Dollar and Oil Up But Almost Everything Else Down

February 20, 2018

Most markets with the notable exceptions of China and Taiwan are back open for business.

Share prices are lower, with drops of 1.0% in Japan, 1.1% in South Korea, and 0.5% in Hong Kong. Morgan Stanley analysts warn of a bigger U.S. stock correction that seen earlier this month.

Long-term U.S. interest rates resumed rising for many reasons. The ten-year Treasury yield rose as high intra-day as 2.93%. Investors worry about the exploding federal deficit and recent higher-than-forecast indications of U.S. price and wage pressure. It’s natural, too, to be uneasy about the change in Fed leadership.There were only four Fed chairs in the 38+ years since August 1979, each greeted with some anxiety. The upcoming quarter Treasury refunding auctions are drawing much attention as well. The Mueller investigation and President Trump’s hostility to the process and seeming unconcern with Russian meddling in U.S. domestic politics is yet another unsettling factor. The DOW fell 45% during the Watergate crisis.

West Texas Intermediate crude oil increased 0.7% overnight. Energy is a major reason for the recent elevation of inflation. A German producer price report released today for the month of January embodied a 1.0% on-month advance in mineral fuel prices. Higher energy costs also contributed significantly to 1.0% and 0.9% fourth quarter-over-3Q increases reported overnight in New Zealand producer output and input prices. The PPI-O and PPI-I indices were respectively 4.7% and 4.4% higher than their end-2016 levels.

Gold and copper prices both dropped over 1.0% today.

The dollar benefited from the churning of global equity and fixed income markets, rising today by 0.6% against the yen, peso and rand, 0.5% versus the euro, 0.2% relative to the loonie and Australian dollar and 0.1% vis-a-vis the kiwi and sterling.

The Reserve Bank of Australia published its quarterly Monetary Policy Statement, which reads dovishly in tone. Officials anticipate a further lapse of “some time” before full employment and a rise of inflation to the middle of the target range is attained. The outlook for growth is reasonably positive and should lead to gradually lessening spare capacity, but the outlook is not without risks — some of a global geopolitical nature.

The German ZEW Institute released monthly surveys of investor sentiment toward the German and euro area economies. The German expectations index slipped back to a 2-month low of 17.8 in February from 20.4 in January. After hitting a record high of 95.2, the reading for the current German economic situation also backed off to a 2-month low of 92.3. Regarding Euroland, the expectations index fell to a 2-month low of 29.3 from 31.8, but the current situation kept rising, climbing 1.3 points to 57.7, which is the highest score in at least a year.

The British CBI reported results from its monthly industrial trends survey, showing a 4-point decline to a fourth month low of 10. The January-February average reading of 12 was 5 points lower than the mean of 17 in November and December.

The Swiss trade surplus of CHF 1.324 billion in January was the smallest surplus since January 2012. Export volume slumped 5.1% in the latest month, while real imports advanced by 3.8%.

Greece ran a EUR 1.5 billion current account deficit in 2017, 22% narrower than in 2016.

Spain’s trade deficit in 2017 of EUR 24.74 billion was almost 32% greater than the 2016 imbalance, but the deficit in December of EUR 2.05 billion was smaller than that of EUR 2.45 billion in the last month of 2016.

Swedish CPI inflation settled back to 1.7% in January from 1.9% in December. Harmonized consumer prices in Cyprus were 1.5% lower in January than a year earlier.

In the year to January, Polish industrial production and retail sales grew 8.6% and 7.7%, each by more than forecast, but producer prices only went up 0.2%.

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


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