A Steady Dollar

November 6, 2019

The dollar on balance remains near Tuesday closing levels. Gold is 0.3% firmer.

The spate of recent increases in 10-year sovereign debt yields was reversed today with 3-basis point declines in U.S. Treasuries and British gilt yields and a dip of 1 basis point in the 10-year German bund yield. The Japanese 10-year JGB yield, in contrast, climbed a further 4 bps.

Equity markets declined 0.7 basis points in Indonesia, 0.6 bps in Australia and 0.4 bps in China but rose 0.6% in India and 0.3% in Japan. Key European bourses are little changed, and the U.S. market was calm at the open.

Four central banks announced monetary  policy decisions.

  • The Central Bank of Iceland’s 7-day term rate was chopped 25 basis points to 3.0%. Along with earlier reductions of 25 bps in October, August and June and a 50-basis point cut in May, that brings this year’s total decline to 150 basis points. A released statement suggests that the rate may now be appropriately positioned but doesn’t close the door on possible further reduction: “The economic outlook could be overly optimistic, however, particularly in view of global economic uncertainty.” The second half 2019 economic outlook has deteriorated, and CPI inflation is apt to slow at a faster pace than imagined earlier.
  • The National Bank of Poland kept its policy rate at 1.50%. That’s been the level since a pair of 50-basis point reductions in January and March of 2015.
  • At its last scheduled monetary review of 2019, officials at the National Bank of Romania likewise retained a policy rate of 2.5%, which remains the highest level since February 2015. A released statement and new quarterly Inflation Report¬†expect Polish inflation to end this year somewhat above target but then to settle into the upper half of the desired band. There’s been a slight deterioration in growth, and global uncertainties persist.
  • By a 5-2 vote, the Monetary Policy Committee of the Bank of Thailand cut its 1-day repo rate by 25 basis points to a 9-year low of 1.25%. There were two dissents favoring no change in rate. It is hoped that lower central bank rates will counter the drag of an appreciated baht this year and generally lift overall growth. Today’s rate cut follows a similar action taken in August. Last December had seen a 25-bp rate hike.

Today’s biggest data surprise was news of a 1.3% rebound in German industrial orders during September after declines totaling 2.6% in July and August. Analysts were anticipating a marginal uptick only. Nonetheless, orders were still a hefty 5.4% lower than in September 2018.

Retail sales in the euro area ticked up only 0.1% in September, resulting in a 12-month 3.1% rate of increase.

Spanish industrial production fell 0.8% on month and recorded a smaller 0.8% on-year rise in September versus 12-month gains of 1.2-1.5% in each of the prior three months.

Spain’s service-sector and composite purchasing manager indices for October printed at a 13-month low of 52.7 and a 71-month trough of 51.2.

Italy’s services and composite PMIs of 52.2 and 50.8 were the best scores in 7 and 3 months.

French and German PMI results in October were at 2-month highs. France’s service sector score was 52.9, and the composite PMI covering services as well as manufacturing was at 52.6. Each topped the readings within Euroland. Germany’s 51.6 services PMI and 48.9 composite PMI indicated the weakest conditions among individually reported Ezone members.

Euroland as a whole experienced two-month highs in its service-sector PMI (52.2) and whole economy (50.6). The data suggest that fourth quarter GDP growth is likely to be 0.1% or perhaps a bit less. Europe’s slowdown did not intensify early in the fourth quarter, but the recession danger remains especially since several forward-looking elements of the report performed weakly.

Japan’s service sector PMI fell 0.6 index points in October to 49.7, which was the first sub-50 reading since September of 2016. The composite Japanese PMI (49.1) was below 50 for a second straight month and in fact lower than September’s result, indicating faster deterioration.

Russia experienced a 1-year high in its service sector PMI, which at 55.8 was 7.1 points above the reading seen at mid-2019. Russia’s composite PMI (53.3) was 1.9 points higher in October than September.

New Zealand’s jobless rate last quarter of 4.2% was 0.3 percentage points higher than that in 2Q19. Labor costs rose 0.6% on quarter and 2.3% on year.

U.S. labor productivity contracted 0.3% last quarter but was 1.4% greater than a year earlier. Unit labor costs went up 1.6% on quarter and 3.1% on year.

Mexican consumer sentiment slid back to a 2-month low in October of 43.9 from a 5-month high in September of 44.8.

U.S. news continues to be dominated by the Trump impeachment inquiry and speculation about the Sino-U.S. trade dispute. Britain is in election mode, which postponed today previously scheduled Autumn budget.

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

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