Euro Dips Briefly Below $1.05

February 22, 2017

Concerns that European nationalism may break the EU apart caused the euro to dip to an overnight and 6-week low of $1.0493 and 10-year sovereign debt yields to fall five basis points in The Netherlands, 4 bps in Germany, 3 bps in France, Italy and Britain. Equity markets in Continental Europe are down 1.0% in Greece, 0.8% in Italy, 0.6% in Spain, 0.2% in Switzerland and 0.1% in France. The British Ftse edged up 0.1%, and the German Dax is flat.

The dollar shows net appreciation overnight of 0.3% against the euro, Swissie and sterling and 0.2% relative to the loonie. The dollar has declined 0.5% against the yen, however, and 0.1% versus the peso and yuan. The New Zealand and Australian currencies are unchanged against their U.S. counterpart.

Industrial metal prices including copper (down over 1.0%) are lower. Comex gold is steady at $1,238.70 per ounce, and West Texas Intermediate crude oil slipped back 0.5% on growing doubts about the effectiveness of OPEC output cuts.

Share prices in the Pacific Rim have risen 1.4% in Hong Kong, 0.9% in Singapore and 0.3% in Indonesia, but closed unchanged in Japan and fell 0.8% in New Zealand.

Global and domestic unease over the new U.S. government’s policy agenda are focusing particularly upon plans for large deportations of undesirables back to their ethnic countries of origin. A story from Bloomberg predicts this program may hit U.S. property values hard. By draining the pool of workers, deportations will put a greater burden on getting a huge and sustained burst in productivity in order to approach the administrations ambitious growth targets.

The IFO index of German business climate for February unexpectedly recouped all of January’s 1.1-point deterioration. At 111.0, the index is 5.3 points above its year-earlier level. Current conditions rose 1.5 points to a 102-month high. Expectations revived 0.8 points to a 2-month high. Wholesale activity was the best in over a year. Manufacturing rose to a 4-month high, but construction and retail fell to 6-month lows. Summarizing the results, IFO officials said Germany’s economy is back on track after a cautious January.

Eurozone consumer price data for January underscore the influence of energy on the total CPI changes. Energy prices leaped 2.5% on month following a 1.8% advance in December and showed an 8.1% increase from a year earlier versus a 5.4% drop in the previous 12 months to January 2016. All other consumer prices fell 1.2% in January, three times more than December’s monthly advance. The ECB Governing Council normally guides itself by the total index but in the absence of any sign of second-order price increases from energy’s lead and amid anchored low price expectations has agreed this time to look through what may be a transitory energy shock.

British real GDP growth last quarter was revised upward by 0.1 percentage point to 0.7% on quarter. GDP rose 1.8% in 2016, a 4-year low and down from calendar year growth of 2.2% in 2015 and 3.1% in 2014. Personal consumption and exports advanced 0.7% and 4.1% last quarter, but business investment sank 1.0%. Government spending was modest.

Italian CPI inflation doubled to a 1.0% on-year pace in January, with energy climbing 9.0%. Austrian CPI inflation rose 0.6 percentage points to 2.0%, and Irish producer prices were 1.6% higher than a year earlier.

The Swiss ZEW expectations index, a gauge of investor sentiment, improved again to an 8-month high of 19.4 in February following an 18.5 reading the month before.

Australian quarterly wage inflation posted meager gains in 4Q of 0.5% from 3Q and 1.9% on-year, leading RBA Governor Lowe to assert their trend gives the central bank leeway to keep its official cash rate at the current record low. While monetary officials worry that excessively low actual inflation that is sustained could depress price expectations, he also cautioned that high household debt is an opposing potential danger that also needs to be monitored.

Construction completions in Australia fell 0.2% last quarter and were 7.8% lower than in the final quarter of 2015.

Real GDP in Hong Kong increased 1.2% in 4Q16, twice the quarterly pace of the third quarter, raising on-year growth to 3.1% from 1.9%.

Today’s main attraction from the United States will be the release of FOMC minutes, which will be combed especially for any modified views regarding tolerance toward inflation. U.S. existing home sales data and weekly oil inventories will be released today as well.

The Central Bank of Brazil will be announcing the latest decision on its Selic interest rate later today as well.

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

Tags: , ,


Comments are closed.