Dollar, Stocks, and Bond Yields Drop

March 27, 2017

Markets reacted poorly to the scrapped U.S. health care bill. Disappointment transcends Trump’s inability to secure this promised deal. The repeal and replacement of Obamacare was intended to generate cost savings to the government needed to finance planned tax cuts. Tax reform will now be associated with larger fiscal deficits than had been planned, so the health care bill’s failure could have a domino effect on other parts of the Trump agenda.

The dollar is trading 0.8% lower against the yen and sterling. It’s also down 0.6% relative to the euro and Swiss franc, 0.4% vis-a-vis the kiwi, 0.3% versus the loonie and 0.2% against the Australian dollar. The trade-weighted dollar is┬áhovering around its 2017 low.

Share prices fell 1.4% (or 277 points) overnight in Japan, 1.0% in Hong Kong, 0.6% in South Korea and India, 0.5% in Indonesia and Singapore and 0.3% in Taiwan. China’s market dipped only 0.1%, but stocks in Europe have lost 0.7% in Germany, Italy and the U.K., 0.4% in Switzerland and Spain and 0.3% in France.

European countries went on daylight savings time yesterday, restoring the normal time differentials vis-a-vis the United States.

Ten-year sovereign debt yields dropped two basis points in Germany and the U.K., while the 10-year U.S. Treasury yield is off five basis points in futures trading to 2.36%. Such got has high as 2.62% a mere two weeks ago.

A “summary” of the Bank of Japan’s March 15-16 Board meeting reads very dovishly, suggesting policy will not be tightened in any way for a considerable time. The 10-year JGB yield, which is targeted at around zero percent, dipped a basis point to 0.06%.

West Texas Intermediate crude oil has declined 0.9% to $47.56 per barrel. Today’s big winner is gold, which rose 0.7% to 1,250.40 per ounce, highest in 4-1/2 months.

In an apparent challenge to Trump’s protectionist ambitions, Governor Zhou of the Peoples Bank of China held out the carrot of Chinese financial market liberalization but only if reciprocated with better treatment for Chinese investors.

Japanese corporate service prices rose 0.3% on month and accelerated to a 12-month 0.8% advance in February, most since March 2015 and above street forecasts.

The IFO index of Germany’s business climate jumped 1.2 points to a 68-month high in March of 112.3, which easily exceeded expectations. Current conditions rose 0.9 points, and expectations increased by 1.5 points, prompting IFO officials to conclude that the German upswing is “gaining momentum.”

ECB Governing Council member Praet rejected the view that things were better before the euro as untrue.

Euro zone M3 money growth slowed to a 4.7% 12-month rate of increase in February, down from 4.8% in January and 5.0% in December. The growth of loans to firms of 2.0% was down from 2.3% in the previous two months. These data will not encourage ECB officials to cut back stimulus sooner than planned.

The Dallas Fed manufacturing index gets released today, and some Fed officials (Kaplan and Evans) are scheduled to speak publicly.

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

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