Mostly Firmer Dollar as Markets Eye U.S. Primaries and Upcoming FOMC and BOJ Meetings

March 14, 2016

There’s been a 12.7% devaluation of the Egyptian pound.  The U.S. currency has risen against a wide array of other emerging market currencies, too, as investors upgrade the probability of further Fed tightening before midyear.

The dollar shows gains of 0.6% against the kiwi, 0.5% versus the Swiss franc and loonie, 0.4% vis-a-vis the euro, 0.3% relative to sterling and 0.1% against the Australian dollar.  The yuan is steady, and the yen has lost 0.1%.

In German regional elections held in Saxony-Anhalt, Rhineland-Palatinate, and Baden-Wuerttemberg, the extreme right, anti-refugee party captured stronger-than-expected voter shares in very high turnout.  The anti-refugee movement’s appeal was strongest with voters, who didn’t go to the polls in the previous election.

Iran announced plans to boost oil output to pre-sanction levels, depressing West Texas Intermediate crude oil by 2.7% to $37.48 per barrel.  Comex gold edged 0.2% higher to $1,251.44 per ounce.

The drop in oil has weighed on equities, but their decline is small thus far in comparison with the rally in recent weeks.  The DJIA is off 0.2%, and Canada’s market is down 0.3%.  Equities in Italy (-0.3%) and Taiwan (-0.5%) are also down, but gains have been recorded in Japan of 1.7%, China of 1.8%, Indonesia of 1.3%, Hong Kong of 1.3%, Great Britain  of 0.5%, Germany of 1.4%, and Australia of 0.4%.

The ten-year Treasury yield had slipped three basis points, and its British counterpart is off a single basis points.  German bund and Japanese JGB yields are steady.

U.S. presidential primary elections are scheduled tomorrow in Florida, Ohio, Illinois, Missouri, and North Carolina. The Republican votes in Florida and Ohio are winner-take-all-delegate events.

Fears about global demand were accentuated by the latest Chinese economic figures but assuaged by reports out of Euroland and Japan.

On-year growth in Chinese industrial production slowed to 5.4% in January-February, lowest since November 2008, from 5.9% in December and 6.2% in November.  A 10.2% year-over-year rise in retail sales was down from 11.1% growth in December and constituted a 9-month low.  Fixed asset investment in the first two  months of 2016 was 10.2% greater than a year before, similar to a 2015-over-2014 increase of 10.0%.

Eurozone industrial production snapped up 2.1% in January, their largest monthly advance since September 2009. The increases was concentrated in Ireland (+12.7%), Germany (+2.9%), The Netherlands (+2.1%) and France (+1.4%).  Output was 2.8% greater than a year earlier in January versus a 0.1% dip between December 2014 and December 2015.

Japanese core private machinery orders recorded a 15.0% jump in January following a 1.0% rise in December and a 9.7% monthly plunge in November.  Domestic private orders for manufactured goods soared 41.2%.  On the other hand, foreign and public-sector machinery orders respectively slumped 29.4% and 23.3% between December and January.

New Zealand’s service-sector purchasing managers index rose 1.5 points to a 2-month high of 56.9 in February.

Ireland’s construction purchasing managers index set a new record high in February of 68.8, up from readings of 63.6 in January and 58.6 in December and eclipsing the previous all-time peak of November 2004.

Wholesale prices in India fell 0.91% in the year to February, while consumer prices that month slowed to a 12-month 5.18% increase from 5.69% in January.

Today was the first day of a two-day meeting of the Bank of Japan Policy Board.  The prior meeting of January 21 unexpectedly produced by a 5-4 vote a decision to introduce a three-tiered central bank interest rate with a negative rate associated with incremental deposits held at the bank.  In the aftermath of that announcement, the yen has strengthened, and bond yields sank below zero faster than assumed.  The Board no longer meets every month.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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