Dollar Softer Ahead of FOMC Decision and After U.S. Current Account Release
December 19, 2018
Despite weaker data and pressure from Trump, the Federal Open Market Committee is expected to announce the fourth rate hike of 2018 later today but to couch such within more accommodative forward guidance regarding likely policy in 2019.
The U.S. current account deficit jumped to $124.8 billion in the third quarter from $101.2 billion in the second quarter and $103.4 billion in 3Q17. Trump’s protectionist broader America-First policies aren’t achieving the primary goal of a smaller external deficit. As a percent of GDP, the current account gap grew to 2.4% of GDP last quarter from 2.0% of GDP in the second quarter.
The dollar slipped overnight by 0.5% against the euro, 0.3% relative to the yen and loonie, 0.2% vis-a-vis the yuan, Australian dollar, kiwi, and sterling, and 0.1% versus the Swiss franc.
Share prices in the Pacific Rim fell 1.1% in China, 0.6% in Japan and 0.3% in Hong Kong but rose 0.8% in South Korea, 1.6% in Indonesia and 0.7% in Taiwan. European bourses are up by 1.6% in Italy, 1.0% in the U.K., 0.8% in Spain, and 0.5% in Germany and France. U.S. equities advanced in early trading, with the DOW notching a rise of roughly 200 points in the first 50 minutes.
Ten-year U.S. Treasury and German bund yields dipped another basis point, but their Japanese counterpart doubled to all of 0.02%.
After diving earlier this week, WTI oil recovered 1.2% today to $46.77 per barrel. Gold is little changed.
The Bank of Thailand’s one-day repo rate was lifted 25 basis points to 1.75% in an expected move. This was the first hike since August 2011 and the first rate change since a pair of 25-basis point cuts in March and April of 2015. According to a released statement, the rate hike was made in light of ” the prolonged low interest rate environment that might pose vulnerabilities to financial stability in the future” and ” to start building policy space,” meaning flexibility to stimulate growth should the economy slacken. The Monetary Policy Committee remains divided, however, as evidence by two dissenting votes from members concerned about softer external demand and wishing to monitor that situation longer. The previous November meeting that kept the key interest rate of 1.50% had produced a narrow 4-3 decision, with 3 votes for tightening. Today’s statement lacks any urgency to follow up this first rate hike anytime soon: “The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to closely monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead.”
Consumer prices in Canada fell 0.4% last month, depressing the 12-month increase by 0.7 percentage points to a 10-month low of 1.7%. Core inflation slipped to 1.5%.
German PPI inflation held steady at 3.3% in November. Energy rose 0.5% on month and 8.9% on year, while all other collective producer prices were unchanged on month and 1.6% higher on year.
Polish PPI inflation subsided to 2.7% in November from 3.2% the month before.
British CPI inflation receded further to 2.3% in November and 1.8% on an underlying core basis. Producer output inflation slowed to 3.1%, while producer input inflation imploded to 5.6% from 10.3% the month before. House price inflation in the U.K. according to the government’s statistical agency slid 0.3 percentage points to 2.7%, lowest since 2.3% in the year to July 2013.
The monthly U.K. industrial trends index fell to a 2-month low in December of +8. Such began 2018 with a reading of +14 back in January that proved to be the strongest of the year.
Construction output in the euro area, which had climbed 1.6% in the second quarter and another 0.9% in 3Q, slumped 1.6% in January, cutting the 12-month rate of increase to 1.8% from 4.8% in September.
Although U.S. protectionism is failing to shrink America’s deficit, it has weakened the trade positions of other countries, including Japan. The Japanese customs trade balance swung from a JPY 105 billion surplus in November 2017 to a deficit of JPY 737 billion last month in spite of lower oil prices. The seasonally adjusted deficit last month rose to JPY 492 billion from JPY 288 billion in October, and exports swooned 3.0% on month.
Consumer confidence in New Zealand bounced to a 3-quarter high in 4Q18 of 109.1 after dropping to 103.5 in 3Q from 108.6 in 2Q.
But in Sweden, consumer sentiment fell for a third straight month with a December reading of 96.4, down from 96.8 in November, 98.4 in October and 103.7 in September.
China’s index of leading economic indicators, compiled by the Conference Board, climbed 1.4% last month but was accompanied by a much smaller 0.2% increase in the index of coincident Chinese economic indicators.
The FOMC rate decision at 14:00 EST will be accompanied by new economic forecasts and followed by a press conference with Chairman Jay Powell, who’s been criticized heavily by President Trump.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI and PPI, FOMC meeting, German PPI, Japanese trade deficit, U.S. current account
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