Dollar Up But Stocks Lower

August 19, 2016

The dollar rose overnight by 0.9% against the Aussie dollar, 0.4% relative to the loonie, yuan and sterling, 0.3% versus the yen and Swiss franc and 0.2% against the kiwi and euro.

In European stock market action, share prices have dropped 2.0% in Italy, 1.2% in Spain, 1.0% in Greece, 0.8% in Switzerland, 0.7% in France, 0.4% in Germany, and 0.2% in Great Britain. Equities in the Pacific Rim fell 0.8% in Indonesia, 1.0% in Taiwan, and 0.2% in Hong Kong and India but rose 0.4% in Japan and 0.3% each in New Zealand and Australia. A softer open is indicated likely in the United States.

After rising sharply on Thursday, West Texas Intermediate crude oil settled back 0.2% to $48.11 per barrel. Comex gold is down 0.5% at $1,350.30 per ounce.

Ten-year German bund and Japanese JGB yields are unchanged at negative 0.08% and negative 0.09%. The 10-year British gilt yield rose 2 basis points to 0.57%.

There were somewhat conflicting policy clues from San Francisco Fed President Williams and FRS Governor Kaplan. Williams expressed a desire to see the fed funds rate hiked next month, while Kaplan cautioned that a lower neutral interest rate limits the Fed’s leeway to act.

Investors await Bank Indonesia interest rate announcement later today. The central bank as of tomorrow will be switching its interest rate tool to the reverse repo rate tomorrow.  This replaces the BI reference rate. Both rates have been used in recent months as officials transition away from the BI rate.  Right now, the BI rate is at 6.5%, having been lowered by 25 basis points each in January, February, March and June. The reverse RP is 5.25% but thought by many analysts likely to be cut again this month as it assumes sole status as a central bank targeted rate. Officials believe that policy transmission will be improved with the newly focused interest rate tool.

Japan’s all industry index, a supply side proxy of GDP, recovered 1.0% in June from a 1.3% drop in May. The all industry index increased 0.4% in the second quarter but was merely 0.1% higher than a year earlier. In June, industrial production went up 2.3%, and service sector activity advanced 0.8% on month.

There was a considerably smaller on-year decrease in Japanese department store sales in July — only 0.1% after declines of 3.5% in June and 5.1% in May.

South Korean producer prices edged 0.1% lower in July but posted a smaller 2.4% on-year decline after 12-month drops of 2.7% in June and 3.1% in May.

German producer prices rose more than forecast in July, gaining 0.2% on month and recording the smallest on-year drop, 2.0%, since August 2015. Energy was flat on month and 6.2% lower than in July 2015. All other producer prices collectively edged up 0.2% from June but slipped 0.5% below the year-earlier level.

The U.K. public sector borrowing requirement (excluding banking groups) narrowed GBP 3 billion to GBP 23.7 billion in April-July compared to a year earlier. There was a surplus of GBP 1.0 billion in July alone.

Spain’s trade deficit of EUR 7.87 billion in the first half of 2016 was 31% smaller than a year earlier as exports increased 2.3% while imports slid 0.5%.

The Greek current account posted a small surplus in June and a deficit of EUR 2.80 in the first half, down from EUR 3.88 billion a year earlier.

Icelandic consumer price inflation fell to 1.1% last month from 1.6% in June.

No meaningful U.S. data releases are scheduled today. The Summer Olympics in Rio end Sunday, August 21.

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


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