Firmer Dollar and Equities as Summer Turns to Autumn

September 21, 2018

The dollar strengthened this Friday by 1.4% against the Turkish lira, 0.7% relative to the Russian ruble and sterling, 0.6% vis-a-vis the South African rand, 0.4% versus the Mexican peso, 0.2% against the yen and Brazilian real, and 0.1% relative to the euro, loonie, Australian and New Zealand dollars.

The Hong Kong dollar was an exception to the above currency market pattern, rising 0.4% (and 0.6% at its overnight high) against its U.S. counterpart.

Taking a cue from yesterday’s rally in U.S. stocks, share prices advanced today by 2.5% in China, 2.3% in Hong Kong, 1.3% in Taiwan, 0.9% in Japan, 1.2% in Singapore, 0.5% in Indonesia, 0.7% in South Korea, and 0.4% in Australian. India’s equity market, by exception, fell 0.8%, but European bourses grabbed the baton of strength. Share prices there so far have risen today by 1.6% in Greece, 0.8% in the U.K., 0.6% in France and Italy and 0.5% in Germany.

The 10-year U.S. Treasury yield is a basis point higher. So too is its Japanese counterpart, but the 10-year German bund and British gilt yield are respectively a basis point softer and unchanged.

WTI crude oil is 0.8% firmer at $70.89 per barrel. Gold is little changed at $1,210.20 per ounce.

Trade tensions between the United States and China continue to escalate, but investors seem to be buying into President Trump’s belief that America will win this confrontation and eventually exact significant changes from Beijing. With corporate profits soaring, U.S. companies seems able to weather short-term turbulence.

Japanese August CPI inflation exceeded expectations. The all-items CPI rose 0.5% on month, most in 9 months, and the 1.3% 12-month rate of increase was at a 6-month high. Core CPI of 0.9% after 0.8% in July was also at a six-month high, and the index that includes energy as well as fresh food also ticked up 0.1 percentage point to 0.4%. There’s still a very long way to go before reattaining the 2.0% target.

After dropping 0.9% in June, Japan’s all industry index, a monthly supply-side proxy of GDP, was unchanged in July and 0.2 percentage points less than forecast. Construction and industrial production respectively dropped by 0.6% and 0.2% in July, while services only ticked up 0.1%. The all industry index was 1.0% higher than in July 2017, marking a 2-month high.

Japan’s manufacturing purchasing mangers index rose 0.4 points to a 3-month high of 52.9 in September, according to a preliminary estimate. But business sentiment weakened amid geopolitical tensions, and the reading for input cost inflation climbed to a 90-month high.

Preliminary PMI surveys for the Eurozone, Germany, and France were also reported.

  • Euroland’s September composite reading of 54.2 was at a 4-month low with the weakest future expectations in nearly two years. Weakness was concentrated in manufacturing, which has been depressed by “trade wars, Brexit, waning global demand, growing risk aversion, and rising political uncertainty both within the euro area and further afield. The manufacturing PMI fell to a 24-month low, even as the services PMI rise to a 3-month high. Although Euroland’s momentum seems adverse, the level of the PMI scores suggest that the third quarter will see decent GDP growth of about 0.5%.
  • Germany conformed to Euroland’s pattern, with a 25-month low in its manufacturing PMI of 53.7 but an 8-month high in services of 56.5.
  • In France, both manufacturing and services saw lower PMI scores of 52.5 and 54.3, and the composite PMI reading of 53.6 was signaled the weakest overall growth since November 2016.

French GDP growth in the second quarter was confirmed at 0.2% relative to 1Q and 1.7% from a year earlier. GDP had also expanded just 0.2% in 1Q from the prior quarter. In the spring, personal consumption actually contracted for the first time in seven quarters, and net exports exerted a 0.2 percentage point drag on GDP growth.

Dutch GDP in the second quarter got revised up 0.1 percentage point to a quarterly 0.8% advance. On-year growth of 3.1% was the most since 2008. The Dutch current account surplus narrowed 16.7% on quarter to EUR 16..77 billion in 2Q.

Hong Kong’s current account surplus last quarter of HKD 15.66 billion was also smaller than a year earlier. Today’s strength in Hong Kong’s currency may be related to a recent rise in the former British colony’s interest rates.

South Korean PPI inflation remained at 3.0% in August. That pace reached in July was the most since last November.

Britain’s public sector net borrowing requirement in April – August of GBP 17.8 billion was 30.5% smaller than a year earlier. Outstanding government debt in August of 84.1% of GDP was down from 86.1% of GDP a year earlier.

Spain’s year-to-July trade deficit through July of EUR 17.83 billion was 35% bigger than a year earlier.

Irish producer prices in August were 0.9% lower than a year earlier.

Canadian retail sales in July reversed the prior month’s 0.3% drop and were 3.7% higher than a year earlier. Canadian CPI inflation settled back to 2.8% in August from 3.0% in July, with core inflation holding steady at 2.3%.

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

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