Softer Dollar… No Respite from Trade War Threat

July 3, 2018

A left-leaning candidate and critic of U.S. President Trump, Andrea Manuel Lopez Obrador, scored a huge win in Mexico’s presidential election with a majority 53% of the popular vote. Terms are for six years. The peso rallied on the news.

A U.S. sanction-enforced program against Iran has WTI oil trading above $75.0 per barrel for the first time since November 2014.

China’s central bank governor reaffirmed an intention to keep a stable exchange rate and not use the currency as a tool of trade protectionism. The yuan rose 0.8%.

Data showing that Turkish CPI inflation accelerated to 15.4% in June depressed the lira even as it also spurred speculation of a further hike in Turkish central bank interest rates. Turkish producer prices were 23.7% higher in June than a year earlier.

The dollar has declined 0.7% against the Australian dollar, 0.4% relative to the kiwi, 0.3% versus the Swiss franc, 0.2% vis-a-vis the yen and sterling and 0.1% against theĀ  euro and loonie.

Share prices in the Pacific Rim dropped 2.0% in Indonesia, 1.7% in Hong Kong, 0.6% in Taiwan, and 0.1% in Japan. But stocks in Europe are up 1.6% in Italy, 1.1% in Germany and Switzerland, 1.0% in the U.K. and France and 0.9% in Spain. U.S. equities also firmed at the open.

Oil and gold are trading 1.6% and 0.9% higher on the day. 10-year sovereign debt yields have moved very little, however.

The Reserve Bank of Australia’s Official Cash Rate was left at the record low of 1.5%, but the subsequent released statement dropped the warning that Aussie dollar appreciation would be unwelcome. Trade tensions are identified as a risk factor. So is high household debt and the upward creep of short-term wholesale interest rates in Australia. The OCR has been at 1.5% since August 2016 after six 25-basis point reductions between March 2013 and then.

The Swedish Riksbank maintained its repo rate at negative 0.50% but reaffirmed that a gradually increasing trend is likely to start late this year. As late at the summer of 2020, the repo rate will be barely above 0.50%.

Euro area retail sales and PPI data released today were disappointing. Sales volume stagnated on month in May after a 0.1% dip in April, leaving their on-year increase at just 1.4%, down from 1.8% in February and 2.2% at the end of 2017. Producer prices, which had not risen at all in April or March, shot up by a greater-than-forecast 0.8% in May because of a 2.6% upsurge in energy that lifted that components 12-month increase to 7.6% from 3.5% in April and 1.1% back in January. Non-energy producer prices rose 0.2% on month and 1.4% on year.

In other European data released today,

  • Spanish consumer confidence improved sharply last month to a 10-month high.
  • But Spanish unemployment fell by a smaller-than-forecast 90K in June.
  • Ireland’s jobless rate dropped for an 11th straight month, reaching 5.1% in June.
  • Austria also experienced a lower unemployment rate in June of 6.8%.
  • Romanian PPI inflation accelerated accelerated a percentage point to 5.2% in May.
  • Romanian and Hungarian retail sales in May were 6.6% and 7.8% higher than a year earlier.

Reported U.S. data were mixed. The New York regional PMI, known as the NAPM index, fell 1.4 points in June to a 3-month low of 55.0. The IBD/TIPP Optimism index increased 2.5 points to a 5-month high of 56.4 in June. Redbook reported a 0.4% drop last week in chain store sales. Finally, factory orders grew only 0.4% in May, which merely reversed April’s 0.4% decline. However, orders were 9.9% greater than in May 2017.

Japan’s monetary base grew less sharply in June (7.4% from a year earlier). Such has slowed from 25% in 2016 to 17% last year, 9.4% in the first quarter of 2018 and 7.8% in the second quarter.

Retail sales in Hong Kong posted another double-digit on-year advance, 12.9% in May.

Australian building permits dropped 3.2% in May, which was a worse result than forecast.

The results of several more purchasing manager surveys got released today.

  1. The British construction PMI rose 0.6 points to a 7-month high of 53.1.
  2. Mexico’s manufacturing PMI rebounded to 52.1, a 3-month high.
  3. Non-oil PMIs for Egypt (49.4), Saudi Arabia (55.0) and the U.A.E. (57.1) were at 2-, 6- and 6-month highs.
  4. Canada’s manufacturing purchasing managers index climbed 0.9 points to a series-high of 57.1, indicating the strongest rate of improvement since at least November 2010.

U.S. fixed income market trading will close early today ahead of the 242nd anniversary of the Declaration of Independence.

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


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