Stocks and Commodities Up, Dollar and Bond Yields Down

October 18, 2016

The dollar eased overnight against the currencies of other advanced economies. Losses of 1.1% against the kiwi and 1.0% versus sterling led this move. The dollar also fell 0.7% relative to the Australian dollar, 0.5% versus the loonie, and 0.1% relative to the yen, euro and Swiss franc. The pound was lifted by news that British inflation accelerated.

A wide spectrum of emerging market currencies also rose against the dollar.

Share prices in the Pacific Rim advanced 1.9% in India, 1.4% in China, 0.7% in South Korea, 0.8% in Hong Kong, 0.5% in Singapore and Taiwan, and 0.4% in Australia, Japan and Singapore. Stocks in New Zealand fell 1.3%, in contrast. New Zealand CPI inflation fell to a 3-quarter low of 0.2% last quarter from 0.4% posted in the first half of 2016. A 0.1% on-year rise in the final quarter of 2015 constituted a 16-year low.

Share prices in Europe have recovered 1.7% in Italy, 1.9% in Greece, 1.3% in Germany, 1.2% in France, 1.1% in Spain and 0.9% in Great Britain.

West Texas Intermediate crude oil rose 1.1% to 50.47 per barrel. Comex gold at $1,262.70 per ounce is 0.5% firmer.

The 10-year British gilt yield is four basis points softer. The 10-year German bund is down a basis point.

British CPI inflation rose to 1.0% in September from 0.6% in July and August and just 0.3% in May. Core CPI inflation was 1.5% versus 1.3% in both July and August. Retail price inflation increased to 2.0% from 1.8%. Sterling’s post-Brexit depreciation has inflationary implications and may prevent the Bank of England from cutting interest rates further.

U.K. producer output prices went up 1.2% in the year to September, while producer input prices climbed 7.2%. The government’s house price index was 8.4% higher than a year earlier in August, marking the sixth straight month when such was 8-something percent.

Britain’s indices of leading and coincident economic indicators were each unchanged in August from July levels.

Minutes from the Reserve Bank of Australia’s policy meeting earlier this month conveyed a mixed message that growth has been somewhat faster than expected but also expressing concern that prolonged low inflation could drag down expected inflation. Upcoming labor statistics and quarterly CPI data will exert influence on the policy decision at November’s meeting according to the minutes. Markets had priced in little chance of a rate change then. The central bank’s new Governor Lowe made public comments reiterating what the minutes had said but also warning of the danger of overly aggressive monetary accommodation.

Motor vehicle sales in Australia jumped 2.5% in September but were only 0.8% higher than a year earlier.

Hong Kong’s 3.4% jobless rate in 3Q was the same as in the three months of June-through-August.

Mexico’s index of leading economic indicators fell 0.3% in August. The peso rose almost 1% overnight.

Portuguese producer prices fell 1.7% in the year to September. In the same twelve months, consumer prices in Iceland rose 1.1%.

The belief that the Fed may only raise interest rates once or at most twice over the next year is weighing on the dollar. U.S. consumer price data get released later this morning. The U.S. National Association of Home Builders housing index and Treasury-compiled capital flow data will also be released today, as will the Canadian monthly survey of manufacturing sales, orders and inventories.

The last of three debates between Trump and Clinton is tomorrow. They meet on the campus of University of Nevada Las Vegas.

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


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