Stronger Dollar on Jobs Day Amid Bursting Asset Bubbles

February 2, 2018

Overnight dollar gains have been led by 1.2% increases against the yen and Australian dollar, a 1.1% appreciation relative to the kiwi, and a 1.0% advance vis-a-vis the peso. The dollar also strengthened 0.8% versus the loonie and sterling, 0.6% against the Swiss franc and 0.5% relative to the euro. There was only a 0.1% uptick versus the yuan.

Bitcoins slumped further, underscoring the immense volatility of this store of value and bringing cumulative depreciation of around 60%.

There’s been a further rise of 5, 3, and 3 basis points in the 10-year sovereign debt yields of Britain, the U.S. and Germany. Reflecting slumping fixed income asset prices, these yields in theĀ  past month have climbed by 30, 36, and 28 basis points. The 30-year Treasury yield is now above 3.0%.

Equities continue to get squeezed by the higher interest rates, with fresh losses overnight of 2.3% in India, 1.7% in South Korea, 0.9% in Japan and 0.5% in Singapore. But the markets of Australia and New Zealand bucked this weak trend and rose. In Europe so far, stocks are down 1.3% in Greece, 1.2% in Germany and Spain, 1.0% in France, and 0.9% in Italy. But the British Ftse is showing comparative resilience with a dip of just 0.2%.

Commodities such as Comex gold (down 0.7%) and WTI crude oil (off 0.3%) lost value overnight.

Any thought that financial market instability might dissuade Fed officials from policy normalization have been dampened by another strong U.S. jobs report.

  • Non-farm payroll employment rose 200K in January and experienced a monthly average advance of 192K in the latest three reported months.
  • Benchmark revisions to the employment data resulted in a somewhat higher level of jobs now.
  • The unemployment rate posted a fourth straight monthly reading of 4.1%. The labor participation rate of 62.7% and jobs to population ratio of 60.1% were likewise unchanged from December’s results.
  • Real hourly earnings grew 0.3% on month in January and were 2.9% above their year-earlier level.

Other U.S. data released today also exhibited solid or strengthening momentum.

  • Factory orders posted a second straight monthly advance of 1.7% in December and registered a 6.0% rise for 2017 overall.
  • The New York regional PMI leaped to a multi-year high of 72.5 in January from a reading of 56.3 in December.
  • Consumer sentiment according to the Reuters/U. Michigan index dipped just 0.2 to a reading of 95.7 in January.

Euroland producer price inflation fell 0.6 percentage points to 2.2% in December, a 5-month low. This drop reflected an uptick of just 0.1% in the energy component that caused its 12-month rate of increase to slide 2.0 percentage points to 2.9%. Producer price inflation averaged 3.1% in 2017 as a whole.

Australian producer prices rose 0.6% between the third and fourth quarters of 2017. On-year PPI inflation ended 2017 at a subdued 1.7%, which was slightly above the third quarter’s 1.6% result but a whole percentage point above 0.7% in the final quarter of 2016.

Italian consumer prices in January firmed 0.2% on month and 0.8% on year.

The British construction purchasing managers index fell 2.0 points last month to a 4-month low of 50.2, indicating scant growth overall and a contraction in the residential housing sector.

Malaysia’s manufacturing PMI rose back through the 50 no-change level from 49.9 in December to 50.6 in January, and Singapore also saw a somewhat faster pace of manufacturing activity, as its PMI printed at 53.1 in January after 52.8 in December.

Consumer confidence in New Zealand, which had fallen in three straight immediately prior months, rebounded 4.2% in January. This more than offset those three drops. However, a strong November rise in New Zealand building permits was fully erased in December.

Japan’s monetary base, which the Bank of Japan controls, continues to exhibit diminishing on-year growth, with gains of 9.7% in December versus 11.2% in November, 12.9% in the fourth quarter versus 15.8% in 3Q, and 17.0% on average in 2017 versus 25.0% in 2016.

CPI and PPI inflation in Thailand last month stood at +0.7% and -1.1%, respectively.

Today is Ground Hog’s Day in the United States. Those who forget the past are condemned to relive it.

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


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