Solid Day for the Dollar But Stocks Struggle in Several Markets

February 20, 2020

The euro slid overnight to a 1-year low of $1.0777, and the dollar also hit a 42-week high against the yen of 112.18 and to close to an 11-year peak of 0.6617 per Australian dollar. Sterling fell to $1.2849, a quarterly low, and the yuan weakened 0.4% and past the 7.000 per dollar threshold. The kiwi fell 0.9% today.

Stocks in Asia had risen 1.8% in China, 0.9% in New Zealand, and 0.3% in Japan but fell 0.7% in South Korea, 0.4% in India, 0.3% in Taiwan and 0.2% in Hong Kong. In Europe, share prices have lost 0.9% in Spain, 0.8% in Italy, 0.4% in Switzerland, and 0.2% in the U.K. and Germany. U.S. stocks appear headed for a drop at the open.

Ten-year sovereign debt yields dipped 3 basis points in U.S. futures trading and a basis point each in Germany, the U.K. and Japan overnight.

Supply concerns lifted the price of WTI oil 0.9%, and gold is at a 7-year peak and has secured a larger beachhead above $1600 per ounce.

New Zealand producer price inflation declined sharply last quarter to 1.4% in the PPI-output index and a mere 0.3% in the PPI-input quarterly index.

In response to the coronavirus outbreak in China that slammed economic activity, the central bank there cut its 5-year prime loan rate by five basis points to 4.75% and its one-year prime loan rate by 10 bps to 4.05%. The one year LPR had not been changed since a 5-basis point reduction in November and has altogether been lowered by 26 basis points in the past half year.

Concern over the potential impact of the coronavirus also elicited an unexpected 25-basis point cut in Indonesia’s 7-day repo rate to 4.75% and complementary cuts of same size in Bank Indonesia’s deposit facility rate and lending facility rate to 4.0% and 5.50%, respectively. The action was characterized as a preemptive step to counteract any virus-related drag on tourism, trade, and business spending. “Moving forward, efforts to contain Covid-19 demand vigilance due to the potential impact on economic growth, trade volume and international commodity prices as well as capital flows to and from developing countries, including Indonesia.”

Chinese yuan bank lending in January set a record high of CNY 3.34 trillion for any month but the 12-month increase in M2 money decelerated more than forecast to 8.4%.

Taiwan recorded current account surpluses of $17.02 billion last quarter and $64.35 billion in 2019.

CPI inflation in Hong Kong fell by half to a 28-month low of 1.4% in January.

The year-on-year drop in Japanese machine tool orders in January was confirmed at the preliminary estimate of 35.6%. The drp has exceeded 30.0% since last July.

South Korean PPI inflation increased 0.3 percentage points to a 14-month high of 1.0% in January. On-year declines were seen from last July through November.

Australian January labor statistics revealed a 0.2 percentage point rise of unemployment to a 3-month high of 5.3%, a 0.1 percentage point increase in labor market participation, and a 13.5k increase in net jobs, which was down from an average increase of 34.4k perĀ  month in November-December.

Minutes from the last European Central Bank Governing Council meeting reaffirm a need to retain the current accommodative monetary policy for a prolonged period. The package of easing measures last September seem to be getting passed on to the economy, and officials note tentative signs of stabilization. However, risks are still skewed downward, warranting caution as policymakers wait for further grounds for optimism.

German consumer confidence dipped 0.1 point to 9.8 from February’s 8-month peak.

Dutch consumer confidence rose a point to a 2-month high, while consumer sentiment in Brazil, Turkey, and Denmark slid in February to their lowest levels in 9, 4, and 2 months.

German producer price inflation of 0.2% last month was above zero for the first time since last August. The energy component was down 1.0% on year versus a 2.4% drop in December, while all other producer prices collectively were 0.7% higher.

French consumer prices slid 0.4% in January but recorded the same 1.5% on-year increase as December’s one-year high.

Irish consumer price inflation matched December’s 8-month high of 1.3%.

After rising to a 7-month high of 1.0% in December, Polish CPI inflation settled back in January to a 2-month low of 0.8%.

The continuing softness of Canada’s economy was reflected in house prices last month, which were unchanged from December’s level.

U.S. data released today have been robust, in contrast. The Philly Fed manufacturing index shot up 18.3 index points to a 3-year high in February of 36.7. Such had printed at a 6-month low of only 2.4 in the final month of 2019. Also, new jobless insurance claims remained historically low at 210k last week, which was roughly in line with the four-week average of 209k. The index of U.S. leading economic indicators gets reported later today.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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