Softer Dollar

September 20, 2018

The dollar fell overnight by 0.8% against the kiwi, 0.6% relative to sterling, 0.4% vis-a-vis the euro and 0.2% versus the currencies of America’s NAFTA partners. The yen and yuan are unchanged. China partly matched Trump’s latest round of tariff hikes.

While the 10-year German bund and British gilt yields settled back a basis point and the 10-year Japanese JGB stayed steady, the 10-year U.S. Treasury yield’s upward climb was extended another basis point.

Share prices in the Pacific Rim rose 1.0% in Indonesia, 0.7% in South Korea,  and 0.5% in Hong Kong but closed unchanged in Japan and down 0.3% in Australia, 0.2% in Taiwan and New Zealand and 0.1%  in China. European equities so far show gains today of 1.0% in Spain, 0.7% in Italy, 0.6% in France, 0.5% in Switzerland, 0.4% in Germany and 0.2% in Great Britain.

WTI oil rallied 0.6% to $71.55 per barrel. Gold is generally steady at $1,207.60 per troy ounce.

Brazilian monetary officials unanimously approved keeping the Selic interest rate unchanged at 6.5%. It got to that record low via eleven straight reductions totaling 725 basis points from October 2016 to March 2018. The policy-making committee, Copom, released a statement that “judges that various measures of underlying inflation are running at appropriate levels. This includes the components that are most sensitive to the business cycle and monetary policy.” Officials believe the main global “risks continue to be associated with normalization of interest rates in some advanced economies and with uncertainty regarding global trade.” Inflation now is below target, and growth has also recovered more slowly than anticipated.

Norway’s key central bank rate was raised 25 basis points to 0.75%. That’s the first increase in many years but will not be the last. The rate had been lowered by 175 basis points between late 2011 and March 2016. A statement from the Executive Committee observes gradually diminishing excess capacity that should similarly lift inflation in the years ahead. The next interest rate increase is likely to occur in the first quarter of 2019.

A quarterly review of Swiss monetary policy kept the targeted interest rate at -0.75% within a range of negative 0.25% to negative 1.25% on 3-month Swiss Libor. A statement from the Swiss National Bank protests against a noticeable and unwelcome appreciation of the franc since the previous policy review in June. Subjective foreign exchange market intervention is deemed to be still appropriate almost four years after the central bank ended automatic intervention whenever market pressure threatened to strengthen the franc beyond the 1.20 per euro level. Because of faster-than-expected Swiss growth in the first half of 2018, the central bank’s 2018 growth forecast was revised higher to 2.5-3.0%. But franc appreciation necessitated a downward revision to the path of future inflation from the second quarter of 2019 onward. By 3Q20, CPI inflation is a half percentage point lower than assumed previously, and it is unlikely to reach 2.0% until the spring of 2021.

British retail sales were more buoyant than anticipated in August, rising 0.3% on month and 3.5% on year.

Consumer confidence fell in September to a 3-year low in Turkey and a 9-month low in Denmark.

The Swiss trade surplus widened to a 4-month high in August of CHF 1.408 billion. However, the January-August surplus of CHF 10.49 billion was 38% narrower than a year earlier. The Swiss index of leading economic indicators slipped to a 3-month low in August and was 7.4% lower than its level six months earlier.

Russian unemployment fell 0.1 percentage point to 4.6% in August, a record low.

The French index of leading economic indicators dipped 0.1% in July, reversing June’s uptick.

New Zealand real GDP expanded at a 2-year highest pace of 1.0% last quarter, lifting on-year growth to 2.8%. Real GDP had also climbed 2.8% in the prior year through 2Q17.

Indian markets were closed today for Moharram Day.

Still ahead: U.S. existing home sales, Philly Fed manufacturing index, index of leading economic indicators from the Conference Board, and the Labor Department’s weekly tally of new jobless insurance claims.

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

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