Dollar Slips and Stocks Rise Ahead of Last FOMC Decision of the Yellen Era

December 13, 2017

The dollar fell overnight by 0.7% against the kiwi, 0.6% versus the Aussie dollar, 0.4% relative to sterling, 0.3% vis-a-vis the yen and 0.1% against the euro, Swiss franc and loonie.

Core U.S. CPI inflation in November was 0.1 percentage point less than forecast with a rise of 0.1% from October and a 1.7% 12-month rate of climb. A 3.9% monthly leap in energy (+9.4% on year) raised the total CPI by 0.4% on month and 2.2% on year. U.S. real average hourly earnings were just 0.2% higher than a year earlier.

The Federal Open Market Committee is universally expected to raise the federal funds rate by 25 basis points later today to a range of 1.25-1.50%. This is the last meeting before Jay Powell assumes the Chairmanship of the Board of Governors, and the rate hike will be the third of 2017. Markets expected three increases in 2018 as well and will be very interested to receive cues regarding parallel efforts to trim the central bank’s balance sheet. Yellen is departing with a very strong reputation for guiding policy in a difficult time. She will hold a press conference starting at 14:30 EST. The FOMC also is scheduled to release new forecasts.

Democrat Doug Jones defeated Republican Roy Moore in the Alabama senatorial election. The vote was framed as a referendum on President Trump’s rough and tumble brand of politics and narrows the Republican lead in the senate to just a single seat. A tax plan is expected to be approved by Congress before this change takes effect, however.

The 10-year U.S. Treasury and British gilt yields are two and one basis points softer,while their German and Japanese counterparts are unchanged.

Share prices rose 1.4% in Hong Kong, 0.8% in South Korea, 0.7% in India and 0.4% in Indonesia but fell 0.5% in Japan and India. Stocks in Europe so far are down 1.0% in Italy, 0.4% in France and 0.3% in Germany but flat in the U.K.. U.S. equities have extended this week’s advance slightly.

Comex gold and WTI crude oil show modest gains today so far of 0.4% and 0.2% to $1246.7 per ounce and $57.27 per barrel.

Japanese private core domestic machinery orders (+5.0% in October) and foreign orders for machinery (+4.9%) failed to fully reverse September declines, leaving such only 0.9% and 1.4% above third-quarter means. Bank of Japan Governor Kuroda, who a week ago had hinted of the possibility of letting long-term rates move higher, today said that the central bank would continue to guide monetary policy according to what’s appropriate in light of evolving fundamental economic trends.

Industrial production in the euro area went up just 0.2% in October, weighed down by drops of 1.4% in Germany and 1.8% in The Netherlands. But production in Euroland registered a 12-month increase of more than 3.0% for a fourth straight month.

Euroland jobs expanded 0.4% on quarter and 1.7% on year in the third quarter.

German consumer prices increased 0.3% in November as energy spiked 1.3% and all other consumer prices collectively edged up 0.2%. On-year CPI inflation printed at 1.8% for the third time in the past four months. German wholesales prices climbed 0.5% in November and accelerated 0.3 percentage points to 3.3% in on-year terms, thanks to a 4.1% monthly jump in prices for solid fuels and petroleum products.

British jobless insurance claims rose 5.9K last month, a shade more than expected, and a 56K decline in employment during August-October was greater than assumed. On-year growth in average weekly earnings during October was subdued at 2.5% including bonus pay and 2.3% excluding such.

The Central Bank of Iceland’s 7-day term rate was kept at 4.25%. Such had been cut by 25 basis points each in May, June and October earlier this year, but a released statement after the latest policy review justified a tight monetary stance in light of strong economic growth prospects.

Italian industrial production rose 0.5% on month and 3.1% on year in October. Over that same span, industrial output climbed 9.6% in Romania and 7.6% in Hungary.

Australian consumer confidence according to the Westpac measure easily reversed a 1.7% slide in November with a 3.6% rebound this month. New Zealand food prices dipped 0.1% on month and decelerated to a 2.3% 12-month rate of increase.

South African CPI inflation dipped marginally to 4.6% in November. South African and Brazilian retail sales advanced by 4.6% and 2.5% during the year to October.

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


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