Dollar Firms Modestly Against Backdrop of Concern over Outlook for Equities
September 8, 2021
It’s normal at any time to encounter predictions of an imminent drop in equities, and the prevalence of Casandrian warnings has increased lately. The Covid pandemic keeps chugging along and preventing a full return of economic activity to the promised land and monetary policies to a semblance of normalcy. In the United States, new cases and deaths from the virus slackened on the Labor Day holiday but then bumped back above 150k and to 1500 yesterday. Culture strains are adding to pessimism regarding multi-faceted problems that have sprouted up in the two decades since the 9/11 attacks.
Stocks in the Pacific Rim today rose 0.9% in Japan but closed down 1.4% in Indonesia, 1.3% in Singapore, 1.1% in New Zealand, 0.9% in Taiwan, and 0.8% in South Korea. Equity markets are also showing losses so far today in Germany, France, the U.K., France, Spain and U.S. futures.
Although the U.S. 10-year Treasury yield has settled back three basis points, the dollar overnight rose 0.2% against the euro, Swissie, and Aussie dollar, by 0.3% relative to the Canadian dollar, and by 0.1% vis-a-vis the DXY weighted index and sterling. More broadly, 2021 has been a solid year for the dollar, which since late May has traded 3.5% higher.
Turkey’s central bank Governor Kavcioglu made dovish remarks overnight that depressed the Turkish lira by over 1% against the U.S. dollar.
Investors now await the interest rate decisions of the Bank of Canada and National Bank of Poland due later this morning. Thursday will see a larger slate of central bank decisions feature the European Central Bank and central banks in Serbia, Ukraine, Malaysia, and Peru.
The period just ahead will also see parliamentary elections in Canada on September 20, Germany on September 26, and Japan around November.
Several Japanese data were reported today. Real GDP growth last quarter was revised upward to a 1.9% at an annualized rate form 1.3% estimated a month ago. Personal consumption was the main growth driver, and residential investment, non-residential business spending, and government expenditures also made positive growth contributions. Net exports and inventory changes exerted drags totaling 2.6 percentage points onn the quarterly annualized growth rates. The GDP price deflator fell 0.6% on quarter and 1.1% on year. Japan’s current account surplus in July of JPY 1.91 trillion was smaller than forecast but above the year-earlier surplus of JPY 1.535 trillion. The seasonally adjusted current account of 1.41 trillion yen was JPY 3.7 trillion less than in June in spite of a larger surplus in merchandise trade. On-year Japanese bank lending growth slowed to 0.6% in August, and — most disappointing in today’s batch of Japanese releases — the economy watchers index (a sentiment gauge of the perceptions of service sector workers) slumped to a 7-month low reading of 34.7 in August from 48.4 in July.
Italian retail sales in July reflected Covid worries with the first monthly decline (-0.4%) since January and a smaller year-on-year advance of 6.7% after 7.9% in June and 30.4% back in April.
Swedish industrial production rose 1.2% in July, down from an 8-month high of 1.9% in the prior month, and its on-year increase of 13.5% was the least since March. Swedish household consumption rose 0.7% on month in July.
France in July experienced its largest current account deficit (EUR 3.47 billion) in ten months and its largest merchandise trade deficit (EUR 6.96 billion) in 11 months.
South African business sentiment slipped 7 index points to a 2-quarter low of 43 in the third quarter.
The Governing Council of the Bank of Canada as expected retained a target interest rate of 0.25%. That’s been the level since three 50-basis point cuts were made in March 2020. Officials also retained a program of bond purchases (C$ 2 billion per week) and released a statement that concedes a likely larger GDP contraction in 2Q than assumed earlier. “he Governing Council judges that the Canadian economy still has considerable excess capacity, and that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s July projection, this happens in the second half of 2022.”
Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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