Theresa May Has Spoken.. and Awaiting Powell’s Testimony

February 26, 2019

Prime Minister Theresa May blinked. If a Brexit deal can’t be agreed upon, Parliament will be given the opportunity to vote on delaying an exit without a deal. She spoke of a two-year transition in which the U.K. will continue to honor its commitments to the EU.

Sterling rose 0.5% following her remarks, and the 10-year British gilt yield has risen 3 basis points to 1.20%, but the Ftse has declined 1.1%.

The dollar ahead of Fed Chairman Powell’s Humphrey Hawkins testimony on the U.S. economy and Fed policy, which will be delivered before the Senate Banking Committee, otherwise is unchanged against the euro, up by 0.3% relative to the Australian dollar, 0.2% versus the loonie and 0.1% against the kiwi, yuan and peso, but 0.1% softer vis-a-vis the yen.

Ten-year sovereign debt yields are down a basis points in the U.S., unchanged in Germany and up a basis point in Japan.

Share prices mostly fell overseas overnight, with losses of 0.9% in Australia, 0.8% in Hong Kong, 0.7% in India, and 0.4% in Japan. Spain’s Ibex, Germany’s Dax, and the Paris Cac show losses so far of 0.5%, 0.3%, and 0.2%. Optimism yesterday regarding U.S.-Sino trade talks has dissipated.

Oil firmed 0.4%, but gold is 0.2% softer.

The Bank of Israel left its key interest rate unchanged at 0.25%. This is the second straight meeting in which it did so. An increase of 15 basis points last November broke a 45-month stretch of unchanged policy. Previously, the key rate had been cut by 75 basis points each in 2011, 2012, 2013, and 2014, and that easing cycle was culminated by one final 15-basis point reduction in February 2015. Monetary officials today released a statement that projects a gradual and cautious future rise in the key interest rate that will help promote inflation hovering in the center of its target band while promoting continuing economic growth. Inflation currently is near the floor of its target corridor.

In the United States, the Chicago Fed National Activity Index fell by 0.38 to an 8-month low reading of -0.43 in January. The Dallas Fed manufacturing index, by contrast, rose 12.1 points in February to a 3-month high of 13.1, and Fed Vice Chairman Clarida suggested that a period of above-target inflation may be okay to compensate for inflation undershooting that has occurred in recent years. U.S. housing starts ended 2018 with a big thud, dropping 11.2% on month and 10.9% on year. Housing permits, however, edged up 0.3% to an 8-month high.

German consumer confidence remained in March at the 8-month high reached in February.

South Korean consumer confidence improved in February to a 5-month high.

French consumer sentiment printed at 95 in February, 3 index points higher than in January and constituting a 4-month high.

Norwegian consumer confidence dropped to a 7-quarter low in the first quarter of 2019.

Austria’s manufacturing purchasing managers survey confirmed a continuing deceleration of growth, which fell to a 37-month low, as attested by a PMI reading of 51.8, down from 52.7 in January and 56.8 last July.

Hong Kong experienced its smallest trade deficit in January — just HKD 10.3 billion — in seven years. Imports were 6% lower than a year earlier, whereas exports dropped less than 0.5%.

Still to come: U.S. FHFA house price index, Case Shiller house price index, Richmond Fed manufacturing index and consumer confidence. Plus the aforementioned congressional testimony of Fed Chairman Powell, which starts at 11:00 EST (16:00 GMT).

Today marks the 34th anniversary of the dollar’s trade-weighted peak during the floating exchange rate era. It’s strength at that time led to the Group of Five Plaza Accord that committed countries to pursue policies that would restore the dollar to softer levels that would promote diminished current account imbalances.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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