Dollar Continuing to Flourish Amid Coronavirus Concerns

February 21, 2020

The dollar climbed overnight by 0.8% against the peso, 0.3% relative to the Australian and New Zealand dollars and 0.1% versus the Chinese Renminbi. There have been dips of 0.3% against sterling, 0.2% versus the Swiss franc and 0.1% relative to the yen and euro. Dollar strength can be seen against a broad spectrum of other currencies such as the Norwegian krone, Indian rupee, Singapore dollar and South Korean won. Coronavirus cases reported in South Korea jumped especially sharply, and China’s currency remains weaker than the key 7 per dollar threshold. China’s official count of disease cases is being viewed with increasing skepticism as the methods of counting have been modified several times. The dollar benefits from the outbreak because the United States economy is perceived to be more immune than others. Recession fears about Japan are deepening.

Share prices dropped 1.5%  in South Korea, 1.1% in Hong Kong, 1.0% in Indonesia, 0.6% in Singapore and 0.4% in Japan and India. European equities are down only marginally, in contrast.

Ten-year sovereign debt yields slipped 3 basis points in the U.S. and a basis point in Japan but recovered a basis point in Germany and the U.K..

The prices of West Texas Intermediate oil fell 1.7%, but gold jumped by a further 1.0% to a 7-year high.

Preliminary purchasing manager results from the February surveys of Australia, Japan, Euroland, Germany, France and Great Britain were reported today. The good news is that Euroland and British figures are consistent with somewhat stronger first-quarter GDP growth than occurred in the final quarter of 2019. In Japan’s case, however, the results reinforce other developments pointing to a recession that either has already begun or will do so imminently.

  • Japan’s composite PMI score of 47.0 was 3.1 points lower than in January and constitutes the sharpest contraction of measured activity since April 2014. The manufacturing PMI of 47.6 and the services PMI of 46.7 are the lowest readings in 86 and 44 months.
  • Euroland‘s composite PMI of 51.6 represents a 6-month high and suggests GDP growth running around 0.2%, twice the 4Q pace. But bear in mind that the survey also attests to mounting supply chain disruptions related in part to the impact of the coronavirus and efforts to stop its spread. Germany’s composite preliminary PMI slid 0.1 point to a 2-month low of 51.1 in spite of a 13-month high in the manufacturing component. Business sentiment in manufacturing slipped in Germany. France’s composite PMI of 51.9 was lifted by service-sector improvement to a 2-month high. Manufacturing fell below 50 to a reading of 49.7, a 7-month low, and production contracted for the first time in five months.
  • Australia’s CBA-compiled composite PMI dropped 1.9 points to a series record low of 48.3. Both manufacturing and services printed below the no-change threshold of 50.
  • In Britain, where GDP growth stagnated last quarter, the composite PMI printed unchanged at 53.3, suggesting overall economic growth of about 0.2% this quarter. The manufacturing component, 51.9, rose to a 10-month peak.

There was more poor Japanese economic news.

  1. The all-industry index, a monthly proxy of GDP, flat-lined in December and therefore tumbled 3.1% on quarter and 2.7% on year in the final quarter of 2019. That was weak enough to result in a 0.3% average decrease in 2019, down from gains of 1.1% in 2018 and 1.6% in 2019. Quarterly drops in the fourth quarter amounted to 2.9% in construction, 6.4% in industrial production and 1.7% in service sector activity. Japan’s sales tax hike to 10% from 8% effective last October 1 was a major depressant.
  2. Department store sales, down 3.1% on year in January, recorded a fourth consecutive decline.
  3. In spite of a 0.7% monthly increase in energy, overall consumer prices were unchanged in January from December in seasonally adjusted terms. Year-on-year inflation edged down 0.1 percentage point to 0.7% in the overall CPI and 0.8% excluding both fresh food and energy.

Euro area consumer price inflation accelerated 0.1 percentage point to 1.4% in January, confirming the preliminary estimate. Energy accelerated to 1.9% from 0.2% the month before and -3.2% in the year to November, while the non-energy CPI inflation rate dipped to 1.3% from 1.4% in the prior two months. Core CPI, which excludes food as well as energy, dropped to a 12-month rate of increase of 1.1% in January versus 1.3% in December.

Italian CPI inflation in January was revised down 0.1 percentage point to 0.5%, matching December’s 6-month high. Italian industrial orders in December were 1.4% higher than the month before and 6.0% greater than a year earlier. Each increase exceeded analyst expectations.

Austrian CPI inflation accelerated half a percentage point to a 14-month high of 2.0% in January, and Malaysian CPI inflation that month of 1.6% represented a 20-month high.

Britain’s public sector surplus in January of GBP 10.54 billion was 17% less than the surplus in January 2019, and the fiscal year-to-date deficit is running 15% above the prior year’s pace. But outstanding debt equal to 79.6% of GDP last month was down from a ratio of 80.3% a year earlier.

Canadian retail sales were flat in December, but their on-year advance rose to 2.4% from 2.2% in November. Both of those increases exceeded the 10-year low in calendar year average retail sales growth of 1.6% during 2019.

U.S. existing home sales will be reported later today.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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