Dollar Retreats but European Stocks Rise Strongly

January 25, 2017

The dollar fell 0.6% against sterling, 0.5% relative to the yen, 0.4% vis-a-vis the loonie and kiwi and 0.3% against the euro, Swiss franc, yuan and Mexican peso. Yesterday’s tightening of Turkish monetary policy had a perverse effect on the lira, convincing investors that the currency is so vulnerable that more monetary restraint will be needed and that such will crush growth.

Buoyed by favorable corporate earnings news, share prices in Europe are so far up 1.7% in Spain, 1.6% in Greece, 1.4% in Germany, 1.2% in Switzerland, and 1.0% in France. Japan’s Nikkei recovered 1.4%, and India’s market gained 1.2%.

West Texas Intermediate crude oil fell 0.8% to $52.74 per barrel.

Comex gold dropped 0.4% to $1,206.60 per ounce. Copper declined over 1.0%.

Ten-year German bund and Japanese JGB yields increased two basis points, and their British counterpart is a basis point firmer.

Japan’s customs trade surplus in December was JPY 357 billion seasonally adjusted, a three-month low, but JPY 641 billion unadjusted versus JPY 140 billion a year earlier. There was a JPY 4.074 trillion surplus in 2016 versus a deficit of JPY 2.792 trillion in 2015. On-year growth in exports was 5.4%, while imports posted a drop of 2.6%.

Australian inflation last quarter was lower than forecast, causing the Aussie dollar to soften against the U.S. currency on a day when most other currencies strengthened. Consumer prices rose 0.5% overall from 3Q and 1.5% on year. Core inflation stayed low at between 1.5% and 1.6%. All on-year consumer price comparisons in December were lower than at end-2015.

Markit Economics, which reports a U.S. manufacturing purchasing managers index separate from the ISM index, said such in January printed at a 22-month high of 55.1. New business grew at the fastest pace in 28 months.

The German IFO’s business climate index declined 1.2 points in January to print at a 4-month low of 109.8 despite modestly more robust current conditions. Expectations fell 2.3 points to 103.2, a 5-month low, eliciting the comment from IFO officials that the business community was “less confident at the start of the year.”  Separately, German construction orders fell 1.1% in November but were 4.9% higher than a year earlier.

Britain’s industrial trends index, compiled by the CBI, improved to a reading on orders of +5, better than any level in 2016. Such printed at -15 in January of last year.

The UBS Swiss consumption index improved 0.05 points to 1.50 in December, best since August. The ZEW expectations index of investor sentiment toward the Swiss economy jumped 5.6 points to a reading of 18.5 in January.

Overall business sentiment in France edged down a point to 104 in January. Manufacturing had an unchanged reading of 106, but services weakened.

Italian industrial orders rose 1.5% on month but merely 0.1% on year in November. Industrial sales climbed 2.4% on month and 3.9% on year.

Two measures of Australia’s index of leading economic indicators were reported today. The Conference Board index advanced 0.5% in November and was accompanied by a 0.3% rise in the index of coincident economic indicators. Westpac’s LEI index leaped to a reading of 0.44 in December from a score of only 0.03 in November.

Real GDP in South Korea slowed to a quarterly gain of 0.4% in 4Q16 and was 2.7% higher than at the end of 2015.

Polish unemployment fell to 8.3% at end-2016 from 9.7% a year earlier.

Spanish producer prices jumped 1.5% last month and were 2.8% higher than in December 2015.

President Trump is proceeding rapidly with implementation of his campaign agenda. A press report today says will formally authorizing construction of the U.S./Mexican wall shortly. U.S. mortgage applications rose 4.0% last week. The 30-year fixed mortgage rate increased another 8 basis points to 4.35%.

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

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