Dollar Down Broadly after Mixed U.S. Election Result

November 7, 2018

The dollar traded down overnight by 1.7% against the kiwi, 1.0% versus the Australian dollar, 0.7% relative to the euro and Swiss franc, 0.5% vis-a-vis the peso and sterling, 0.4% against the loonie, 0.3% versus the yen and 0.1% against the yuan.

Share prices fell in Asia but have risen in Europe. Market losses totaled 0.9% in Taiwan, 0.7% in China, 0.5% in South Korea and 0.3% in Japan and Hong Kong. The rise in European equities exceeded Asian losses, totaling so far 1.8% in Spain, 1.7% in Italy, 1.4% in France, 1.2% in the U.K., 1.1% in Germany, and 0.7% in Switzerland. Markets were closed for holiday in India and New Zealand.

The yield on ten-year U.S. Treasury futures fell back four basis points, and Italy’s 10-year sovereign debt yield is 8 bps lower. However, both the 10-year German bund and 10-year British gilt yield are steady, and the Japanese JGB yield is only a basis point lower.

Commodity prices such as gold (0.7%) and oil (0.9%) strengthened.

U.S. Election Highlights: A 27-seat gain for U.S. Democrats in the House of Representatives came at the expense of a similar loss of Republican seats, giving the Dems a 23-seat lead with just 16 seats still to be decided. Among decided Senate seats, the Republicans have already secured 51 of a total 100, and the Dems have 44, leaving Trump’s party in charge of the confirmation of any further high court appointments. Democrats picked up seven state gubernatorial positions and will now have 22 of such versus 25 controlled by Republicans and 3 to be still decided. The balance of political power between Trump and the Democrats becomes more balanced on paper, but it remains to be seen how all this plays out in reality. It’s safe to assume that Washington politics will remain nastily confrontational and not especially conducive to bipartisan compromise.

Japan’s index of coincident economic indicators dropped 2.1 points to a 21-month low in September of 114.6, prompting officials to replace its trend designation of “improving” by a “weakening” label, which had previously last been used in September 2016. The index of leading economic indicators dropped 0.6 points to a 2-month low of 103.9.

German industrial production rose just 0.2% in September, producing an on-year increase of only 0.8% and also resulting in 0.9% third quarter-over-second quarter decline of 0.9%. Factory output was unchanged in the latest month.

Retail sales volume in the euro area was flat on month and just 0.8% higher on year in September. Such was also unchanged last quarter and 1.3% above the level in 3Q17.

Italian retail sales dropped 0.8% in October, resulting in the largest year-on-year decrease (2.5%) since April.

The British Halifax house price index posted the smallest on-year rise (1.5%) in the three months through October since early 2013.

Germany’s construction purchasing managers index was hurt in October by unseasonably cold weather and recorded its first sub-50 reading (49.8) since last March.

President Trump has accused China of keeping the yuan excessively weak, but a $33.8 billion decline in Chinese foreign exchange reserves in October — the largest monthly decrease since December 2016 — indicates that China has in fact been intervening heavily to keep the yuan from dropping more rapidly.

A member of the Bank of Japan’s Policy Board, Funo, defended the need for retaining a very stimulative monetary policy to promote a wider positive output gap that should help lift inflation closer to the 2.0% target.

The Bank of Iceland raised its benchmark 7-day term rate to 4.5% from 4.25%. This was the first increase since 2015 and begins to reverse 125 basis points of easing done from August 2016 through October 2017. Economic growth in Iceland has exceeded forecasts, and actual and expected future inflation have accordingly moved higher and exceed target.

Poland’s central bank is wrapping up a 2-day interest rate policy meeting today. The Federal Reserve heads up a large list of central banks that will be announcing interest rate decisions tomorrow. Other central banks on the list are those from New Zealnad, Malaysia, Serbia, and Peru.

Australia’s construction purchasing managers index fell further below the 50 level that separates improvement from deterioration. The reading in October of 46.4 was 2.9 points lower than September’s and signals the fastest rate of deterioration since September 2012.

Unemployment in New Zealand dropped a half percentage point in the third quarter to 3.9%, lowest since June 2008. 29K more workers had jobs, and the number of unemployed workers shrank by 13K. Private labor costs rose 0.5% on quarter and 1.9% on year.

Finland’s trade deficit in September was 45% smaller than a year earlier and contributed to a marginal shrinkage in the January-September gap to EUR 1.9 billion.

The Filipino trade deficit totaled $3.93 billion in September and $29.94 billion year-to-date.

Norwegian industrial production was only 0.7% greater in September than a year earlier. In Denmark, the on-year rise of industrial output was only slightly better at 1.2%. Portuguese unemployment last quarter of 6.7% matched the 14-year low hit in the second quarter.

Brazilian consumer price inflation of 4.56% in October was little changed from September.

The SAACI measure of South African business confidence increased 2.5 points in October to a 6-month high of 95.8.

Still ahead today: Poland’s interest rate decision, U.S. consumer credit data, and the Canadian IVEY-PMI index.

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



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