Steady Dollar

July 25, 2016

Group of Twenty finance ministers and central bankers, who met over the weekend in Chengdu, China, released a communique that broke no new ground in currency policy:

We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism. We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency.

The dollar is unchanged from Friday’s closing levels against the euro, Swiss franc, Australian dollar, Chinese yuan and sterling.  The dollar has risen 0.5% against the loonie, 0.2% relative to the kiwi and 0.1% versus the yen.

The Turkish lira and share prices recovered as Prime Minister Yildirim unveiled plans for a growth-promoting fund in the wake of last week’s failed military coup.

U.S. Democratic Party unity is in shambles after Party Chairwoman Wasserman resigned.  Wikileaks released thousands of emails showing that the national party had favored (rigged) the primary campaign in Clinton’s favor and at Sanders expense.

Stock market changes have been mostly held in check, too.  The Japanese Nikkei closed unchanged.  Equities rose 1.1% in India and 0.6% in Australia but just 0.1% in China, Hong Kong and South Korea.  Stocks fell 0.5% in Singapore but rose 0.5% in Indonesia.  Stocks are up 0.8% in Germany, where the monthly IFO business climate index revealed a more resilient economy than expected in the wake of Brexit.  The British Ftse is unchanged as is the Madrid IBEX.  Italian stocks edged up 0.1%.

Ten-year U.S. Treasury and German bund yields are unchanged.  The 10-year British gilt rose two basis points, while its Japanese counterpart slipped a basis point.

Comex gold, which fell in each of the past two weeks, has declined by a further 0.6% today, and West Texas Intermediate crude oil dropped 1.5% to $43.52 per barrel.

On the central banking front, the Monetary Authority of Singapore endorsed the present policy stance.  Singapore consumer prices posted a smaller 12-month 0.7% rate of decline in June along with core inflation of 1.1%, and central bank authorities project a rise to positive inflation later this year.

And policymakers at the Bank of Israel left their key interest rate at a mere 0.1%, expressing concern about the fallout of the British June referendum’s potentially adverse effect on global demand and world financial markets.

Japan experienced a larger trade surplus in June (JPY 693 billion not seasonally adjusted and JPY 335 billion adjusted) than forecast.  Exports fell less sharply on year (7.4% after a slide of 11.3% in May) and rose by 1.3% on month.  Imports plunged 18.8% between June 2015 and June 2016.

Japan’s indices of leading, coincident and lagging economic indicators in May were each revised downward.  The LEI fell to a 2-month low, while the COI was at a 33-month low.

Japan’s government kept its monthly economic assessment the same that the economy is continuing in a moderate recovery but that some weaknesses have been recently observed.

The CBI in the U.K. released its July monthly survey of British manufacturers, revealing a 42-point plunge in business confidence in the immediate aftermath of the Brexit vote.  The -47 reading was the lowest since January 2009, and the orders component fell to a 54-month low of -4.

The German IFO Institute out of Munich released its July business climate survey, revealing only a 0.4 dip in the overall index to a 2-month low of 108.3, second best in 2016.  Current conditions actually improved to an 11-month high, while expectations like the overall business climate dipped to a 2-month low.  The climate in retail and construction improved, while that in wholesaling and manufacturing fell a bit.  IFO officials said the data showed the economy to be resilient in the wake of Britain’s voter decision to leave the EU.

The DJIA fell 0.5% in the first hour of trading after posting a weekly closing high last week.  The Dallas Fed manufacturing index will be released shortly.

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

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