Dollar and Stocks Lower amid Some Softer European Data

February 22, 2018

The dollar dropped overnight by 0.5% against the yen, 0.3% relative to the peso and 0.1% vis-a-vis the Swiss franc, kiwi and Aussie dollar. The dollar firmed 0.2% relative to sterling and 0.1% versus the euro and is unchanged against the loonie.

China reopened following the extended Lunar New Year holiday celebration. The yuan rose 0.3%, and Chinese equities advanced by 2.2%.

In other stock markets, however, there were losses today of 1.1% in Japan, 1.4% in Hong Kong, 0.8% in Indonesia and Singapore, 0.6% in South Korea and 0.5% in Taiwan. This weak tone was picked up in Europe, where equities so far have dropped 0.9% in the U.K., 0.7% in Germany, 0.6% in Italy, 0.5% in Switzerland, and 0.3% in France.

Gold and oil dropped 0.5% and 0.4%. The ten-year German bund yield slid a basis point, while the 10-year British gilt yield edged up a basis point.

Germany’s business climate index according to the IFO Economic Institute dropped 2.4 points to 115.4, a 5-month low and prompting Institute officials to say that the very favorable climate had “cooled down considerably” in February. The drop was concentrated in business expectations, which fell to a 10-month low. A 2-month low in current conditions was nonetheless at the second highest level since 1991. By sector, manufacturing, construction, retail and wholesale activity respectively dropped to 8-, 7-, 5- and 4-month lows.

British quarter-on-quarter GDP growth in the final quarter of 2017 got revised downward to 0.4%. Year-on-year growth fell 0.4 percentage points to 1.4%, lowest since the second quarter of 2012. GDP growth for 2017 as a whole was 1.7%, well shy of growth in the euro area and the United States. Between 4Q16 and 4Q17, the growth of imports (4.2%) exceeded that of exports (1.7%), while public-sector spending and personal consumption went up just 0.9% and 1.4%. Business investment rose 2.1% but was unchanged in quarter-on-quarter terms.

Overall French business sentiment dropped from readings of 112 in December and 111 last month to a 4-month low of 109 in February. Sentiment in the services sector dropped 3 points to 106, while manufacturing slid 2 points to 112.

The U.K. distributive trades index compiled by the Confederation of British Industries (CBI) fell for a third straight month to a February reading of 8 from ones of 12 in January, 20 in December and 26 in November.

European data on a brighter note released today included Swiss industrial production (up 8.7% last quarter and 13.9% between December 2016 and December 2017) as well as Italian industrial orders and sales that in December were 6.9% and 7.2% greater than a year earlier.

Among released January price figures, Italian CPI inflation ticked up 0.1 percentage point (ppt) to 0.9%. French CPI inflation also rose 0.1 ppt to 1.3%. Icelandic inflation-adjusted wages rose 0.5% on month and 4.8% on year, while Irish producer prices recorded a greater 4.9% on-year drop. Finally, Hong Kong CPI inflation held steady at 1.7%.

Minneapolis Fed President Kashkari said he was unsure about the impact the U.S. tax cut will have on business investment, and Fed Governor Quarles called a continuing gradual rise of the bank’s interest rates “appropriate.” Dudley and Bostic speak later today.

U.S. data to be released today include the Kansas City Fed manufacturing index, the Conference Board index of leading economic indicators and weekly jobless insurance claims. Canada reports retail sales.

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

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