Currency Thoughts

Euro Touches $1.3119, Weakest Level since September 6, 2013

September 1, 2014

Today is the 75th anniversary of Germany’s invasion of Poland that ignited the Second World War.  Germany is currently engaged in a philosophical dispute with the ECB and other European nations over the proper course of fiscal policy for the region.

U.S. and Canadian markets will be closed today for Labor Day holiday observances.

Precarious conditions in Ukraine continue to depress the euro, which was additionally hurt by PMI figures for manufacturing.  But at $1.3136 currently, the common currency is on net just 0.1% softer than Friday’s closing level.

The U.S. currency is narrowly mixed against other key currencies, with gains of 0.2% versus the yen and 1.0% vis-a-vis sterling, declines of 0.3% relative to the kiwi and 0.1% against the loonie and no net change versus the yuan or Australian dollar.

Share prices in the Pacific Rim began September trading with advances of 0.8% in India, 0.8% in Taiwan and Indonesia, 0.7% in China, and 0.3% in Japan.  But European stocks are down mostly.  Losses thus far amount to 0.6% in Italy, 0.3% in France, 0.2% in Germany and Spain and 0.1% in Great Britain.

The ten-year German bund and Japanese JGB yields are each below 1% and unchanged from Friday at 0.89% and 0.48%.  The British 10-year gilt has risen four basis points to 2.40%.

Comex gold edged 0.1% higher to $1,288.50 per troy once.  West Texas Intermediate crude oil dipped 0.3% to $95.71 per barrel.

It’s been confirmed that German real GDP contracted 0.2% last quarter, its first drop since in five quarters.  Adjusted for variations in the number of working days, on-year growth was halved to 1.2% in 2Q from 2.3% in the first quarter.  The main quarterly growth impetus came from inventories, which enhanced GDP by 0.4 percentage points.  Net exports subtracted 0.2 percentage points from the growth rate, and construction exerted a negative 0.4 percentage point drag.  Personal consumption only buoyed GDP by 0.1 percentage point, and government spending generated a neutral impact on the economy.

Greek GDP fell by 0.3% between 2Q13 and 2Q14, the smallest on-year drop since the third quarter of 2008.  A preliminary estimate had indicated just a 0.2% decline in GDP in the year to 2Q.

The president of the Swiss National Bank reminded markets that the central bank, which hasn’t intervened in the past years, remains prepared to do so in order to enforce the 1.2000 franc per euro cap.  The euro’s recent weakness lifted the franc as far at 1.2060 earlier today.

Various and sundry manufacturing purchasing manager survey results for August were reported today. 

• Euroland’s PMI was revised from 50.8 reported initially to a 13-month low of 50.7, which was also 1.1 points weaker than in July.
• Germany socred an 11-month low of 51.4, down from 52.4 in July.
• France had a 15-month low of 46.9, the fourth sub-50 score in a row.
• Italy’s 49.8 as at a 14-month trough and below the 50 expansion-or-contraction dividing line for the first time since April.
• Spain’s 52.8 was down by 1.1 points and at a 4-month low.
• The Dutch PMI reading of 51.7 was 1.8 points weaker than in July and at a 13-month low.
• Although at a 3-month high of 50.1, the Greek PMI was weaker than forecast.
• The sole positive highlight was Ireland’s score, 57.3, which showed the fastest rate of expansion in 14 years and 8 months.
• The British PMI exhibited a broadly based further slowdown, dropping 2.3 points to a 14-month low of 52.5.
• The Swiss PMI fell back 1.1 points to 52.9, a 2-month low.
• Among East European economies, the Czech purchasing managers index of 54.3 was 2.2 points below July’s level and the worst reading since September 2013.  Poland’s 49.0 was the second straight sub-50 result.  Hungary’s PMI registered among the sharpest month-to-month deteriorations, a slide of 5.7 points to 51.0. 
• Defying geopolitical logic, Russia’s PMI held steady at 51.0, best since October 2013.
• Among Nordic economies, Sweden’s PMI slid 4.2 points to 51.0, but Norway’s reading of 51.8 was at a 5-month high and 1.2 points better than in July.
• Two Chinese PMI indices got released.  The HSBC measure was revised down 0.1 percentage point to a 4-month low of 50.2, while the government-authorized PMI of 51.1 in August was a 2-month low.
• The Japanese manufacturing PMI improved to a 5-month high of 52.2 from 50.5 in July, 51.5 in June, 51.1 in May, 49.4 in April and 53.9 in March just before the sales tax was raised.
• Indonesia’s PMI sank to a 13-month low of 49.5 in August from record highs of 52.7 recorded in both June and July.
• India’s 52.4 was a 2-month low but considered sufficiently solid.
• South Korea’s PMI rose back above the 50 threshold to a 5-month high of 50.3.
• Taiwan’s 56.1 PMI score represents a 40-month peak.
• Australia’s PMI returned to contractionary territory, falling 3.4 points to a 3-month low of 47.3.

Japanese second-quarter business capital spending grew 3.0%, less than half the first-quarter pace and less than analysts were anticipating.  Corporate profits also slowed substantially and by more than forecast.  Japanese motor vehicle sales in August were 5.0% lower than a year earlier after posting more neutral on-year changes of negative 0.7% in June and +0.6% in July.

Expected Australian inflation dipped to 2.5% in August from 2.6% in July and 3.0% in June.  Australian commodity export price were 11.5% lower in SDR terms last month than in August 2013.  Corporate Australian profits tumbled 6.9% last quarter after gaining 2% in the first quarter.

In the year to August, Thai consumer and producer prices rose by 2.1% and 0.1%. Indonesian CPI inflation slowed to 4.0% from 4.5%, while the Indonesian trade deficit also improved to a $0.13 billion deficit in July from a $0.30 billion shortfall the month before.  The South Korean trade surplus widened 42% on month to $3.4 billion in August.

M4 money in the U.K. contracted 1.0% in the year to July.  Mortgage approvals of 66.57K were about as expected, and mortgage lending was a shade better than forecast in the month.

This week sees a number of key monetary policy meetings, notably at the ECB, BOJ, Bank of England and Reserve Bank of Australia.  The Fed Beige Book will be published.  On Friday, attention will turn to U.S. and Canadian labor statistics.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: German GDP, Manufacturing PMIs

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