Dollar Back Close to 52-Week High Ahead of U.S. October Jobs Report

November 5, 2021

The weighted DXY dollar index is presently trading almost back at its one-year high. It rose overnight by 0.2% against the euro and 0.1% relative to the yen and loonie and scored even larger gains of 0.5% against the Swiss franc and Australian dollar and 0.4% relative to the New Zealand dollar, Mexican peso and British pound.

Ten-year sovereign debt yields fell five basis points in the U.K and a single basis point each in Japan and Germany but edged a basis point higher in the United States.

Prices for WTI oil and gold firmed overnight but remain below key psychological thresholds of $80 per barrel and $1,800 per troy ounce.

Equity markets in the Pacific Rim fell 1.4% in Hong Kong, 1.0% in China, 0.6% in Japan but rose 1.3% in Taiwan, 1.0% in New Zealand and 0.4% in Australia. European bourses have advanced 0.7% in Spain and Italy, 0.6% in France and the U.K. but just 0.1% in Germany where disappointing data were reported.

One theme emerging this week has been a little reassurance that major Western central banks do not seem to be as driven to raise interest rates as soon as investors were fearing at the start of the week. To be sure, some other central banks did turn aggressive in the face of elevated inflation, such as that in the Czech Republic which lifted its two-week repo rate by 125 basis points to 2.75% yesterday. But the Bank of England didn’t hike its Bank Rate as some pundits were expecting, the ECB and Fed struck patient tones, and today’s Reserve Bank of Australia quarterly Statement on Monetary Policy presented a baseline view in which the official cash rate appears unlikely to rise until 2024.

Several weak indicators were reported overnight and prior to today’s main even, which will be the U.S. jobs data.

Retail sales volume in the euro area dipped 0.3% on month in September. The quarterly pace slowed to 0.9% in 3Q from a rise of 3.9% in 2Q. In year-on-year terms, sales fell 0.3% in Austria, rose rose 5.3% in and 5.9% in Italy and France, and climbed 2.5% in Euroland as a whole (down from a 12-month 23.7% increase last April).

Industrial production in Germany, which had been projected to rebound about 1%, dropped 1.1% in September following a 3.5% tumble in August. This was the fifth monthly decline in six months and resulted in the first on-year decrease (1.0%) following six straight year-on-year increases.

French industrial production fell 1.3% on month in September, remaining 5.2% lower than its pre-pandemic level. The on-year increase of 0.8% was the smallest in 7 months.

Spanish industrial production ended a string of three straight monthly declines but rose merely 0.3% in September. The 1.2% rise from September 2020 was the smallest on-year advance in 7 months.

Euroland’s construction purchasing managers index improved to a 20-month high reading of 51.2 but was the only outcome reflecting outright growth (i.e. being above 50.0) since June. Moreover, the German construction PMI score was once again well below 50 at 47.7, albeit also at a 14-month high.

Japanese real household spending jumped 5.0% on month in September but recorded a negative 12-month rate of change (-1.9%) for the third time in four months.

JUST IN: U.S. non-farm payroll employment jumped by an even sharper 531k in October (some 80k more than forecast), which combined with upward revisions exceeding 100k to the increases in both August and September resulted in an October jobs level that was about 315k greater than analysts were assuming. This good news was accompanied by 0.2 percentage point declines in the rate of unemployment to 4.6% and the broader rate of unemployment plus underemployment to 8.3%. Not all elements of the data were consistent with further progress toward the Fed’s notion of maximum employment, however. The labor participation rate remained flat at 61.6%, having been ensconced in a 61.4-61.7% range since June 2020, and the average number of hours per week worked fell marginally. Average hourly earnings growth accelerated 0.3 percentage points to 4.9% compared to the same month a year earlier but slowed on a month-on-month basis from 0.6% in August and September to a bit under 0.4% last month.

In other economic news reported today,

Spanish consumer confidence advanced amid fewer Covid restraints in September to its best level since mid-2019.

Danish industrial production plunged 5.4% in September, trimming the 12-month increase from 14.7% in August to a 7-month low of 4.6%.

Austrian wholesale price inflation rose 2.3 percentage points to a record high of 15.8% in October.

Filipino CPI inflation settled back to a 3-month low of 4.6% in October.

The October rates of Taiwanese CPI and WPI inflation were 2.58% and 14.75%, respectively.

In Thailand, CPI inflation accelerated 0.7 percentage points to a 5-month high of 2.38% in October.

The British Halifax house price index increased 0.9% in October, lifting the year-on-year rate of increase to a 4-month high of 8.1%.

Fewer Covid restrictions in Singapore played a key role behind the rises of retail sales in that economy during September of 6.0% on month and 6.6% (a 3-month high) in year-on-year terms.

The AIG-compiled Australian services index improved 2.1 points in October but at a sub-50 reading of 47.6 signaled further contraction.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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