Continuing Well-Bid Yen

March 16, 2018

A week ago, the dollar traded above 107 yen and now it’s below 105 after having dropped another 0.7% overnight. The yen’s strength has little to do with Japanese developments. Industrial production for January was revised today to show an even bigger 6.8% month-on-month decline, with the further revelation that capacity usage had dropped 7.3% in the month and was just 0.3% higher than a year earlier. Prime Minister Abe¬†of Japan was blind-sided by President Trump’s decision to hold talks with his North Korean counterpart. Abe prospects for retaining his post also jeopardized by a bribery scandal in the Ministry of Finance.

The dollar also fell today by 0.2% against the euro and sterling and by 0.3% relative to the Swiss franc, but it has risen against commodity-sensitive currencies like those of Canada, Australia and New Zealand. Commodities are firmer, with copper, oil, and gold up 0.5%, 0.4% and 0.2%.

Ten-year sovereign debt yields dipped a basis point today in Japan, Germany, and the U.K., as well as for Treasury futures.

Press reports overnight that H.R. McMaster, National Security Adviser, will be the next purged high official of the Trump Administration. A White House spokesman denied such. Incoming chief economic adviser Larry Kudlow has put a second package of tax cuts high on the agenda, and the president presumably has his back on this.

Hourly labor costs in the euro area decelerated to a 1.5% on-year pace in the final quarter of 2017 from 1.6% in the third quarter and 1.9% in 2Q17. Harmonized CPI inflation in Europe’s common currency area got revised down to a 1.1% 12-month rate of change in February from 1.2% reported initially. Consumer prices had posted a 1.3% on-year advance in January and rose 2.0% in the year through February 2017. Core inflation stayed at 1.0% last month and was at 0.9% in February 2017.

German wholesale prices unexpectedly dropped 0.3% on month in February, depressing their 12-month rate of increase to 1.2% from 2.0% in January, 3.3% as recently as November and 5.0% in February 2017. Lower energy costs was the main reason for the decline.

In the year to February, consumer prices rose 1.8% in Austria, 0.5% in Italy, and 1.4% in Poland. In each case, the February pace was lower than in January. Czech PPI inflation likewise slipped to 0.3% in February from 0.5% in January.

Central bankers around the world are nonetheless itching to normalize interest rates. Deputy Governor DeBelle of the Reserve Bank of Australia cautioned in a speech overnight that global bond markets are too unprepared for the risk of rising central bank rates.

New Zealand’s manufacturing purchasing managers index dropped a full point to a two-month low of 53.4 in February. Such had been as high as 58.2 six months earlier.

Singapore’s trade surplus of SGD 5.949 billion in February was the widest since last June.

Chinese foreign direct investment posted only a 0.5% on-year increase in February, distorted no doubt by the Lunar New Year. Such rose 7.9% in 2017.

Treasury-compiled capital flow data reported late Thursday showed a big January net capital movement into the United States. There was a $62.1 billion long-term inflow versus a monthly average of $44.7 billion in 2017. The most broadly aggregated measure of incoming net capital totaled $119.7 billion versus $20 billion per month in the final quarter of 2017 and $36.7 billion per month in all of last year.

U.S. data to be reported today include housing starts, building permits, industrial production, capacity usage, the Labor Department’s JOLTS index of job hires and separations, and the Reuters/U. Michigan gauge of consumer sentiment.

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





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