Dollar Down Marginally Even as 10-Year Treasury Yield Rises to 10-Month High

January 18, 2018

Released Chinese data were close to expectations.

  • Real GDP grew 1.6% on quarter in 4Q, least in three quarters, but an on-year advance of 6.8% matched the 3Q result. Real economic growth in 2017 of 6.9% exceeded 2016’s 6.7% pace, marking the first calendar year acceleration since 10.6% in 2010 after 9.4% in 2009.
  • Property price inflation rose to 5.3% in December from 5.1% in November. This was the first increase since November 2016.
  • Retail sales recorded a 12-month 10.2% increase in December, same as in November and also matching the full-2017 pace. That’s down marginally from 10.4% in 2016.
  • Industrial production grew 6.2% on year in December, up from 6.1% in November but below the full-2017 increase of 6.6%. Output rose just 6.0% in full-2016.
  • Fixed asset investment climbed 7.2% in 2017, down from 8.1% in 2016.

Central banks in Indonesia, South Korea and Turkey left key interest rates unchanged.

Bundesbank President and ECB Governing Council member Weidmann implied that quantitative stimulus is likely to end after September and that a first interest rate hike around mid-2019 is a realistic prospect. Weidmann, who lies at the hawkish end of ECB policymakers, aspires to be the next president of that central bank when Draghi’s term ends late this year.

Among Fed officials speaking during the past 24 hours, Mester and Kaplan seem anxious to move forward with interest rate normalization, while Evans would like a pause until at least midyear.

Investors await a key House of Representatives vote on a spending bill.

Ten-year Treasury yield rose a basis point to 2.60%. Comparable German bund and British gilt yields rose by one and two basis points, while the 10-year Japanese JGB stayed flat.

The dollar slipped overnight by 0.3% against the Swiss franc, 0.2% relative to the yuan and euro, and 0.1% versus the kiwi, peso, and sterling. The dollar edged up 0.1% against the loonie and is flat against the Aussie dollar.

West Texas Intermediate crude oil firmed 0.2% to $64.07 per barrel. Comex gold fell back 0.7% to $1,330.40 per ounce overnight, and the price of a Bitcoin stabilized at least temporarily following this week’s tumble.

Share prices fell 0.4% in Japan despite Wednesday’s surge in U.S. markets. Stocks in China and Hong Kong each climbed 0.9% today. There were also gains of 0.6% in Taiwan, 0.5% in India and 0.4% in Indonesia. In Europe, the German Dax so far has risen 0.4%, but the British Ftse is down 0.4%.

Japanese industrial production growth in November was revised down 0.1 percentage point to 0.5% on month and 3.6% on year. Capacity usage was unchanged on month and 1.5% higher on year.

The Royal Institute of British Chartered Surveyors’ monthly housing price index jumped to 8% in December, best since May and up from zero in November.

The Bank of Korea’s key interest rate had been raised at the end of November to 1.5% from 1.25%, which was the first increase since 2011. The first policy review of 2018 left the rate at 1.5% and predicted that inflation would gradually rise to the target in the second half of this year and stay there next year.

Bank Indonesia kept the 7-day reverse repo rate at 4.25% as was expected. The most recent change was a 25-basis point cut in September. Overnight deposit and lending rates also were left unchanged, but implementation of minimum reserve requirements was accelerated.

The Central Bank of the Republic of Turkey kept its one-week repo rate at 8.0% as expected.

Australian employment went up another 34.7K in December, resulting in a sharp two-month increase of 98.3K and a surge of 185.7K over the past 5 reported months. The jobless rate rose 0.1 percentage point to 5.5%, as the labor market participation rate increased to 65.7% in December from 65.5% the month before and 65.2% in October.

New U.S. jobless insurance claims last week plunged 41K to just 220K, the smallest weekly total since February 24, 1973. But the Philadelphia Fed regional manufacturing conditions index dropped 5.7 points to a reading in January of 22.2, which represents a five-month low.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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