Marginally Softer Dollar

October 14, 2020

The U.S. dollar edged down overnight by 0.3% against sterling, 0.2% relative to the Australian and New Zealand dollars, and 0.1% versus the yuan, Swiss franc and yen, while holding steady vis-a-vis the euro and loonie. The dollar price of gold firmed 0.5%.

Stock markets in the Pacific Rim rose 0.9% in Indonesia, 0.7% in New Zealand, 0.4% in India, and 0.1% in Japan and Hong Kong but fell 0.9% in South Korea, 0.6% in China, 0.5% in Singapore and 0.3% in Australia. British, German and French equity markets are down 0.3%.

Ten-year German bund and British gilt yields slipped three basis points. WTI oil is down 0.5%.

Attention is turning to the EU summit in Brussels that starts tomorrow. British Prime Minister has set a deadline for arranging a trade deal with the EU at this meeting or walking away with no post-Brexit rules. Investors are also watching U.S. developments regarding the election campaign, ongoing fiscal policy talks, and the Barrett hearings in the Senate Judiciary Committee. Amy Barrett has adopted the previous successful strategy of demurring from hypothetical questions regarding how she might vote on cases before the court but also asserting that she will be non-political in her approach.

Euroland industrial production rose for a fourth straight month, but August’s advance of 0.7% was considerably smaller than the three prior increases and resulted in a slightly larger 7.2% year-on-year drop.

Japanese industrial production growth in August was revised downward by 0.7 percentage points to a 3-month low of 1.0%, and that translates into a continuing double-digit year-on-year plunge of 13.8%. Industrial capacity and capacity utilization were respectively 0.3% and 16.3% below their August 2019 levels.

Year-on-year growth in Polish industrial production of 1.5% in August was only about half as much as anticipated, and Romanian industrial output recorded a 5.1% 12-month decline due to the smallest monthly rose in four months.

A 1.9 trillion yuan increase in Chinese bank lending last month was the most in five months, and M2 money growth of 10.9% was the most since a 3-month streak of 11.1% (May-July), which at the time had been the most in a bit more than three years.

Retail sales in South Africa went up 4.0% in August but dropped 4.2% on year.

Australian consumer confidence this month extended by almost 12% September’s 18% revival according to the Westpac index.

Wholesale price inflation in India accelerated to a 7-month high of 1.32% in September, led by higher food costs.

Spanish CPI inflation for September confirmed the preliminary estimate. A year-on-year drop of 0.4% was the sixth sub-zero result in a row but the least negative since June.

The Bank of Korea’s Base Rate was left unchanged at 0.50%. Earlier this year, such had been cut by 50 basis points in March and by a further 25 basis points to the current level in May. Officials consider an accommodative stance to be appropriate inasmuch as real GDP is expected to contract this year and CPI inflation is projected to hover around 0.5%.

The semi-annual review of monetary policy in Singapore, which targets the exchange rate rather than an interest rate, was completed today. Officials at the Monetary Authority (MAS) project modest economic growth from the first half’s deep contraction. Despite a receding disinflationary risk, Singapore’s negative output gap is narrowing only slowly, so core CPI inflation is projected to remain “well below its long-term average.” Officials therefore agreed to leave policy settings unchanged, maintaining the existing width and center of the Singapore dollar’s allowed trading range and keeping the slope of that band flat, that is allowing for no appreciation of the currency. The slope had been reduced to zero percent at the previous review at end-March.

U.S. producer price inflation in September exceeded expectations,swinging from -0.2% in August to +0.4%. Core PPI doubled to 1.2%.

The Fed Beige Book of regional U.S. economic conditions will be published later today.

On the Covid-19 front, new U.S. cases accelerated to more than 55k during the past 24 hours and hit record highs in several countries including Russia. Globally about a third of a million new cases were identified in the period. Setbacks have occurred on the vaccine development front as some trials were stopped due to adverse reactions.

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


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