Dollar Stronger on this Day of Important Developments

July 15, 2015

The dollar hit a high of $1.0954 per euro, strongest since July 7 and 4.4% above its June 18 low.  The euro has also weakened against sterling is is barely remaining above 0.7000 per pound.

Compared to Tuesday closing levels, the dollar has risen 0.7% against the Swiss franc, 0.5% versus the kiwi, 0.4% vis-a-vis the yen, loonie, and euro, and 0.2% relative to the Australian dollar and sterling.  The yuan is steady.

In stock market action, share prices fell slightly over 3.0% in China, 1.0% in Hong Kong, and 0.7% in Indonesia but rose 1.1% in Australia, 1.0% in India and New Zealand, 0.7% in South Korea and Singapore and 0.4% in Japan.  European markets so far rose 0.9% in Italy, 0.6% in Spain, 0.3% in France, 0.2% in Switzerland and Germany, and 0.1% in Britain.  U.S. and Canadian equities are marginally higher.

Ten-year sovereign debt yields are unchanged in France, Italy, Spain and Japan.  They’ve climbed five basis points in Germany and Australia and a basis point in the United States.

Comex gold and WTI crude oil are 0.7% and 0.5% softer at $1,147.61 per ounce and $52.54 per barrel.

Janet Yellen is currently presenting Humphrey Hawkins testimony before the House Financial Services Committee, a hostile audience.  She has revealed anything at great variance with recent public remarks from her.  Up to two 25-basis point hikes in the Federal funds rate later this year still appears more likely to her than not, although such ultimately hinges on future data showing continuing improvement in the labor market and maintaining the FOMC’s reasonable confidence that inflation will trend back towards 2% in the medium term.  Situations in Greece and China situations remain concerns.  Chair Yellen will reprise her testimony tomorrow before the Senate Banking Committee.

The Bank of Canada lowered its overnight target interest rate to 0.50% from 0.75%.  Opinion had been mixed about whether this action would be taken at this fifth scheduled policy meeting in 2015.  Canadian growth has been weaker than U.S. growth.  The easing, the second of the year following a cut on January 21 of same size, was justified as follows.

The lower outlook for Canadian growth has increased the downside risks to inflation. While vulnerabilities associated with household imbalances remain elevated and could edge higher, Canada’s economy is undergoing a significant and complex adjustment. Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainably to target.

The Bank of Japan left policy settings unchanged but cut projected growth and core inflation in fiscal 2015 and projected inflation in the ensuing two fiscal years as well.  The Bank of Japan is more optimistic than the IMF and many private-sector analysts about future growth.

Chinese 2Q growth and June industrial production, retail sales and fixed asset investment were reported today.  Although above market expectations, the data did not alleviate concerns about future growth and whether officials can arrest the recent sharp slide in Chinese equities.

  • GDP expanded 1.7% on quarter and 7.0% on year, matching the first-quarter on-year growth rate.  In 1Q-over-1Q terms, Chinese GDP growth has slowed from 11.8% in 2010 to 9.7% in 2011, 7.4% in 2012, 7.7% in 2013, 7.4% in 2014 and 7.0% in 2015.  The recently released IMF projections call for Chinese growth averaging 6.8% this year (implying 6.6% in the second half) followed by 6.3% in 2016.
  • Industrial production growth accelerated to a 12-month increase of 6.8% in June from 6.1% in May, 5.9% in April and 5.6% in March.  The rise in the first half of 6.3% was down from 7.9% in full-2014.
  • Retail sales grew 10.6% between June 2014 and June 2015, up from 10.1% in May.  Sales were 10.4% greater in the first half than a year earlier, up from a full-2014 advance of 8.0%.
  • Fixed asset investment rose 11.4% on year in the first half of 2015, down sharply from 15.7% in full-2014.

Released U.S. data today showed

  • A 0.4% increase in producer prices last month that cut the 12-month rate of decline to a 4-month low of 0.7% from 1.1% in the prior month.  Energy prices went up 2.4% in June after a 5.9% leap in May but were 17.9% lower than in June 2014.  Core PPI inflation ticked up to 0.6% from 0.5% the month before and 0.3% in April.
  • Industrial production grew 0.3% in June, not enough to reverse back-to-back drops of 0.5% in April and 0.2% in May.  Output was 1.5% higher than in June 2014, not an especially robust pace. 
  • New York’s manufacturing index compiled by the N.Y. Fed rebounded from a 29-month low of 1.98 in June to a 4-month high of 3.86 in July.

British labor statistics were somewhat disappointing.  The jobs claimant count went up 7K in June after declining in April and May.  The ILO-basis unemployment rate ticked up to 5.6% in March-May from 5.5% in February-April and was associated with an employment decline of 67K.  Regular on-year pay grew 2.8% on year in March-May versus 2.7% in February-April.  The bright spot came in bonuses.  Wage growth including bonus pay accelerated to 3.2% from 2.7%.

Greek politics remain a mess of confusion.  It’s not clear that Tsipras will be able to get all the reforms approved by today’s deadline.  A complicating factor is a statement released by the IMF highly critical of the EU deal as not a viable long-term solution.  Greek import prices fell 8.9% in the year to May. 

The ZEW index of investor sentiment toward Switzerland weakened to a reading of -5.4 in July from 0.1 in June.

French consumer price inflation held at 0.3% in June.

Australian motor vehicle sales posted monthly and on-year gains in June of 3.8% and 4.0%, but the Westpac consumer confidence fell by a further 3.2% in June.

Canadian manufacturing sales and orders rose in May by 0.1% and 1.7% but recorded respective on-year declines of 3.6% and 5.6%.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: , ,


Comments are closed.