Lower Dollar as Hopes Dim over Nearness of Next Federal Reserve Rate Hike

August 10, 2016

Today’s main financial theme is the persistent weakness of global growth. 

  • The 10-year British gilt yield fell six basis points to a new record low of 0.52% in the U.K. versus 1.43% at the end of May.
  • Ten-year German bund and Japanese JGB yields are 2 basis points lower and each quite negative at -0.10% and -0.11%
  • A softer 10-year Treasury yield is indicated in futures trading.
  • The low and downwardly trending long-term rates are seen constraining Fed tightening. 
  • The Reserve Bank of New Zealand is widely expected to ease at Thursday’s meeting.
  • Share prices mostly fell today, with drops of 1.0% in India and 0.2% in Japan, New Zealand, Australia, and China. Stocks in Europe have slipped 0.6% in Greece and 0.3% in Germany. Stocks are historically high but widely considered overprices as are sovereign debt prices.
  • Oil dropped 1.1% to $42.31 per barrel, partly in response to evidence of heavy Saudi production.

The dollar has declined 0.9% against the kiwi, 0.7% relative to the Aussie dollar, 0.6% vis-a-vis the euro, 0.5% against the yen and loonie, 0.4% versus sterling and 0.3% against the yuan.

With the dollar sliding, gold climbed 0.9% to $1,359.1 per ounce.

Reserve Bank of Australia Governor Stevens, who is stepping down, gave a farewell address, warning about the dangers of excessive reliance on ultra-low interest rates and insufficient structural reform.

Japanese core machinery orders rebounded 8.3% in June but fell 9.2% in the second quarter. Between June 2015 and June 2016, core domestic machinery orders slipped 0.9%, while machinery orders from the public sector and other countries plunged by 8.4% and 16.8%.

Japan’s tertiary index, a gauge of service sector activity, rose 0.6% in June but just 0.2% in the second quarter. That followed a 0.3% first-quarter increase, a dip of 0.1% in 4Q15, and a 0.1% uptick in 3Q15. Compared to a year earlier, the tertiary index was up just 0.4% both in June and the second quarter.

Japanese domestic corporate goods prices were unchanged on month in July and 3.9% lower than a year earlier. In the year to July, export prices fell 3.4%, and import prices dived 10.9%.

French industrial production underperformed expectations in June, dropping 0.8% on month and 1.3% on year.

Swedish industrial production fell 0.4% on month and 1.4% on year in June.

Finnish industrial output in the first half of 2016 was 1.1% greater than a year earlier.

In the year to July, Norwegian consumer prices increased 4.4%, but that economy’s PPI fell by 7.2%. Danish and Romanian consumer prices in the same 12 month span edged up 0.3% and fell 0.8%, respectively.

In Australia, home loans increased 1.2% in July following back-to-back declines of 1.0% in April and 0.8% in May. Aussie consume confidence according to Westpac’s measure rose 2.0% in August but was unchanged on balance over the previous four months.

The U.S. Labor Dept’s JOLTS index, a measure of job openings, hirings and separations, gets released today, as does the monthly federal budget.

Despite all the negatives surrounding the Trump candidacy since the conventions, Clinton’s lead in opinion polls is not unassailable.

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

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