Further Erosion of Dollar’s Value

September 15, 2020

The dollar dropped 0.6% to a 16-month low against the Chinese yuan overnight and also lost 0.5% relative to the Australian dollar, 0.4% vis-a-vis the Mexican peso, 0.3% versus the kiwi, Swiss franc, loonie, euro and sterling, as well as 0.1% against Japan’s yen. The latest declines bring the dollar’s trade-weighted depreciation over the past three months to 4.3%.

In equity market action overnight, the Japanese Nikkei fell 0.4%, and Indonesia’s market closed down 1.2%. However, share prices rose 0.5% in China and Taiwan, 0.7% in India and South Korea, and 0.4% in Hong Kong. European markets climbed as well thus far and are showing gains of 1.4% in Spain, 1.2% in Great Britain, 0.7% in Italy and Switzerland, 0.5% in France, and 0.4% in Germany.

West Texas Intermediate oil‘s price jumped 1.5%, and gold is 0.7% firmer. Ten-year sovereign debt yields increased three basis points in the U.K. and a basis point each in Germany and the United States.

Chinese August monthly data largely beat expectations. The jobless rate fell to a 7-month low of 5.6%. Retail sales (+0.5%) recorded a year-on-year advance for the first time in 2020. A 5.6% on-year increase of industrial production constitutes an 8-month high and contrasts with a 13.5% drop back in January-February. The on-year decline in fixed asset investment was only 0.3%, down from 3.1% in the first half of the year and a plunge of 24.5% in January-February.

Investor sentiment toward Germany and the euro area was depressed less than one might have thought by new Covid outbreaks and deadlocked trade talks with Great Britain. Germany’s ZEW expectations index jumped from 71.5 in August to a 244-month high of 77.4 in September, having bottomed at -49.5 last March. Perceived current conditions improved to a 6-month high. Regarding Euroland, expectations rose to a 199-month high of 73.9 this month from 64.0 in August.

Several price data releases today reflect very subdued inflation.

  • The combined Swiss producer price/import price index fell 0.4% in August and posted a 3.5% year-on-year decline. The import price component was 6.1% below a year ago.
  • French and Italian final consumer price figures for August confirm inflation rates of 0.2% in France versus 1.5% last January and -0.5% in Italy compared to 0.5% at the start of the year.
  • South Korean import prices fell 10.5% over the 12 months through August.
  • British average weekly earnings in the three months through July were 1.0% lower than a year earlier. Other U.K. labor market data showed a 0.2 percentage point rise in the jobless rate and a combined 143,600 jobless insurance claims in July and August.

On-year growth in total labor costs in the euro area accelerated to 4.2% last quarter from 3.7% in 1Q and 2.8% in the second quarter of 2019.

Consumer confidence in New Zealand fell 2.2% this quarter according to the Westpac measure. Over the last three reported quarters, confidence has dropped 13.5% from 109.9 in the final quarter of 2019 to 95.1 now.

Indonesia’s trade balance has swung to a $11.05 billion trade surplus in January-August from a deficit of $20.6 billion a year earlier.

The U.S. Empire State Manufacturing index rebounded to a 2-month high of 17.0 in September after dropping 13.5 points to +3.7 in August.

U.S. import prices increased 0.9% last month, led by a 3.3% rise in theĀ  price of imported fuel. The 12-month 1.4% decline in overall import prices was half as much as seen in July and down from a 6.8% on-year slide posted in April.

Still to come: U.S. industrial production.

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

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