Dollar Stages Moderate Rebound
December 21, 2018
Broad dollar gains overnight amount to 0.6% against the kiwi, 0.4% relative to the loonie and euro, 0.3% vis-a-vis the peso, Swiss franc, and yuan, 0.2% versus the Australian dollar and 0.1% relative to sterling. Dollar/yen is unbalanced.
In the continuing follies that markets have come to expect from the U.S. government, Defense Secretary Mattis resigned over irreconcilable policy differences with the president, and Trump predicted a possible long federal government shutdown if the senate doesn’t fund his border wall today.
Stocks in the Pacific Rim fell 1.1% in Japan, 0.8% in New Zealand and China, 1.9% in India and 0.7% in Australia. Stock markets in Italy and Spain are down 1.1% and 0.7%, but losses in France and Germany are limited to 0.3% and 0.2%.
U.S. stocks are closing in on bear market territory. The DOW is down 10.4% so far this month. Yesterday’s intra-day low of 22,644 was 16% below the previous cyclical high. The S&P 500’s low yesterday was 17% under its former cyclical high. Down moves of 20% or more meet the condition for a bear market. The bear market associated with Watergate saw the DOW plunge 45% from January 11, 1973 to December 6, 1974.
West Texas Intermediate crude oil sank another 1.3% overnight to $45.27 per barrel. Gold slid 0.4%.
Whereas the ten-year U.S. Treasury yield ticked down two basis points overnight, comparable sovereign debt yields are up 2 basis points in Germany and Japan and by 4 bps in Britain.
To counter inflation caused by currency depreciation, the Bank of Mexico raised its interest rate by another 25 basis points to 8.25%, bringing its increase since end-2016 to five full percentage points. See my review.
Japan released weak data. Supermarket sales and department store sales posted year-on-year declines in November of 2.5% and 0.6%. Core consumer price inflation, which excludes fresh food, decelerated to a 3-month low of 0.9% in November, while a separate CPI index that also excludes energy dipped 0.1 percentage point to a 4-month low of 0.3%.
German consumer confidence in January matched the 2018 low seen in December. German import prices fell 1.0% in November, slicing 1.5 percentage points off the 12-month rate of increase, which was 3.1% (and merely 1.1% excluding energy).
French quarterly GDP growth in 3Q was revised down 0.1 percentage point to 0.3% due to a bigger drag from inventories than estimated earlier. On-year growth was 1.4% compared to 1.7% in 2Q and 2.7% in the third quarter of 2017.
French business sentiment dropped two index points to 104 in December, matching October’s two-year low. Consumer spending in France slipped 0.3% on month (its second drop in three months) and 2.0% on year. Producer price inflation in France slowed sharpy to 2.6% last month from 3.9% in October.
British quarter-on-quarter GDP growth accelerated to a 7-quarter high of 0.6% in 3Q, and the on-year growth rate of 1.5% constituted a 3-quarter high. But consumer confidence in the U.K. fell another index point in December to its lowest level since July 2013, and the British current account deficit last quarter of GBP 26.522 billion was 33% bigger than the shortfall in 2Q and represents a 2-year high.
Italy’s composite business sentiment index dropped under 100 to a reading this month of 99.8 from 101.0 in in November, 102.5 in October, 103.5 in September and 103.7 in August. Consumer confidence fell 1.6 index points to 113.1.
Weaker December consumer confidence readings were also announced for Turkey (off 1.4 points to 58.2), the Netherlands (down 4 points to +9), and Denmark (off 1.4 points at 2.9).
Danish GDP grew 0.7% last quarter, doubling on-year growth to 2.3%. Danish retail sales in November surpassed the year-earlier level by 3.4%.
The Swiss current account surplus last quarter of CHF 14.596 billion was 85% wider than a year earlier. As a percent of GDP, the surplus has been equal to roughly 10%.
South Korean PPI inflation decelerated 0.6 percentage points last month to 1.6%.
Swedish PPI inflation in November of 7.9% was 1.6 percentage points lower than October’s pace and represents a 6-month low. Swedish retail sales were only 1.1% higher than a year earlier in November, yet the Swedish Riksbank’s repo rate was raised yesterday for the first time since July 2011.
China’s government is planning meaningful tax cuts next year to blunt the slowdown in its economy.
Canadian GDP rose 0.3% in October after a small dip in September. Canadian retail sales increased 0.3% in October but were only 0.6% greater than a year before.
U.S. real GDP growth last quarter was revised downward by a slip 0.1 percentage point to 3.4%. GDP was also 3.0% greater than a year earlier, and the core personal consumption price deflator posted an on-year rise of 2.0%,consistent with the Fed’s target. U.S. durable goods orders, which had plummeted in October by 4.3%, rebounded by a less than expected 0.8% last month. Still to come: U.S. personal income and spending and the U. Michigan revised consumer sentiment index.
For a winter solstice, it’s uncharacteristically warm today in the New York area but raining hard.
Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British GDP and current account, French GDP and PPI, Italian business and consumer confidence, Japanese CPI, Mattis, U.S. GDP