Lower Dollar Ahead of FOMC Release

June 10, 2020

The Federal Open Market Committee reviewed U.S. monetary policy yesterday and today and will release a statement at 14:00 EDT (18:00 GMT) and updated forecasts. These will be followed by Chairman Powell’s press conference at 14:30. The 0-0.25% federal funds target will not be changed, but the forecasts, which ordinarily are revised quarterly, will be the first set in six months, that is before the Covid-19 pandemic hit.

Shelter-at-home restrictions are now being relaxed in the United States and many other countries even though the number of virus cases and deaths continue to rise strongly. Over 7-1/3 million cases worldwide have been reported thus far, including 2.05 million in the U.S..

The dollar fell overnight by 0.7% against the Swiss franc, Australian dollar and kiwi, 0.5% versus sterling, 0.4% relative to the yen and euro, 0.3% vis-a-vis the peso, and 0.2% against the loonie and yuan.

Equity market action has also been adverse, with declines of 2.3% in Indonesia and 0.4% in China as well as losses thus far today of 1.0% in Italy, 0.6% in Spain, 0.5% in Germany and France and 0.2% in Great Britain.

The price of West Texas Intermediate oil sank 2.5% to 37.98 per barrel, and that for gold has firmed 0.3% to $1,727.70 per ounce.

Among 10-year sovereign debt yields, the U.S. Treasury and British gilt are down three basis points each, and the German bund has slipped two basis points.

French industrial production plummeted at a record monthly pace of 20.1% in April to 34.2% below their year-earlier level.

Japanese core domestic machinery orders fell 12.0% in April, almost 1.5 times greater than forecast, and were 17.7% lower than a year earlier. Export orders slumped 21.6% on month and 16.8% on year.

Unemployment in South Korea jumped 0.7 percentage points in May to a 124-month high of 4.5%.

In the Philippines, exports and imports in April were respectively 50.8% and 65.3% weaker than a year earlier, and the trade deficit of $0.5 billion was at its smallest level in over five years.

The year-on-year change in Finnish industrial production swung from +3.3% in March to -3.1% in April, which was the greatest 12-month slide since late 2015.

Manufacturing sales in New Zealand fell 1.7% on quarter and 1.9% on year last quarter.

Chinese new bank lending of 1.48 trillion yuan was 13% less in May than those in June, and on-year M1 money growth slowed to 6.8% from 13.6% in the prior month.

Price data reported this Wednesday accentuate global disinflation.

  • U.S. CPI inflation cratered to 56-month low of 0.1% in May from 0.3% in April and 2.5% in January. Energy prices dropped 1.8% on month and 18.9% on year. Core CPI slid 0.2 percentage points as well to 1.2%, lowest since March 2013.
  • Consumer prices in China dropped for a third consecutive month in May, causing the on-year CPI inflation rate to drop by a further 0.9 percentage points to a 14-month low of 2.4%. Such had crested in January at 5.4%.
  • Chinese producer prices were 17.5% lower in May than a year earlier, their largest drop in 38 months.
  • Greek consumer prices fell 0.8% on month and by 1.1% on year versus a 0.9% on-year rise back in January.
  • Danish CPI inflation was zero percent for a second straight month in May.
  • Japanese domestic corporate goods prices recorded their largest on-year drop (2.7%) in 44 months during May. Import prices and export prices were 17.6% and 6.5% lower than in May 2019.
  • Norwegian PPI inflation last month of minus 17.5% was the most negative in 222 months. But Norwegian consumer prices recorded their biggest 12-month rate of increase (1.3%) since January.
  • Czech CPI inflation slowed 0.3 percentage points to a 7-month low of 2.9%.

Two upbeat data releases today involved a revival of  Australian consumer sentiment and big jump last week in U.S. mortgage applications. At 93.7 in June after readings of 88.1 in May and 75.6 in April, the Westpac monthly consumer sentiment index for Australia was almost back to February’s pre-Covid level of 95.5. A 9.3% rise in U.S. mortgage applications last week was the most in ten weeks.

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

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