Yen Strengthens Beyond 106 per Dollar Level

March 15, 2018

The yen added to Wednesday’s climb, rising a further 0.4% on balance against the dollar overnight and touching a 2-week high of 105.78 at one point. The yen has been strengthening in spite of Prime Minister Abe’s political problems. Japan’s currency offers an alternative for investors worried about the chaos swirling around the Trump presidency but equally concerned about the recent Italian election, which revealed a voter disconnection with Italy’s membership in the European Monetary System.

Another strong currency today has been the Norwegian krone, which advanced 0.6% against the euro and 0.5% relative to the dollar. A statement from the Executive Board of Norway’s central bank said that it likely would begin raising interest rates this summer rather than in the autumn as suggested earlier. On March 2nd, monetary officials had adopted a new inflation target of 2%, down from 2.5% previously. Officials feel that in light of continuing upturns in foreign and domestic demand, it will be soon appropriate to raise interest rates.

The Swiss National Bank also held a monetary policy meeting today. SNB officials kept the existing elements of its expansionary stance, namely a negative interest rate and a commitment to remain active in the foreign exchange market as necessary. The projected future path of Swiss inflation was revised downward by a tenth of a percentage point and shows the CPI staying below 1.0% until the third quarter of 2020 and below 2.0% through mid-2021.

The dollar traded up 0.6% versus the kiwi, 0.4% against the peso and Aussie dollar, 0.2% relative to sterling and 0.1% against the euro, Swiss franc, and loonie. The Chinese yuan edged up another 0.1%.

In stock market action after Wednesday’s big drop in the U.S. market, share prices closed down 1.0% in Indonesia, 0.6% in Singapore, 0.4% in India and 0.2% in Australia and Taiwan but rose 0.5% in Hong Kong, 0.3% in South Korea and 0.1% in Japan. China’s market closed unchanged. In Europe, equities are mixed with rises of 0.4% in Italy, France and Germany but drops of 0.6% in Greece, 0.5% in Switzerland and 0.1% in Spain. The British Ftse is up 0.1%.

The ten-year British gilt and German bund yields edged a basis point lower. At 2.81% prior to the open, the 10-year Treasury yield was steady, as was the Japanese JGB at 0.04%.

West Texas Intermediate crude oil rose 0.5%, but gold (-0.3%) and industrial metal prices fell.

The 12-month increase of Swiss producer and import prices slowed a half percentage point to 2.3%. Domestic producer prices went up 1.2% on year.

Germany’s index of leading economic indicators climbed 0.5% in January, which was less than half as much as December’s increase.

French CPI inflation was confirmed as having been unchanged on month in February and 1.2% on a year-on-year basis. The energy posted a 5.2% 12-month gain.

New Zealand GDP grew 0.6% for a second straight quarter and recorded a 2.9% fourth quarter-over-fourth quarter advance. GDP in the second half of 2017 was considerably slower than in the first half. The full-2017 growth rate was 3.7%, similar to that in the prior two calendar years.

Irish real GDP rose 8.4% on year in 4Q and by 7.8% in 2017 on average. The Irish current account surplus last quarter equaled a huge 19% of GDP.

India’s February trade deficit of $12.0 billion was the smallest shortfall since last September. Indonesia’s February deficit of $116 million represented an adverse swing from a surplus of $1.26 billion in February 2017.

Turkey’s 10.4% jobless rate in December was down from 12.7% at the end of 2016.

The main U.S. development for markets to absorb is the official appointment by President Trump of Larry Kudlow to be the administration’s chief economic adviser. He replaces Gary Cohn and represents a more conservative, more opinionated, and more Trumpian viewpoint. Kudlow initially opposed the steel and aluminum tariffs but now endorses such. He’s been outspokenly critical of unfair Chinese trade practices and of the Fed’s move to rein in monetary stimulus. He wants a second wave of tax cuts and has been a true believer in supply-side economics since serving early in the first Reagan Administration. In accepting the appointment, Kudlow said he’d like to see the dollar strengthen a bit, but that’s likely just lip service. Kudlow’s not your typical top economist. He doesn’t hold a Ph.D. in the field or even a Masters degree. He attended the Woodrow Wilson Graduate School of Public and International Affairs for a while. Kudlow has a flamboyant style and is not shy about making bold predictions but is known in professional circles for making some whopping forecasting mistakes. In keeping with other recent White House purges, Kudlow’s views are very much aligned with Trump’s, and he figures to be very loyal to the president.

Energy, unlike in January, was not the driver behind a 0.4% rise in U.S. import prices during February. Import prices were also 3.5% greater than a year earlier. Fuel prices fell 0.6% on month after jumps of 3.3% in December and 3.2% in January. But non-fuel import prices recorded a second straight monthly rise of 0.5%. export prices rose 0.2% on month and 3.3% on year.

New U.S. jobless insurance claims declined 4K last week to 226K. The four-week average of 221.5K is 7K less than in the prior four weeks and down from 244.5K in the four-week period ending January 13.

The Empire State manufacturing index improved to a 5-month high of 22.5 in March from a reading of 13.1 in February, while the Philly Fed manufacturing index fell 3.5 points to a 2-month low.

U.S. data to be released later today are the National Association of Home Builders housing market index and Treasury-compiled capital flows.

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

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