Dollar Down.. So Are Bond Yields, Stocks and Oil

March 2, 2018

The dollar fell nearly 1% overnight against the yen to a new 2018 low. The U.S. currency has also lost 0.8% versus the Swiss franc and 0.5% vis-a-vis the euro, and it has move under a key psychological trade-weighted level.

The German Dax and Japanese Nikkei are down 1.3%.

Ten-year German bund and British gilt yields each shed three basis points, and the early indication on the 10-year Treasury shows a further basis-point dip, bringing the retreat from its recent high to a cumulative 16 basis points.

West Texas Intermediate crude oil dropped 0.7%, but gold, the historic hedge against vulnerable paper currencies, has risen 0.4%.

Markets continue to react fearfully to President Trump’s tariffs and signs that major U.S. trading competitors intend to retaliate in equal measure with trade barriers of their own.

In addition, Bank of Japan Governor Kuroda, who until now had quashed any talk about the eventual exit strategy for the current extremely stimulative monetary policy, finally broached that issue, suggesting the possibility of lessening asset buying next year. The global stock market volatility has been tied to Fed interest rate hikes and the ECB possibly backing off on its quantitative measures later this year. Global growth has improved, but a big element of the upturn stems from monetary policy support. What happens when that support is withdrawn, even if done gradually, remains to be learned.

Producer prices in the euro area rose by an as-expected 0.5% in January, but the 12-month rate of increase stayed at 1.9%.

Japan’s unemployment rate fell unexpectedly to 2.4% in January after three straight months at 2.7%. Employment grew by a robust 1.4% from January 2017. Japan’s monetary base continues to exhibit diminishing on-year growth, rising 9.4% in February, down from 9.7% in January, 12.9% in the fourth quarter, 17% in full-2017 and 25% in 2016.

Italian GDP grew just 0.3% in the final quarter of 2017, a five-quarter low, as consumer and business spending lost steam. GDP was 1.6% higher than in the final quarter of 2016. When adjusted for the number of working days, however, the 1.5% advance of real GDP on average in 2017 was the best result since 2010.

German retail sales volume unexpectedly recorded a second straight month-on-month decline in January, this time of 0.7%. Retail sales in 2017 as a whole had climbed 2.3%.

The 12-month rise of German import prices fell to 0.7% in January from 1.1% in December, 2.7% in November and 6.0% in January 2017. The Bundesbank’s President, Jens Weidmann nonetheless continues to fret that the ECB’s quantitative stimulus exceeds the central bank’s mandate and will sow excessive inflation. Weidmann aspires to be the next ECB President and appears to be the front-runner for that post.

The Czech economy posted a 5.2% GDP increase between 4Q16 and 4Q17, the highest on-year growth rate since the summer of 2015. Growth in 2017 averaged 4.5%, twice the 2016 pace and export-led.

The British construction purchasing managers index rebounded to a 2-month high of 51.4 in February from a 4-month low of 50.2 in January. The report indicated strong input price inflation in the sector.

U.S. auto sales in February fell short of forecasts.

Consumer confidence in New Zealand rose 0.6% in February on top of a 4.2% jump in January but has still not recovered to last September’s level. The index had dropped in each month of the fourth quarter of 2017. New Zealand building permits edged up 0.2% in January after tracing a wildly zig-zagging pattern last quarter.

Thailand’s manufacturing purchasing managers index rose another 0.3 points to 50.9 in February, its second best score since end-2015.

In spite of hosting the Olympics last month, the South Korean manufacturing PMI in February dropped to a 2-month low of only 50.3, indicating the tiniest of upward activity.

In the year to January, producer prices rose 3.7% in Romania, 1.3% in Austria, but merely 0.3% in Brazil.

Portuguese retail sales and industrial output were 5.4% and 2.8% higher than a year earlier in January.

Canadian real GDP expanded 1.7% at an annualized rate between 3Q17 and the final quarter of last year. That was 0.8 percentage points less than U.S. growth last quarter, and like the U.S., Canadian GDP growth was dampened by negative contributions from net foreign demand. In a trade war, everybody loses. Despite slower growth in the second half of 2017 than in the first half, Canadian GDP for the year as a whole went up 3.0%, well above increases of 1.4% in 2016 and 1.0% in 2015.

Investors await the New York regional PMI index, known as NAPM, and the U. Michigan/Reuters U.S. consumer sentiment survey, which will be released later this morning. In the meantime, the U.S. Northeast is being battered today by a monster winter storm with heavy wind.

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



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