Dollar Downtrend Accelerates

August 28, 2020

Powell’s speech that formally redefined the Federal Reserve’s inflation target and policy response function implies lower U.S. interest rates for longer and gave the dollar’s pandemic-related downtrend further impetus. Overnight the dollar depreciated by 1.3% against the Mexican peso, 1.7% relative to the Australian dollar, 1.2% versus the yen and kiwi, 0.8% vis-a-vis sterling and the euro, 0.7% against the Swiss franc, 0.5% versus the loonie and 0.4% against the Chinese yuan.

In political news, the Republican National Convention wrapped up last night with Trump delivering his main speech, and Japanese Prime Minister Abe has resigned for health reasons. Covid-19 deaths in the past 24 hours surpassed 6,000 worldwide and 1,200 in the United States.

Stock markets rose 1.6% in China, 0.9% in India, and 0.8% in Singapore but fell 1.4% in Japan, 0.9% in Australia, and 0.5% in Indonesia. Stock market changes in European were largely unremarkable.

Ten-year sovereign debt yields slid two basis points in the United States but rose 2 bps in Japan. The price of gold firmed nearly 2%.

A big data Friday has featured U.S. personal income and spending, many confidence measures, and much more.

U.S. personal spending and income went up 1.9% and 0.4% in July. Both rises exceeded expectations and were accompanied by higher inflation reflected in the PCE price deflator, which was 1.0% and 1.3% above year-earlier levels overall and when excluding food and energy.

The advanced estimate of the U.S. July trade deficit widened 11.4% month-on-month to $79.32 billion, which is its greatest gap since late 2018.

After soaring to a 14-month high of 51.9 in July, the Chicago regional manufacturing purchasing managers index stayed above the 50 breakeven level but settled back to a 2-month low of 51.2 in August.

The preliminary U. Michigan/Reuters monthly U.S. consumer sentiment index rose more than expected to a 2-month high of 74.1 but continued to troll at levels well depressed from last February’s reading of 101.

Economic sentiment in the euro area rose 5.3 index points in a continuing revival to 87.7 in August. Prior to the pandemic, however, such had printed at 103.4 in February. Confidence in the industrial, services, and retail sectors rose to 5-month highs, but construction experienced a 3-month low.

German consumer confidence suffered an unexpected setback, falling 1.6 points in September to a 2-month low of -1.8. Such printed at +9.9 last February before swooning to -23.1 in May.

Italian manufacturing sector confidence edged up 0.8 points further to a 6-month high of 86.1 in August, and consumer confidence in Italy reached surpassed expectations with a 3-month high.

Spanish business sentiment extended its rebound by 1.7 points to an August reading of -9.8 versus April’s low of -34.9 and February’s 2020 high point of -3.8.

Dutch business confidence improved 3.3 points to a 5-month high in August of -5.4. That’s still 9.1 points shy of February’s reading.

Danish business confidence fell back 3 points to a 2-month low score of -10.

Austrian business confidence improved 0.9 points to 16.8. Such deteriorated from -5.7 last February to -30.3 two months later.

Greek consumer confidence edged lower in August to a 2-year low, and business confidence dipped to a 2-month low.

Consumer confidence in Portugal rose 2.3 index points to a 4-month high in August.

Business sentiment in Turkey in August was at a 5-month high  but still about 12% under its level in February.

French GDP tumbled  a record 13.8% in the second quarter. That was the third straight quarterly contraction and left GDP 19% below its year-earlier level. Moreover, monthly household spending in France rose only 0.5% in July, a mere fourth of analyst expectations.

Swedish GDP growth last quarter was revised upward by 0.3 percentage points to a still-huge 8.3% decline from the first quarter level. GDP was also 7.7% lower than in the second quarter of 2019.

Finnish GDP dropped for a third straight quarter and by 4.5% in 2Q, its largest quarterly decline since the opening period of 2009. The year-on-year contraction widened to 6.4%.

Canadian real GDP plummeted 11.5% on quarter and 12.0% on year in the second quarter in spite of a 6.6% June-over-May increase in the monthly GDP series.

Among reported price data out today,

  • French consumer prices dipped 0.1%, returning the on-year change to a 2-month low of 0.2%, which is also down from a 1.5% 12-month increase last January.
  • Tokyo CPI inflation in August halved to 0.3%. Excluding energy and fresh food, a 0.7% monthly drop was the biggest such decline in a decade, and the year on-year comparison slipped under zero percent for the first time since July 2017.
  • Italian producer prices rose 0.2% on month but fell 4.2% on year in July.
  • Icelandic CPI inflation accelerated 0.2 percentage points to 3.2% in August.
  • But Greek producer price deflation of 7.9% was greater in July than the year-on-year drop of 7.4% in June.
  • Belgian CPI inflation rose to a 6-month high of August but remained below 1% at 0.82%.
  • Producer prices in Singapore were 8.5% lower than a year earlier.
  • German import prices in July were 4.6% below their year-earlier level. Even excluding oil, there was a 2.4% on-year drop in import prices in Europe’s largest economy.

Spanish retail sales rebounded much more slowly in July than June and were 3.9% below their year-earlier level.

Belgian industrial production sank 1.4% on month and 10.4% on year in June. Cypriot industrial production fell almost equivalently (10.3%) in the 12 months through June.

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

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