Markets Trading on Policy Perceptions, Not Released Data

January 24, 2017

The nominee for U.S. Treasury Secretary, Steve Mnuchin, gave a nuanced view on dollar strength, saying such is a desired long-term goal but also can be detrimental to the economy in the short run.

As promised, U.S. President Trump nixed U.S. participation in the Pacific Trade Pact (TPP). Other Asian nations led by China will proceed with the multilateral deal minus the United States.

Britain’s Supreme Court by a vote of 8-3 said parliamentary consent is required for the triggering of Article 50 that starts the two-year countdown for full Brexit and said that Scotland, Wales, and Northern Ireland lack authority to block such action. Bottom line is the Prime Minister May should have the ability to trigger Article 50 by her self-imposed deadline of March 31. The pound fell after the decision.

The Central Bank of the Republic of Turkey tightened monetary policy, citing the weak lira that poses inflationary risk. To wit, the marginal overnight lending rate was lifted by a greater-than-expected 75 basis points to 9.25%. There had been a 25-bp hike in November.

The release of preliminary January purchasing manager survey results for Japan and Euroland had scant impact on financial markets.

The dollar rose overnight by 0.8% against the yuan, 0.5% against sterling, 0.2% relative to the yen and Canadian currency, and 0.1 versus the Swiss franc and Aussie dollar. The greenback is 0.4% lower against the Mexican peso and down 0.2% versus the kiwi.

Japan’s Nikkei fell 0.6%, but stocks rose 1.0% in India, 0.8% in Indonesia, 0.7% in Australia, 0.3% in Hong Kong and Taiwan, and 0.2% in South Korea. There have been equity gains as well in Europe, amounting so far to 1.0% in Greece, 1.3% in Italy, 0.5% in Spain, 0.3% in Switzerland, 0.2% in the U.K. and Germany and 0.1% in France.

Ten-year British gilt and German bund yields rose three basis points, and so did the comparable Treasury yield in futures trading. But the 10-year Japanese JGB settled back a basis point.

Gold dipped 0.3% from a 3-month high to $1,212.60 per troy ounce.

West Texas Intermediate crude oil rose 0.2% to $52.83 per barrel.

Japanese manufacturing purchasing managers index rose 0.4 points to a 34-month high of 52.8. The reading was above the 50 no change line for a fifth straight time.

Euroland’s composite PMI edged down 0.1 points to a 2-month low of 54.3 as a result of divergent developments in manufacturing, whose index rose 0.2 points to a 69-month peak, and services, which dropped 0.1 point to a 3-month low of 53.6. Job growth was at a 9-year high, but input price inflation was stronger than desired.

The German composite PMI fell 0.5 points to 54.7, a 4-month low. Manufacturing printed a a 36-month high of 56.5, but services slipped to a 4-month low reading of 53.2. All these scores were lower than forecast.

France’s composite PMI, by contrast, beat expectations and climbed to a 67-month high of 53.8. Manufacturing dipped only 0.1 to 53.4, while services jumped a full 1.0 point to a 19-month high of 53.9.

New Zealand’s performance of services index rose 0.3 point to 58.4 in December, the best score in a year.

China’s index of leading economic indicators, compiled by the Conference Board, rose 0.8% in December, the smallest on-month increase in five months, and the index of coincident economic indicators fell 0.6% following a 1.3% rise in November.

Britain’s public sector borrowing requirement of GBP 6.86 billion in December slightly surpassed the expected deficit. But the April to December shortfall of GBP 63.8 billion was 14.2% narrower than a year earlier. The fiscal year runs from April to March.

Economic sentiment in the Czech Republic printed at 14.7 in January, which splits the difference between readings of 14.6 in December and 14.8 in November.

Finnish producer prices increased 2.4% between end-2015 and end-2016. Average unemployment last year in Finland of 8.8% was down from 9.4% the year before.

The Brazilian current account deficit in December of $5.88 billion was the largest monthly shortfall of 2016 and more than six times larger than November’s deficit.

The South African Reserve Bank, like its Turkish counterpart, is also holding a monetary policy meeting today.

U.S. releases today include weekly chain store sales and monthly existing home sales and the Richmond Fed’s manufacturing index.

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

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