bounce and resumed enduring strength. Markets seem to feel that corporate profits can withstand rising interest rates for now.

The dollar is a different story, although it’s managed marginal net gains this morning of 0.3% versus the euro and sterling, 0.2% against the yen and Swissie, and 0.1% relative to the loonie, kiwi and peso. There is angst about a rising current account deficit, soaring federal debt, a Trump administration that secretly covets dollar slippage, political paralysis on wide-ranging issues like immigration, education and infrastructure, and worsening social problems like school shootings and opioid-related deaths.

Ten-year sovereign debt yields fell overnight by 4 basis points in the U.K., 2 bps in Germany, and 1 basis point in Japan, and U.S. futures also point to a 2-bp dip.

WTI oil is unchanged at $61.36 per barrel. Comex gold firmed 0.4% to $1,360.1 per troy ounce.

Haruhiko Kuroda (age 73) as rumored has been appointed to a second 5-year term as the governor of the Bank of Japan. This suggests policy continuity.

British retail sales volume in January recovered only 0.1% after tumbling 1.5% (excluding autos) in December. The latest 3-month period saw on-year growth in sales of 1.4%, down from a 4.6% pace in the three months through January 2017.

German wholesale prices jumped 0.9% on month in January, most in 13 months. The increase mainly reflected a spike in energy. The WPI’s 12-month rate of increase firmed just 0.2 percentage points to 2.0% and was well below the 2017 average WPI advance of 3.5%.

New Zealand’s manufacturing purchasing managers index rebounded sharply to a 2-month high of 55.6 in January after 6.6 points to 51.1 in December.

Czech real GDP grew 0.5% on quarter in 4Q17, the same as in 3Q. GDP was 5.1% greater than in the final quarter of 2016. Calendar year growth accelerated to 4.5% last year from 2.6% in 2016.

Treasury-compiled capital flow data for December and full-2017 were reported late Thursday. The net long-term inflow averaged $45.1 billion per month in 2017, well above monthly means in 2016 and 2015 of $21.8 billion and $26.6 billion.

U.S. data releases later today include housing starts, building permits, import prices and the U. Michigan/Reuters consumer sentiment index.

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

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