Dollar Extends January Losses

January 25, 2018

The dollar declined overnight by 0.5% versus the yuan, 0.4% relative to the Swiss franc and sterling, and 0.2% against the euro, yen, and peso.

President Trump arrived in Europe to attend the Davos World Economic Forum. His threat of protectionism is now transitioning into actual action.

The Governing Council of the European Central Bank left its interest rate structure and asset purchase program unchanged as expected. A zero percent refinancing rate is flanked by a negative 0.4% deposit rate and a marginal lending facility rate of +0.25%. These rates will not be raised until well past the point when asset buying has ended (back last June, the risk of a further cut in rates was dropped). Asset purchases are continuing through September at a pace of EUR 30 billion per month. Such could be reduced thereafter but look increasingly likely to end altogether at that point. However, the principal of maturing assets will continue to be reinvested.

Equities fell sharply in some markets. The Nikkei closed down 271 points or 1.1%. Hong Kong’s Hang Seng lost 1.4%. Singapore dropped 1.0%, but China’s market only dipped 0.3%, and the South Korean Kospi rebounded. In Europe so far, stocks have climbed 0.6% in Italy, 0.5% in France, 0.4% in Spain but just 0.1% in Germany, the U.K., and Switzerland.

WTI crude oil rose another 1.0% to $66.28 per barrel. Gold edged up 0.2% to $1,363.40 per ounce.

Ten-year yields of German bunds, British gilts and U.S. Treasury futures dipped by a basis point.

Malaysia’s central bank boosted the overnight policy interest rate by 25 basis points to 3.25%. This was the first change since a cut of 25 basis points in July 2016 and the first increase since May 2011. Officials expect strong growth momentum to continue, making policy normalization now appropriate, but inflation in 2018 is likely to be lower than in 2017, so there seems no urgency to move quickly.

The Bank of Norway left its key interest rate at 0.50%, the level since a 25-basis point cut in March 2016, but released a relatively hawkish statement suggesting that a rate increase is to be expected late this year.

The New Zealand dollar fell against its U.S. counterpart in contrast to the direction of most other currencies. This followed the release of fourth-quarter consumer prices that showed an unexpected drop of on-year inflation in New Zealand to 1.6%, a 4-quarter low, from 1.9% in the third quarter and 2.2% in the first quarter of 2017.

The IFO Institute of Germany released that economy’s January business climate index, which highlighted a dynamic start to the new year. Despite a 4-month low in the expectations component, which takes a six-month forward-looking view, the overall index reversed December’s 0.4-point drop to match November’s record peak of 117.6. Manufacturing and wholesaling improved, while construction and retail slipped to 2-month lows.

German consumer confidence rose 0.2 to a new high for the move of 11.0 in February.

Britain’s distributive trades index, compiled by the CBI, fell eight points to a 3-month low in January of 12. The British Bankers Association’s estimated number of mortgage approvals, a lower-than-forecast 36,115, represented the fourth month-on-month decline in a row and an 18.8% drop from a year earlier.

Italian industrial orders rose 0.3% in November on top of October’s 1.9% increase and were 8.9% greater than a year earlier, down from a 12.5% on-year advance the month before.

Spanish unemployment unexpectedly rose slightly to 16.55% last quarter.

The latest readings of unemployment in Sweden (6.5%), Norway (4.1%) and Finland of 8.4% were also reported today.

Swedish PPI inflation slowed 0.4 percentage points to 2.3%, and that economy’s consumer confidence index printed at a 3-month low in January.

Japanese supermarket sales rose 0.9% on year in December, the best result since July when the level was unchanged from a year earlier.

South Korean GDP slipped 0.2% last quarter, depressing on-year growth to 3.0% from 3.8% in 3Q.

The Conference Board reported increases during November of 0.3% in Australia’s index of leading economic indicators and 0.5% in the index of coincident economic indicators.

South African PPI inflation ticked up to 5.2% last month from 5.1% in November.

Canadian retail sales in November rose 0.2%, depressed by a 3.6% drop in motor vehicles and parts but buoyed by a 1.6% advance in everything else collectively. Sales were 6.5% greater than a year earlier.

New U.S. jobless insurance claims of 233K were 17K higher than the prior week’s total, which had been the lowest of any week since February 1973.

Still ahead: U.S. new home sales, index of leading economic indicators and K.C. Fed manufacturing index.

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


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