Sterling Extends Rally

September 15, 2017

Sterling rose another 1.4% against the dollar overnight, at one point reaching $1.3617, which is the strongest level since the first day following last year’s Brexit referendum on June 23rd. The Bank of England has signaled that its first interest rate hike in a decade is likely to occur within a few months.

It’s been a night of geopolitical tension. A terrorist bomb explosion on the London Underground injured at least 22 people, and North Korea successfully launched an intermediate-range missile over Japan, with sufficient distance to have reached Guam. The yen fell 0.6% and seems poised for its worst weekly performance since last November. The Japanese Nikkei closed 0.5% firmer.

Stocks in Europe have declined thus far by 1.3% in the U.K. and Greece, 0.5% in Switzerland, 0.3% in Spain and 0.1% in Germany, France and Italy.

Equities in the Pacific Rim fell by 0.9% in New Zealand, 0.8% in Australia, 0.5% in China and 0.4% in Indonesia and Singapore but advanced 0.4% in South Korea and 0.3% in Hong Kong and Taiwan.

The dollar declined overnight by 0.8% against the kiwi, 0.5% versus the euro and Swiss franc, and 0.3% vis-a-vis the loonie and peso.

The 10-year British gilt yield leaped ten basis points to 1.33% today. U.S. Treasury and German bund equivalent yields are up, too, while the ten-year Japanese JGB slid back a basis point.

Gold and oil prices are marginally lower.

Central banks in Chile and Peru announced interest rate decisions late Thursday. Chile’s rate was left at 2.5%, its level since a 25-basis point cut last May. Authorities at the Central Reserve Bank of Peru cut their rate by 25 basis points to 3.5% in the third reduction of 2017. The rate also had been cut 25 bps in May and July.

Earlier today, the Bank of Russia lowered its policy interest rate to 8.5% from 9.0%. That’s the fourth reduction of 2017. The rate was at 10% at the end of 2016.

U.S. data today were mixed.

  • Retail sales dropped unexpectedly in August by 0.2%, trimming their 12-month rate of increase to 3.2% from 3.5%. Non-auto sales rose 0.2%, half as much as in July. Auto sales were especially weak, but destroyed autos in the southern hurricanes should generate demand in coming months.
  • The Empire State manufacturing index for September printed well above expectations at 24.4 and only marginally below August’s 25.2 reading, which had been its most elevated score since September 2014.
  • U.S. industrial production dived 0.9% in August, defying expectations of a minuscule increase. Capacity usage fell to 76.1% from 76.9% the month before.

Euroland’s trade surplus totaled EUR 18.6 billion seasonally adjusted in July for the third time in four months, the exception being a surplus of EUR 21.7 billion in July. Exports fell on month for a second straight month. The unadjusted surplus in January-July, 15.5% smaller than a year earlier.

Total hourly labor costs in the euro area accelerated to an 0n-year advance of 1.8% in the second quarter of 2017 from 1.4% in the first quarter and 1.2% in the second quarter of 2016.

On-year Chinese M2 money growth slowed from 11.3% last January to 9.4% at midyear and 8.9% in August. That’s the smallest 12-month advance since at least 1996, and it has fallen by government design as officials try to dampen property market speculation. However, new ┬ábank lending of 1.09 trillion yuan exceeded expectations and seems ample. The economy has enough liquidity.

New Zealand’s manufacturing purchasing managers index increased 2.4 points in August to 57.9, a 3-month high, but house prices in that economy were 20% lower in August than a year earlier.

Canadian house prices were 3.8% above year-earlier levels in July.

Danish PPI inflation rose to 2.2% in August from 1.5% the month before.

Irish GDP posted a 1.4% quarter increase in the second quarter.

On-year Dutch retail sales growth slowed to 2.0% in July.

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



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