Dollar’s Losses Extended Overnight

December 3, 2020

Compared to Wednesday closing levels, the dollar has weakened 0.7% against sterling, 0.5% versus the Swiss franc and  Mexican peso, 0.4% relative to the euro and yen, 0.3% vis-a-vis the Australian dollar, 0.2% against the yuan and kiwi, and 0.1% versus the Canadian dollar.

One currency that fell against the dollar has been the beleaguered Turkish lira (down 1.0%). Turkey has been experiencing a vicious cycle of mutually reinforcing currency depreciation and domestic price inflation. Turkish price data released today showed a 2.1 percentage point jump in CPI inflation to a 15-month  high of 14.03% and a 4.9 percentage point leap of PPI inflation to a 17-month high of 23.11%.

But getting back to the dollar, it’s beginning to look like a somewhat weaker U.S. currency is preferred by both Democratic and Republican politicians and has in fact become an unspoken policy priority. Fed officials, moreover, have signaled that their interest rates will remain at current very low levels until after the pandemic and its drag on economic activity has clearly passed. U.S. monetary policymakers reframed monetary policy in 2020 to targeting average inflation over an extended period of time, implying a wish to see such above 2.0% for a while in order to counter then extensive period of sub-2% inflation seen in recent years. ECB officials are discussing such a move, but minutes from their last policy meeting revealed that not all committee members are comfortable with making such a recalibration. The lame duck U.S. Congress is still trying to get a fiscal stimulus of around $900 billion this month. Maybe it will. Maybe not, but in any cases this fiscal consideration is insufficient in size and will force U.S. monetary policy to keep the dollar in a defensive posture.

Wednesday was arguably the worst day of the pandemic for the United States. Deaths and hospitalizations set records of above 3k and more than 100k, respectively, while newly reported cases in the  past 24 hours top 205k. Vaccine progress is a source of hope, but the coming three months in coping with the pandemic are apt to make the past eight months appear like the disaster’s prologue. Global deaths now top 1.5 million.

Asian equities were mixed. European share prices have slipped around 0.5%, and U.S. futures are little changed.

Ten-year German bund and British gilt yields slid two basis points. WTI oil and gold prices are respectively down 0.3% and up 0.4%.

A 1.5% monthly increase in Euroland retail sales volume during October was twice the expected result. Sales were also 4.3% greater than a year earlier.

New U.S. jobless insurance claims last week also produced a pleasant surprise. At 712k, such were 75k less than in the prior week, and the number of continuing jobless insurance claims moved below the 6 million threshold to 5.5 million. A weaker report had seemed probable given the intensifying spread of Covid-19 and imposition of tighter restrictions on gatherings.

Brazilian GDP (+7.7%) rebounded less sharply than forecast last quarter from the second quarter’s 9.6% plunge. On-year growth of 3.9% was in the red for a third straight quarter.

Australia recorded its largest trade surplus in six months in October, A$ 7.456 billion in size and bringing the year-to-date total to A$ 60.9 billion.

Consumer confidence in Thailand improved to a 9-month high in November, and Filipino unemployment of 8.7% this quarter was down from 17.7% in the second quarter but still almost twice the 4.5% level in the final quarter of 2019.

A slew of purchasing manager surveys were published today, mostly but not exclusively covering service sector activities. Common threads in these PMI data are 1) November saw a deterioration in business conditions but not as severely as occurred last spring; 2) cost pressures have picked up; and 3) business sentiment has stayed resilient, improving in many cases as people look through the current bad trends in cases and deaths with hope that vaccine availability will create a major step back toward normalcy during the course of 2021.

Japan’s composite and service sector PMIs were each revised above their preliminary indicators to respective 10- and 9-month highs of 48.1 and 47.8 in November.  Being lower than the 50 no change threshold, such still convey deteriorating conditions.

China‘s composite and service sector PMI readings of 57.6 and 57.8 indicated the fastest improvement in business conditions in 128 months and 5 months, respectively.

Australian composite and services PMIs of 54.9 and 55.1 represent 3- and 4-month highs.

India‘s composite and service sector PMIs printed at 56.3 and 53.7. Each score is a 2-month low but signaling business conditions that continue to improve robustly, just not as much so as seen in October.

Russia‘s composite and service sector PMI’s rose in November to 2-month highs but remained below the no change threshold at 47.8 and 48.2, respectively.

Euroland’s composite PMI fell 4.7 points to 45.3, a 6-month low. The composite readings in Italy, Spain, and France were also 6-month lows, while the Irish index slid to a 2-month low. Only Germany had a composite PMI above 50 but, at 51.7, was its lowest since June. The service sector PMI in the euro area fell to a 6-month low of 41.7 and represented the third sub-50 score in a row.

Great Britain‘s service sector and composite PMIs were each revised above preliminary November indications but, at 47.6 and 49.0, were each at 5-month lows and under 50 for a second straight time.

Sweden‘s service sector and composite PMI leaped to 2-year highs in November of 58.6 and 58.7. That compares with readings of 41.0 and 41.1 last May.

Brazil‘s service sector and composite purchasing manager indices, 50.9 and 53.8, represent two-month lows.

Saudi Arabia’s private non-oil PMI rose 3.7 index points in November to a 10-month high of 54.7. Egypt’s non-oil PMI reading of 50.9 was at a 2-month low.

Hong Kong‘s private PMI finally emerged above the no change threshold and, at 50.1, was the highest reading in 32 months.

Singapore‘s private purchasing managers index slipped 0.9 points below October’s 9-month high to a 2-month low of 46.7.

Lebanon‘s private PMI reading, a 2-month low of 42.4, connotes faster deterioration than felt in October.

South Africa‘s private PMI also dipped to a 2-month low but at 50.3 stayed above 50 following October’s 31-month high of 51.0.

Australia’s construction purchasing managers index advanced 2.6 points to a 31-month high of 55.3.

The Institute of Supply Management reported a 0.7-point dip in the U.S. services sector purchasing managers index to 55.9 in November, signaling a continuing solid improvement in business conditions in spite of rising Covid infections. The sales and orders component highlight slower improvements in those areas, but employment and price conditions more rapidly than in the prior month. All in all, this report lend extra support to U.S. share prices, lifting the DOW back above 30,000.

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



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