Softer Dollar but Firmer Oil Price

December 22, 2016

On this last full session before the Christmas break, the dollar fell 0.5% against the euro and 0.4% relative to the Swiss franc. Dollar/yen is steady and the dollar has strengthened against sterling, the Aussie and Canadian dollars, and Mexican peso.

West Texas Intermediate crude oil advanced 1.1% to $53.07 per barrel following news of a rise in U.S. inventories. Comex gold edged up 0.2% to $1,135.20 but remains near its lowest level since February.

Sovereign debt yields are 1-2 basis points higher in the U.S., Canada and Germany and 4-5 bps higher in France, Italy, Spain and Portugal.

U.S. share prices have eased slightly. The German Dax is down 0.3%, and Japan’s Nikkei closed 0.1% lower. Equity declines of 0.9% or more occurred in Taiwan, Hong Kong, India, and Indonesia.

Third-quarter U.S. GDP  growth got revised upward more than expected to 3.5% at an annualized pace. Compared to the year-earlier quarter, real GDP rose 1.7%. The total personal consumption and core PCE price deflators were respectively 1.0% and 1.7% greater last quarter than a year earlier, which is a smaller undershoot from target (2%) than second-quarter results.

U.S. jobless insurance claims jumped 16K to 270K last week, producing a 4-week average of 263-3/4K, which compares to a 251K average in the prior for weeks to November 19.

U.S. personal income and personal consumption expenditures in November were respectively flat and 0.2% higher compared to October. Analysts were looking for bigger gains. November-over-November increases in the PCE deflator and PCE core deflator were 1.4% and 1.6%. The PCE deflator in October had been also up 1.4%, but the core PCE price index came down from 1.8% the  month before and was its lowest on-year increase since July.

The Chicago Fed National Activity index weakened 0.25 points to a 3-month  low of -0.27 in November.

U.S. durable goods orders sank 4.6% last month after climbing 4.8% in October due to volatility in transportation equipment. But business equipment was firmer than expected.

The FHFA index of U.S. house prices rose 0.4% in October, down from monthly increase of 0.7% in August and 0.6% in September.

The Kansas City Fed manufacturing index jumped ten points in December to +11, its best result in over two years. The index had been negative in the first 8 months of 2016.

Canadian consumer prices fell 0.4% on month and to a 1.2% on-year advance in November from 1.5% in October. Seasonally adjusted consumer prices were 0.2% lower on month after back-to-back 0.2% rises in October and September. All of the Bank of Canada’s preferred core measures of inflation fell further below target in November.

Canadian retail sales jumped 1.1% in October, lifting the 12-month increase to 3.8% from 2.5% in September and 1.6% in August.

Three central banks announced unchanged policy stances.

  • The Central Bank of the Republic of China (Taiwan) retained a 1.375% interest rate by unanimous vote. The rate has also been kept unchanged at the previous quarterly review in September but was reduced by 12.5 basis points at the four successive meetings from September 2015 through June 2016.
  • The Filipino Monetary Board kept a 3.0% reverse repo rate. That’s been the level since hikes of 25 basis points in July and September of 2014. Officials consider the stance still appropriate but noted an upwardly tilted balance of risks associated with the inflation outlook.
  • The Czech National Bank left the two-week repo rate at 0.05%, its level since November 2012. Since November 2013, the central bank has also employed an asymmetric foreign exchange policy that caps the koruna at 27 per euro with intervention but permits depreciation below that level.

Real GDP grew 1.1% last quarter in New Zealand, beating analyst expectations, and was 3.5% greater than in the third quarter of 2015. The third-quarter current account deficit of NZD 4.89 billion equaled 2.9% of New Zealand GDP. A slower on-year 5.9% rise of M3 money in November was also reported.

British consumer confidence recovered a point to minus 7 in December after dropping seven points between September and November.  The low score in July right after the Brexit referendum was -12.

Italian retail sales rose 1.1% in the year to October. Danish GDP grew 1.2% between 3Q15 and 3Q16. In the year to December, Icelandic consumer prices increased 1.9%, while producer prices in November were 7.0% lower than a year before. Irish producer prices fell 0.3% in the year to November.

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


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