Yen, Aussie Dollar and Kiwi Strengthen

July 26, 2016

The dollar fell overnight by 1.0% against the yen, 0.8% relative to the kiwi and 0.7% vis-a-vis the Aussie dollar, but the U.S. currency is little changed against other major currencies.

The Japanese Nikkei lost 1.4% on signs from Finance Minister Aso that less fiscal stimulus is planned than investors were assuming.  The Bank of Japan is still expected to loosen its stance at this week’s Board meeting.

In other equity action, share prices rose 1.1% in China, 0.8% in South Korea, and 0.4% in Taiwan but were little changed in Singapore, Indonesia, New Zealand, Australia, and Hong Kong.  In European markets, equities show gains of 0.6% in Germany, 0.4% in Switzerland, 0.3% in the U.K. and 0.2% in Italy and France.  The DJIA opened marginally lower amid mixed news on corporate earnings and revenues.

West Texas Intermediate oil fell 1% and slipped beneath $43.00 per barrel to a 3-month low.  Gold edged up 0.1% to $1,320.90 per troy ounce.

Ten-year German bund and British gilt yields edged up a basis point each, while the 10-year Japanese JGB slipped two basis points deeper into sub-zero territory.

The FOMC began a 2-day policy meeting today.  It’s not expected to raise interest rates at this time, but investors have become more confident that it will do so sometime later in the second half of 2016.

The Bank of Japan’s Policy Board meets Thursday and Friday.  Some kind of policy stimulus is widely anticipated, but opinions vary about the specifics.  Perhaps an increase in planned buying of ETFs.

One of the Bank of England’s Monetary Policy Committee members, Weale, has seen enough proof of weakening economic activity and confidence revealed by the preliminary manufacturing PMI survey and the CBI industrial trends survey to justify monetary easing now.  Right after the Brexit vote, he’d favored a wait-and-see response.

Hungary’s central bank left its main interest rate unchanged at 0.90% this month.  However, on July 12, a set of modifications in the guidelines for the deposit facility were unveiled that are meant to lower market rates and promote bank lending.  The 0.90% base rate level was cut by 45 basis points in March-May and compares to 7.0% in July 2012.

A bunch of U.S. economic statistics were reported.

  • The Case Shiller index of home prices in 20 metropolitan areas revealed a continuing but less sloped uptrend.  The 12-month advanced slowed to 5.24% in May from 5.44% in April and 5.7% at the start of 2016.
  • The Conference Board’s consumer confidence index slipped back 0.1 point to a reading of 97.3 in June after a 5.0-point leap in May.
  • New home sales rose another 3.5% in June, defying expectations of a drop, and soared 25.4% over the past year.
  • Redbook’s gauge of chain store sales dipped 0.5% last week and were 0.6% higher than a year earlier.
  • The Richmond Fed manufacturing index catapulted from minus 7 in June to +10 in July, its first above-zero reading in over a year.

Japanese corporate service price inflation held steady at 0.2% in June, the fourth such reading in the past five months.

New Zealand posted a slightly smaller trade surplus of NZD 127 million in June and recorded deficits of NZD 173 million last quarter and NZD 3.31 billion between mid-2015 and mid-2016.

South Korean GDP growth accelerated to 0.7% on quarter and 3.2% on year in 2Q16.

Industrial output in Singapore was 0.3% lower than a year earlier in June.

Hong Kong’s June trade deficit of HKD 45.6 billion was very similar to that of HKD 45.8 billion in June 2015.

Producer prices in the year to June fell by 4.7% in Spain and 1.9% in Sweden.

The British Bankers Association reported a 15-month low of 40,103 mortgage approvals in June.

Finnish retail sales increased 0.4% in value and 1.3% in volume in the year to June.  Finland’s seasonally adjusted jobless rate stayed at 8.9% last month but fell to a 5-month low in unadjusted terms.

Belgian business sentiment unexpectedly improved 0.3 to a reading of 1.0 this month, providing another sign that the eurozone economy initially weathered the Brexit vote better than feared.

Mexico’s trade deficit widened last month to $918 million, while the Brazilian current account shortfall of $2.5 billion was roughly twice the size of the deficit in May.

The first night of the U.S. Democratic National Convention in Philadelphia brought out a lot of big-name speakers: Bernie Sanders, Michelle Obama, Elizabeth Warren, and Cory Booker.  It remains to be seen if Hillary Clinton’s voter support was helped.  Sanders endorsed her over Trump but in a conditional way that constrains her to follow his progressive agenda.  Many of Bernie’s supporters plan to sit the election out or vote for one of the fringe candidates. In a swirl of U.S. political uncertainty, the one thing that is crystal clear is that 2017 will mark a stark shift in U.S. trade policy away from the free-trade stance favored since the end of World War II.

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

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