Dollar Rises and Long-Term Sovereign Debt Yields Spike Upward

September 27, 2017

The dollar advanced overnight by 0.9% against the Mexican peso, 0.6% versus the yen and Swiss franc, 0.4% relative to the euro, and 0.3% vis-a-vis the Aussie dollar, loonie and sterling. The yuan is flat, and the kiwi edged up 0.1%.

Ten-year German bund and British gilt yields leaped six and five basis points. Futures trading suggests a similar move in U.S. Treasuries. The Japanese JGB yield rose a basis point, too.

Details of the Trump Administration’s tax reform bill will reportedly be unveiled today, and it’s said to fund a corporate tax cut with elimination of state and local taxes as an itemized deduction on individual federal taxes.

Fed Chair Janet Yellen’s speech Tuesday before the NAHB sent a mixed message. Markets are reacting to the remark that the Fed must avoid tightening too gradually, not a separate comment that perhaps the Fed’s estimates of labor market tightness and long-term inflation have been over-stated.

Whereas sovereign debt prices fell, stocks are resilient. Markets rose 1.1% in Hong Kong, 0.8% in Singapore, 0.7% in Taiwan, 0.4% in New Zealand and 0.1% in China but fell 0.3% in Japan. Equities in Europe thus far have risen 0.7% in Italy, 1.2% in Spain, 0.5% in Germany, 0.3% in the U.K. and 0.2% in France.

WTI crude oil is trading just below $52.00 per barrel. Comex gold dropped 0.7% to $1,292.80 per ounce.

Small business sentiment in Japan recovered 0.4 points to a 2-month high in September of 49.4. On-year growth in August machine tool orders was revised marginally lower to a still strong 36.2%.

Italian business sentiment advanced 1.9 points to a reading of 110.4 in September, which is the best score since January 2016, and overall business sentiment also improved, printing at 108.0 versus 107.1 in August and 105.7 in July. Consumer confidence in Italy jumped to 115.5 from 111.2 and was 9.8 points above its May reading.

Swedish economic sentiment increased to 113.8 in September form 110.5 in August, lifted by a record high in the manufacturing sector component. Swedish consumer confidence rose 0.8 points to 101.8.

French consumer sentiment, however, fell 2 points to a 5-month low of 101 in September, 7 points weaker than the June high.

The CBI estimate of British distributive trades activity leaped from minus 10 in August to +42 in September, the best score in two years.

Investor sentiment toward Switzerland rose 3 points to 28.0 in September according to the ZEW expectations index but remained lower than July’s score. The UBS Swiss consumption indicator improved 0.07 points to 1.53 in August from an upwardly revised July reading.

M3 money growth in the euro area rebounded to 5.0% in August from 4.5% in July, thanks to more robust M1 expansion. Adjusted private lending growth accelerated marginally.

Sweden’s SEK 5.4 billion trade deficit in August was only about half as big as that a year earlier, as export growth of 13% outpaced a 7% on-year rise in imports.

The Czech National Bank, which had raised the 2-week repo rate by 20 basis points in early August to 0.25%, left policy unchanged. The rate had been at 0.05% since a cut in November 2012.

The Bank of Thailand as expected kept its 1-day repo rate at 1.5%, the level since a 25-basis point reduction in April 2015.

Chinese corporate profits posted a strong 24% on-year increase in August, up from 16.5% registered in July.

Icelandic CPI inflation slowed to a 14-month low of 1.4% in September from 1.7% in August.

Italian industrial orders edged just 0.2% higher on month in July but were 10.1% greater than a year earlier and also recorded on-year growth of 6.4% in January-July.

The St. Louis and Boston Fed presidents speak today. So will Bank of Canada Governor Poloz.

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

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