A Rebound in Many Emerging Market Currencies

August 14, 2018

The dollar has settled back 5.3% against the Turkish lira, 1.6% relative to the South African rand, 1.5% versus the Russian ruble, 0.9% vis-a-vis the Mexican peso, 0.5% against the Brazilian real and 0.25% versus the Indian rupee after touching a record low of INR 70.09 earlier in the day. However, today’s respite in the lira-led rout is not fundamentally based. U.S.-Turkish diplomatic sabre-rattling continues. Turkish President Erdogan is calling on Turks to boycott U.S.-made electronic devices and put an editorial in Monday’s New York Times, telling his side of the story.

The dollar also fell back today by 0.4% against the loonie, 0.3% versus the Swiss franc and kiwi, and 0.1% relative to the euro, yuan, and sterling while rising 0.2% against the yen and 0.1% versus the Australian dollar.

In stock markets around the Pacific Rim, share prices rebounded 2.3% in Japan, 0.8% in Australia, 0.7% in Taiwan, 0.6% in India and 0.5% in South Korea, but not all economies saw rises. Markets fell 1.6% in Indonesia, 1.4% in Hong Kong and 0.2% in China.

China released some disappointing July data:

  • The surveyed jobless rate rose 0.3 percentage points to a 4-month high of 5.1%.
  • On-year growth in retail sales eased 0.2 percentage points to a 2-month low of 8.8%, and this was below analysts expectations.
  • On-year growth in industrial production remained unchanged at 6.0% instead of strengthening as analysts had anticipated.
  • Fixed asset investment in January-July posted an on-year 5.5% advance, down from a 6.0% increase in the first half of 2018.

Stock markets in Europe show scant net movement so far this day. One exception has been a 0.9% rebound in Greece.

Ten-year sovereign debt yields are higher today by 2 basis points in Germany, Britain, and the United States. The 10-year JGB yield in Japan firmed a basis point, too.

West Texas Intermediate crude oil rose 1.3% to $68.00 per barrel. Comex gold firmed 0.2%.

The preliminary estimate for euro area GDP growth last quarter of 0.4% (2.2% on year) was a tad stronger than anticipated and matched the first quarter result. The 0.4% per quarter pace in the first half of 2018 was well down from 0.7% per quarter in the second half of 2017.

On-quarter growth in individual European economies during 2Q18 was 0.5% in Germany, 0.6% in Spain, 0.7% in The Netherlands but just 0.3% in Denmark and Belgium and 0.2% in France and Italy. GDP grew by 0.5% in Austria, Portugal, Finland and the Czech Republic and even more strongly in Poland and Hungary (0.9% each), Cyprus (0.8%) and Romania (1.4%).

Industrial production in Euroland fell 0.7% in June, some three times greater than forecast and posted a 0.2% second quarter-over-first quarter decline. Output rose 0.6% in France and 0.5% in Italy but dropped 1.3% in The Netherlands, 0.7% in Spain and 0.6% in Germany in the final month of 2Q.

The August ZEW Institute measures of investor sentiment toward Euroland and Germany reflected the boost from a trade war truce between the U.S. and Euroland. Germany’s ZEW expectations index printed at minus 13.7 versus a negative 24.7 reading in July but still remained quite depressed relative to its long-term average reading of +23.0. Perceived current conditions in Germany only recovered 0.2 points to 72.6 and remained well below scores of 80.6 in June and 92.3 back in February. Euroland’s ZEW expectations index rose to negative 11.1 from 18.7 but was accompanied by a weaker measure for current conditions of 30.0 after 36.2 the month before and 57.7 back in February.

German consumer price inflation slipped for a second straight month, printing in July at a 3-month low of 2.0%. Core CPI, which excludes food and energy, had the same 1.4% on-year increase as in June.

The latest batch of British labor statistics showed a second straight rise in jobless claims in July (6.2K after 9.0K), an unexpected drop in the ILO-basis unemployment rate in the second quarter to 4.0% (lowest since February 1975), but slower wage growth in 2Q of 2.4% on year overall and 2.7% excluding bonus pay.

The Swiss combined producer price/import price inflation rate ticked 0.1 percentage point higher to 3.6% in July. The 12-month increase in domestic producer prices rose 0.2% on month and 2.1% on year.

French CPI inflation accelerated 0.3 percentage points to 2.3% last month. Finnish CPI inflation rose to 1.4% from 1.2%.

Japanese industrial production was revised to show a slightly smaller yet still large 1.8% monthly decline in June that left the level of output 0.9% lower than a year earlier. A rise of production in the second quarter of 1.3% merely reversed a 1.3% drop in the first quarter. Capacity usage fell 2.2% on month after a 2.1% slide in May, while capacity fell 0.3% in June and 0.6% in 2Q.

The monthly National Australia Bank measure of business confidence rebounded from June’s +6 reading, which had been an 18-month low, to +7 in July, but business conditions printed at +12, 3 points lower than in June and the weakest reading so far in 2018.

Small business sentiment in the United States according to the NFIB index improved further in July, reaching its best level since 1983 but just 0.1 point better than this year’s previous high reached in May.

U.S. import prices were unchanged in July compared to June. A boost from a 1.6% monthly jump in fuel costs was offset by the dampening effect of dollar appreciation on other import prices, which collectively fell 0.3% on month. U.S. export prices dropped 0.5% on month in July and recorded a 4.3% on-year advance, which was a half percentage point less than the 4.8% year-on-year rise in import prices.

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

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