Powell and Price Data in the News

July 17, 2019

President Trump needs a weaker dollar to reinforce his trade policy and enhance his reelection prospects. The means to a weaker dollar lies in getting the Federal Reserve to cut interest rates, if not by knuckling under verbal pressure then by packing the Fed Board with monetary policy doves. Powell overnight made comments suggesting that Fed officials have indeed become more predisposed to cutting the federal funds rate target, but timing remains vague.

The dollar did slip a bit overnight but only marginally, with dips of 0.1% against the euro, sterling and loonie and of 0.4% versus the New Zealand dollar and 0.2% relative to the Mexican peso. The greenback also rose 0.2% against the Aussie dollar, 0.2% versus the Aussie dollar and 0.1% relative to the Swiss franc, and it remained flat against the yen.

Efforts to weaken the dollar are being countered by soft price data all around the world, which enhances the likelihood of monetary policies easing in America’s trade partners. The 10-year Treasury yield fell two basis points today, but its British and German counterparts are down by five and four basis points.

Share prices have also lost ground today, with losses in Asia amounting to 0.9% in South Korea, 0.5% in Taiwan, 0.3% in Japan and 0.2% in China. Losses in Europe thus far total 0.8% in Spain, 0.6% in Germany, and 0.5% in the U.K. and France.

Commodities are up however. Gold has climbed 0.5%, and WTI oil is 0.3% firmer.

British consumer prices were unchanged on month and up 1.9% on year in June. Core CPI was 1.8% for the third time in four months, while retail price inflation dipped 0.1 percentage point to 2.9% overall and by 0.2 percentage points to 2.8% on a core basis. Producer output price inflation last month of 1.6% was at a 33-month low, and a 0.3% year-on-year dip in producer input prices was the first negative result in three years. House price inflation measured by the ONS index fell 0.3 percentage points to a 3-month low of 1.2%.

Euroland harmonized consumer price inflation in June was revised up 0.1 percentage point to 1.3% and associated with an underlying core rate of 1.1%. Comparing 12-month inflation in June 2018 to that in June 2019 among the euro area’s four largest economies, inflation dropped to 1.5% from 2.1% in Germany, to 1.4% from 2.3% in France, to 0.8% from 1.4% in Italy, and to 0.6% from 2.3% in Spain.

Canadian consumer prices fell 0.1% on month in June, cutting the 12-month increase to 2.0% from 2.4%.

Czech producer price inflation slowed to 2.5% in June from 3.8% in May and 4.3% in April.

Manufacturing sales and new orders in Canada rose 1.6% and 0.5% in May, but the inventories-to-sales ratio slid to 1.51 from 1.52.

Construction output in the euro area recorded a third consecutive monthly decline in May, this time by 0.3%, and fell for the fourth time in five months. The year-on-year increase slipped to 2.0% in May from 3.1% in April, 6.0% in March and 7.3% in February.

Italian industrial orders in May were 2.5% lower than a year earlier, and industrial sales posted an uptick of just 0.3%.

U.S. building permits in June slumped 6.1% on month to their lowest level in over a year. Housing starts dropped 0.9% on month on top of a 0.4% decline in May.

The Westpac measure of Australia’s index of leading economic indicators declined for a third straight month in June, dipping 0.08% after drops of 0.07% in May and 0.05% in April.

Trump revealed that trade demands between China and the United States remain quite a bit apart. The possibility of a sharp escalation of tariffs is ever-present.

There was a much smaller net long-term capital inflow into the United States in May than in April, according to the latest batch of Treasury-compiled data.

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

Tags: ,


Comments are closed.