Dollar Up on Day with Two Large News Developments

July 23, 2019

Boris Johnson, who favors a very hard U.K. break with the EU, was selected as the new leader of the British Conservative Party and will thus succeed Theresa May tomorrow as prime  minister. This development greatly increases the likelihood that Britain will leave the European Union by October 31 without any negotiated terms.

U.S. congressional leaders and President Trump agreed to a two-year $1.3 trillion deficit federal budget deal that means there will be no debt ceiling or enforced spending constraints before the next presidential term. The deal augments spending over the coming two years by $320 billion.

Overnight dollar gains against this backdrop amount to 0.7% against the kiwi, 0.5% relative to the euro and Australian dollar, 0.4% versus the peso, 0.3% vis-a-vis sterling, and 0.2% against the yen, loonie and Swiss franc.

Ten-year British gilt, German bund, and Japanese JGB yields are down by 2, 1, and 1 basis points, but the 10-year Treasury note yield rose a basis point.

Japan’s Nikkei-225 index closed 1.0% higher. In other Pacific Rim stock exchanges, share prices advanced 0.5% in China, Australia and Singapore, 0.4% in South Korea and New Zealand, and 0.3% in Hong Kong but fell 0.5% in Indonesia and 0.1% in India. Equities in Europe have climbed 1.7% in Germany, 1.3% in Spain,  1.1% in France and Italy, and 0.7% in the U..K.. The U.S. market has only marginal gains, however.

WTI oil dipped 0.3%, and Comex gold edged up 0.1%.

Consumer confidence in the euro area unexpectedly rebounded 0.6 points to a 2-month high of -6.6 in July according to preliminary estimates.

In Denmark and Turkey, consumer sentiment weakened in July to 7- and 2-month lows, however.

From the United States comes news that the Richmond Fed manufacturing  index slumped unexpectedly by 15 index points to its weakest level since the start of 2013 and that the number of existing home sales nationwide sank 1.7% on month and 2.2% on year in June to a 2-month low of 5.27 million. Also, the FHFA house price index rose only 0.1% on month in May, trimming its 12-month increase by 0.3 percentage points to a 2-month low of 5.0%.

The British CBI’s monthly industrial trends survey revealed a huge drop in the orders index to -34 in July from -15 in June and a 2019 high of +6 back in February. July’s level was the weakest since April of 2010.

On-year declines in Japanese machine tool orders swelled further in June to 37.9% compared to a drop of 18.2% in February. Meanwhile, department store and supermarket sales respectively recorded 12-month declines in June of 0.9% and 0.5%. This was the third straight month to see on-year declines in each.

Norway’s quarterly industrial confidence index sank 1.2 points in 2Q to its weakest level since the summer of 2017.

Spain’s trade deficit of EUR 13.18 billion in the first five months of this year was 8.6% wider than a year earlier.

The Monetary Council of the National Bank of Hungary left its 0.90 base rate unchanged again. It’s been at that level since a 15-basis point reduction in May 2016. A released statement notes that core inflation slowed last month. Economic growth is slowing a bit but remains solid, and despite a smaller trade surplus, the current account remains in surplus as well. Officials are carefully watching “the spillover of disinflationary effects of slowing European economic activity, changes in monetary policies of the world’s leading central banks, the effect of the new retail government security on savings, and the economic consequences of counter-cyclical fiscal policy.”

In other central banking news, Assistant Governor Christopher Kent of the Reserve Bank of Australia said that the recent two reductions of the official cash rate had not impacted the Aussie dollar much because of countervailing upward pressures on the exchange rate, but the possibility of quantitative stimulus for now remains small.

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


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