Mixed Dollar as Investors Eye Both Data and U.S. Political Developments

December 1, 2017

The dollar tumbled 1.2% against its Canadian counterpart and also lost 0.4% relative to the Australian and New Zealand dollars. Balancing these losses were gains of 0.4% relative to sterling, 0.3% versus the euro and Swissie, 0.2% vis-a-vis the yen and peso and 0.1% against the yuan.

A net 79.5K jobs were created last month in Canada on top of 46.4K during the prior two months. This surge caused the unemployment rate to slide 0.4 percentage points to 5.9%, lowest since February 2008 and lifted the loonie sharply. From a separate report, investors learned that Canadian real GDP growth slowed to a 5-quarter low of 1.7% at a seasonally adjusted annualized rate in the third quarter of 2017. Growth was depressed by a significant drop in exports and a small fall in residential investment.

Aside from a 1.0% decline in Indian share prices, stock markets around the world have been relatively steady today.

Following sharply higher long-term interest rates over recent days, ten-year sovereign debt yields have settled back today by 3 basis points in the U.K., 2 bps in Germany and one basis point in the United States.

West Texas Intermediate crude oil rebounded 2.3%. At a producer meeting yesterday in Vienna, ministers agreed to constrain production through the end of 2018. Gold is little changed.

U.S. senate Republicans continue to make significant progress toward securing an unpopular tax cut and overhaul whose centerpieces comprise a large cut of the corporate tax rate, a big boost in the federal deficit, numerous individual tax code changes that will greatly benefit the richest tax payers relative to the rest of the population. The prospect of this new law has buoyed U.S. share prices overall but also produced a marked differentiation among major industry groups. Financials have done especially well, whereas tech stocks have stumbled.

Former U.S. National Security Adviser Flynn is said to face indictment for lying to the FBI.

Japanese core CPI inflation edged up to 0.8% in October from 0.7% in August and September. Japan’s jobless rate held steady at 2.8% in October, and there were 0.9% more workers that month than a year earlier. The job offers to seekers ratio increased to 1.55 after three straight months of being at 1.52. Japanese real household spending slumped 2.0% on month and showed no change from the level in October 2016. Japanese capital spending last quarter grew 4.2%, more than assumed previously and suggesting that GDP growth in the quarter might get revised upward. Finally, the Japanese manufacturing purchasing managers index rose 0.8 points to a 44-month peak of 53.6 in November. Orders, production and inflation accelerated.

Numerous other released purchasing manager surveys reported today for November produced the following results:

  • The U.S. Institute of Supply Management’s factory PMI slipped back 0.5 points due to slower growth in supplier deliveries and inflation.
  • The IHS survey for Euroland put that bloc’s PMI at 60.1, which is 1.6 points higher than in October and the second best score ever next to the reading in April 2000. Record highs were experienced by The Netherlands and Austria. The German and Italian PMIs were 81-month highs. Ireland’s PMI indicated the fastest expansion since December 1999, and the French and Spanish PMIs constituted 84- and 129-month peaks. Every member of Euroland enjoyed expanding factory activity, even Greece whose PMI ticked 0.1 point higher to a 2-month high of 52.2.
  • China’s manufacturing PMI fell 0.2 to a 5-month  low of 50.8, but conditions improved more quickly in several other Asian economies. For instance, South Korea’s reading of 51.2 was a 55-month high. The Filipino PMI score of 54.8 was the best in 11 months. India’s 52.6 score was the highest since October 2016. Taiwan had a score of 56.3, 2.7 points better than the prior month and a 79-month peak. Although only at 50.0, Thailand’s PMI was above October’s level, but Vietnam’s dropped 0.2 points to 51.4, which was a 20-month low.
  • Among the biggest pleasant surprises was the British manufacturing PMI, which increased 1.6 points to a 51-month high of 58.2.
  • The Russian PMI of 51.5 was a 2-month high. Poland’s 54.2 reading was a 9-month high, and the Czech PMI continued to climb, reaching a 79-month high of 58.7.
  • Turkey’s PMI rose 0.1 to a 2-month high of 52.9.
  • Brazil’s PMI reading of 53.5 was at an 81-month high.
  • Australia’s PMI rose by a very sharp 6.2 points to a 3-month high of 57.3.
  • The Swiss PMI exceeded the 60 threshold for the fifth straight month, advancing 3.1 more points to an 88-month peak of 65.1.
  • Sweden’s PMI rose 4.0 points to an 8-month high of 63.3, and Norway’s index went up 2.3 points to a 4-month high of 57.1.

All in all, today’s PMI findings point to a broadly based global economic expansion.

In other economic news, Italian GDP growth last quarter was revised down 0.1 percentage point to 0.4% on quarter and 1.7% on year. The on-year increase was still the most since 2011. Finnish GDP also climbed 0.4% on quarter and was 3.0% greater than a year earlier. Czech GDP went up 0.5% in 3Q and surpassed its year-earlier level by 5.0%. Brazilian GDP edged up only 0.1%, still enough to lift on-year growth to 1.4%.

Saint Louis Fed President Bullard has warned that the U.S. yield curve could invert in the latter part of 2018 if the Fed doesn’t approach policy normalization more carefully.

New Zealand’s terms of trade rose less in the third quarter (0.7%) than it had in 2Q.

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


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