Sharply Weaker Yen

July 11, 2016

The yen lost 2.1% against the dollar, notching its biggest daily decline in 11-1/2 weeks.  There has not been reported intervention, but Sunday’s upper house parliamentary election, won strongly by Prime Minister Abe’s LDP Party, clears the way for more aggressive macroeconomic stimulus there.

Half of the 242 seats in Japan’s House of Councillors were at stake in Japan’s election.  The LDP captured 56 of them, and its coalition partner, Komeito, took another 14, which secures for the Conservatives a 2/3rds majority.  That ensures free rein for Abe in controlling the legislative process.

The dollar otherwise is unchanged against the euro, yuan and Swiss franc.  It’s up 0.6% relative to the kiwi and 0.1% vis-a-vis the Aussie dollar and loonie but down 0.2% versus sterling.

Today’s other big political story is the British Home Secretary Theresa May is the last Conservative Party leadership contender after Andrea Leadsom pulled out of the race.  This presumably paves the way for PM Cameron to step down sooner than September 9.  Theresa May had supported the U.K. remaining in the EU but is now 100% behind abiding by the people’s will.  She said, “Brexit is Brexit,” thus ruling out any consideration of holding a do-over referendum.

Stocks in the Pacific Basin and Europe, following the post-U.S. jobs report rally on Friday, climbed sharply to start the new week. Equities closed up 4.0% in Japan, 2.0% in Indonesia, 1.8% in India, 1.7% in Hong Kong and Taiwan, 2.0% in Australia, 1.3% in South Korea, and 1.0% in New Zealand and Singapore.  In Europe, stocks show gains of 1.8% in Greece, 1.6% in Germany, 1.4% in France, 1.2% in Spain, and 1.0% in Britain.

Ten-year sovereign debt yields rose at least two basis points in the U.S., Germany, U.K. and Japan, the latter being from Friday’s record low.

West Texas Intermediate crude oil initially sank to as low as $44.10 per barrel but now shows a 0.3% net rise at $45.55.  Comex gold dipped 0.2% to $1,355.20 per troy ounce.  The big story in commodities today involves industrial metals, which are trading more than 1.0% higher.

Chinese consumer prices dipped 0.1% on month in June, trimming the 12-month increase by 0.1 percentage point to 1.9%, a five-month low.  Producer prices fell 2.6% between mid-2015 and mid-2016.

Core private domestic machinery orders in Japan fell 1.4% on month in May, defying forecasts of a moderate increase.  Factory orders slumped 6.4%, while non-manufacturing core orders eased 0.3%.  Orders from the public sector and overseas respectively fell on month by 7.6% and 14.8%.  Core domestic machinery orders were 11.7% lower than a year earlier.

Japanese machine tool orders recorded a 12-month 19.9% rate of decline in June, their smallest on-year drop since January.  Japanese M2 money posted on-year growth of 3.4% both in June and the second quarter as a whole.  Broad liquidity growth decelerated to 1.9% in June from 2.3% in May.

The Bank of France reported an unchanged manufacturing business sentiment index of 97 in June.  The reading for construction sector business confidence was also unchanged at 97, while that for services dipped from 98 in May to 97 last month.  Central bank officials project that French GDP will have expanded 0.2% in the second quarter.

Italian industrial production fell 0.6% both on month and on year in May.  Output in January-May still managed to record a 1.3% on-year advance.

Spain’s index of leading economic indicators fell back 0.2% in May after a 0.5% rise the month before.

The Irish construction purchasing managers index improved 3.8 points to a 3-month high of 59.7 in June from a 6-month low in May.

Non-oil PMI readings for Egypt, Saudi Arabia and the United Arab Emirates fell to 2-month lows of 47.5, 54.4 and 53.4, respectively, in June.  June’s result in Egypt was the ninth straight reading below the expansion or contraction line of demarcation at 50.

Home loans in Australia unexpectedly fell 1.0% in May following a 1.7% rise in April.

Canadian housing starts, in contrast, increased for the first time in four months, jumping to a 9-month high of 218.3K in June from 186.7K in May.

In the year to June, consumer prices rose 0.3% in Denmark and 3.7% in Norway but fell by 0.7% in Romania and 0.8% in Poland. Norwegian producer prices were 9.7% lower in June than a year before.

Denmark’s current account surplus narrowed to DKK 7.9 billion in May from DKK 8.7 billion in April.

Greek industrial production fell 4.1% in May but was 2.9% greater than a year earlier.

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

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