Mostly Firmer Dollar Tone

October 17, 2017

The dollar recorded overnight gains of 0.5% against the yuan, 0.4% versus sterling, 0.3% relative to the euro, 0.2% vis-a-vis the loonie, swissie, and peso, and 0.1% versus the yen and Australian dollar. The dollar edged 0.1% lower against the kiwi, in contrast.

Inflation reports released today tended to be above expectations.

  • Consumer prices in New Zealand rose 0.5% in the third quarter of 2017, their greatest on-quarter increase in four years. This lifted on-year inflation to 1.9% from 1.7% in the second quarter.
  • British CPI inflation accelerated to 3.0% in September, a full percentage point above target and highest since early 2012. Core CPI and retail price inflation, and core RPI remained steady at 2.7%, 3.9% and 4.1%, respectively. Bank of England Governor Mark Carney warned that British inflation is still cresting.
  • The final estimate of Euroland CPI inflation in September confirmed the flash estimated on-year pace of 1.5%, but month-on-month changes were higher at 0.4% for both the total and core index.
  • Austrian harmonized CPI inflation accelerated to 2.6% in September from 2.1% in August.
  • The September-over-September on-year changes of British producer input and producer output prices were 8.4% and 3.3%.

ECB Vice President Constancio warned that central bankers around the world need to take the risk of financial market bubbles more seriously.

Speculation is growing that President Trump will nominate a conservative to be the next Fed Chairman. Warsh and Taylor are perceived prefer a steeper rise in the federal funds rate than Yellen is pursuing, and Powell is more amenable to throttling back financial market regulation.

Another source of dollar support is the apparent truce between the U.S. president and Senate majority leader McConnell. They’ve adopted a more corroborative public stance to promote tax reform, a prospect that if enacted would likely augment dollar demand.

One foreign development being closely watched by the foreign exchange markets are the Chinese Communist Party Congress that assembles tomorrow. These happen only every five years and reveal who’s hot and who’s not among that countries leadership cadre. Another development attracting attention is the situation in Spain, where tensions in Catalan may be about to erupt again. The outcome of Japan’s snap election on the 22nd had appeared more uncertain a week or so ago than now. That Party of Hope’s challenge against Liberal Democratic rule seems to be faltering, and Prime Minister Abe is probably going to receive a decent mandate to pursue his domestic and foreign priorities.

Share prices in the Pacific Rim rose 0.7% in Australia, 0.4% in Japan and 0.3% in New Zealand but fell 0.5% in Taiwan, 0.2% in China and Hong Kong and 0.1% in India. Stocks in Europe are unchanged in Germany and France, down 0.3% in Italy and 0.2% in Switzerland but up 0.3% in Spain and 0.2% in the U.K..

Ten-year British gilt and German bund yields eased 3 and 1 basis points overnight, whereas the Japanese JGB edged a basis point higher.

Comex gold experienced a 0.9% slide and fell below $1,300 again o $1,291.1 per ounce. Copper likewise fell about 1%, but WTI crude oil is 0.4% firmer at $52.09 per barrel.

The U.K. government’s gauge of house price inflation was 5.0% in August.

The ZEW Institute’s monthly measure of investor sentiment expectations toward the euro area fell 5.0 points to a 6-month low in October of 26.7, even as the perception of current conditions recovered one point to a 2-month high. The expectations index for Germany rose 0.6 points to a 4-month high of 17.6, but there current conditions appear less buoyant than in September.

Car sales in the European Union were 2.0% lower in September than a year earlier.

Minutes from the Reserve Bank of Australia’s Board meeting on September 5 revealed persistent concern about elevated household debt in that economy and continuing aversion to the possibility of additional Aussie dollar appreciation that could stunt the pace of growth and desired rise of inflation.

Australian motor vehicle sales posted a monthly drop of 0.5% and an on-year decline of 0.8% in September.

The slate of scheduled U.S. data releases today features industrial production, import prices, and capacity utilization and also includes the National Association of Home Builders’ monthly housing market index and Treasury-compiled capital flows known as TIC data.

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

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