Dollar Broadly Higher as Investors Seek Clarity on Brexit Mess and U.S.-Sino Trade Talks

March 14, 2019

British MPs last night defeated a motion for allowing the U.K. to leave the EU without any Brexit deal by a vote of 321-278. Today’s vote will be a motion to extend the Article 50 deadline beyond March 29th. Prime Minister May aims to hold another vote within the week on her Brexit deal.

A summit between Xi and Trump has yet again been pushed back, this time into April although no precise date has been selected. Each side wants to claim a deal but is continuing to play a game of chicken rather than give in on the more contentious issues.

The dollar strengthened overnight by 0.8% against sterling, 0.5% relative to the Aussie dollar and kiwi, 0.4% versus the yen, 0.3% vis-a-vis the euro and yuan, 0.2% against the loonie and 0.1% versus the Swiss franc.

The 10-year British gilt yield rose 3 basis points, and its U.S. and German counterparts are a basis point firmer.

Gold fell back 0.9% and to below $1300 per ounce. WTI oil slid 0.3% but his hanging onto a $58 per barrel handle.

Released Chinese data for January-February show a slowing economy that is increasingly being felt in the labor market, where the jobless rate, a 2-year high of 5.3%, is 0.4 percentage points above its end-2018 level. Industrial production growth from a year earlier was also 0.4 percentage point less than in December and at a new 17-year low. Retail sales, which climbed 9.0% in 2018, only posted an 8.2% on-year advance in the first two months of 2019. Fixed asset investment, however, managed a 6.1% on-year increase in January-February compared to 5.9% last year. Another bright spot was in property investment, whose on-year growth accelerated to 11.6% in January-February from 9.5% last year.

Higher fuel prices caused Indian wholesale price inflation to rebound 0.2 percentage points to 2.93% in February, but such remained well down from 3.8% at end-2018.

German consumer price inflation in February was 1.5% according to revised figures. That’s 0.1 percentage point above January’s reading but down from a recent high of 2.3% last October. Core inflation was at a mere 1.4% last month.

French CPI inflation likewise picked up to 1.3% in February from 1.2% in January but was likewise still well below 2.2% back in October.

Switzerland’s combined PPI and import price index recorded a deeper 0.7% 12-month rate of decline in February. Domestic producer prices dropped 0.6%. The Swiss government’s quarterly macroeconomic forecast revised projected CPI inflation this year down 0.1 percentage point to 0.4% due to a 0.4 percentage point downward reduction of projected economic growth ot 1.1%. Officials look from GDP to rise 1.7% in 2020 but consumer prices to increase just 0.6% that year.

Finnish CPI inflation increased 0.2 percentage points ppt to 1.3% last month, but Irish consumer price inflation ticked down 0.1 ppt to 0.6%. Irish GDP grew much more slowly last quarter. A 0.1% increase was associated with on-year growth of 3.0%, down from 5.4% in 3Q and 6.5% in the final quarter of 2018.

In the year through January, industrial production rose 0.3% in South Africa and 3.2% in Malaysia but plummeted 7.3% in Turkey. Industrial output in Hong Kong was 1.3% greater in the final quarter of 2018 than in 4Q17.

Swedish unemployment was 6.6% last month, up from 6.5% in January and 6.3% in February 2018.

The National Bank of Ukraine, which lifted its key policy rate progressively from 12.5% prior to October 2017 to 18.0% after a 50-basis point hike in September 2018, retained an 18% interest rate following the latest monetary policy review. A tight stance is still needed to reduce inflation to a target of 5% next year, according to a released statement. To be sure, inflation, both actual and expected, has lately been receding but remains almost 4 percentage points above target. The statement goes on to hint of a possible easing should inflation reduction continue.

Although leaving the key policy rate unchanged, the NBU Board said that it could cut it in the future. How soon the NBU will adopt an easing cycle will depend on how steadily risks of inflation decrease and inflation expectations improve. Looking ahead, any changes to the key policy rate will be based on the NBU’s updated macroeconomic forecast that will be published in April.

U.S. import prices rose 0.6% on month in February, reflecting a 4.9% jump in fuel costs while all other import prices collectively held unchanged. The 12-month change in import prices stayed negative at -1.3% versus a 16.0% on-year increase recorded in February 2018. Export prices also rose 0.6% last month, resulting in a 0.3% on-year uptick.

U.S. jobless insurance claims rose 6K last week to 229K and averaged 223-3/4K over the past four weeks. Claims haven’t return to the very depressed levels seen before the government shutdown but historically remain low. Still to come: the National Home Builders Association U.S. housing index.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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