Lower Dollar as Investors Await FOMC Minutes

January 4, 2017

The dollar depreciated overnight by 0.8% against the loonie, 0.5% relative to the yuan and kiwi, 0.4% versus sterling, 0.3% vis-a-vis the euro and 0.2% against the yen and Australian dollar.

Japan reopened for a half day, and the Nikkei rose 2.4%, catching up for lost time. In other Pacific Basin stock markets, equities rose 1.7% in New Zealand, 0.8% in Singapore, 0.7% in China and 0.5% in Indonesia. Share prices in Europe are up 0.4% in Switzerland, unchanged in Spain and Italy, and down 0.3% in Germany and 0.1% in both the U.K. and France.

Ten-year sovereign debt yields rose two basis points in Japan but edged a basis point lower in the U.K. and Germany.

WTI crude oil advanced 0.6% to $52.03 per barrel. Comex gold is 0.4% higher at $1,166.50 per ounce.

Reflecting developments in food and energy, CPI inflation in the eurozone rose sharply in December to 1.1% from 0.6% in November and 0.2% at end-2015. Food was up 1.2% on year versus a rise of 0.7% in November, and the 12-month change in energy swung from -1.1% in November to +2.5% in December. Core inflation of 0.9% was up from 0.8% in November but unchanged from the increase in the year to December 2015.

An unusually sizable daily rise in the Chinese yuan reflects the government’s recourse to new measures countering capital outflows.

The global manufacturing purchasing managers index compiled by J.P. Morgan advanced 0.6 points to a 34-month high.

Euroland’s final composite purchasing managers index printed at 54.4, a 5-1/2 year high. The flash estimate had been 53.9, unchanged from November’s reading. The French, German and Spanish indices recorded 18-, 5- and 6-month highs. Italy’s composite PMI of 52.9 was a 2-month low.

Euroland’s services PMI was also at a 2-month low, printing at 53.7 after November’s 11-month high of 53.8. The data all in all point to fourth-quarter GDP growth of around 0.4%, but political risks create uncertainty over whether the improving trend will continue this year. Inflationary pressure is reawakening but confined mainly to energy.

Japan’s manufacturing PMI jumped more than forecast to a 12-month high of 52.4 in December from 51.3 in November. This was the fourth straight month in which the PMI was above the 50 level that separates contraction from expansion.

India’s service-sector PMI reading of 46.8 was little improved from November’s 46.7 score, still feeling the drag from the governments rupee demonetization. The composite Indian PMI of 47.6 signaled the fastest contraction since early 2014.

Middle Eastern PMI’s got released. Egypt’s non-oil purchasing managers index bounced off November’s 40-month low to a 3-month high of 42.8, which still implies rapid contraction with severe input inflation. The Saudi non-oil PMI printed at a 4-month high of 55.5 in December versus a record low of 53.2 two months earlier. In the United Arab Emirates, the non-oil PMI climbed 0.8 points to an 11-month high of 55.0. And Lebanon’s private PMI edged 0.1 point higher to a 10-month high of 47.0, still below 50 however.

Britain’s construction PMI improved more sharply than forecast, rising 1.4 points to an 11-month high of 54.2. Such bottomed in July at 45.9.

British shop prices in December recorded their smallest on-year decline since August 2015, a slide of 1.4%.

Mortgage approvals in the U.K. of 67,505 were the highest since April. M4 grew 6.4% in the year to November.

French consumer confidence stayed at 99 in December, the same reading as in November and up from 98 in October and 97 in September.

Sweden’s services purchasing managers index edged up just 0.1 but at 59.9 constituted a 29-month peak.

Brazil’s services PMI rose 0.7 points to a 3-month high of 45.1 but was the 22nd sub-50 reading in a row. The composite Brazilian PMI of 45.2 was down from 45.3 in November but above the October reading of 44.9.

Italian consumer prices rose 0.5% in the year to December, while Cyprus consumer prices in the same period fell by 0.3%.

In Thailand, consumer prices and producer prices each climbed 1.1% between December 2015 and last month.

Singapore’s manufacturing purchasing managers index recorded a fourth straight reading of 50 or more, albeit of just 50.6 in December.

Consumer sentiment increased 1.5% in China last month.

U.S. mortgage applications edged just 0.1% higher last week. Other U.S. economic statistics to be reported today are the New York regional PMI (known as the NAPM index) and motor vehicle sales, but these will be overshadowed by the released minutes from the FOMC’s December policy meeting that authorized a 25-basis point federal funds rate hike.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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