Dollar Buoyed by Risk Aversion Ahead of FOMC Meeting and Also Fanned by Ukraine Tensions and Weak Purchasing Manager Surveys

January 24, 2022

The dollar has stremgthened 0.3% against the euro, loonie and on a weighted DXY basis. Even sharper advances can be seen of 0.7% relative to the Australian dollar and 0.5% versus sterling.

The global sell-off of equities has resumed, with losses today of 2.6% in India, 1.5% in South Korea, 1.3% in New Zealand and 1.2% in Hong Kong. Weaker-than-forecast preliminary European purchasing managers indices have added to the stock market woes in Europe, with share prices so far down at least 2.0% in Germany, France, Italy and Spain and off 1.3% in the U.K. An initial rise in U.S. stock futures has evaporated, and the Nasdaq is showing a drop now of almost 1.0%.

Bitcoins have been a casualty of interest rate hike expectations, tanking to an intra-day low of $33,076 and quoted now some 8% below Friday’s close and 34.3% weaker than such was a month ago.

The price of WTI oil is hovering around $85, little changed on net, and gold is 0.4% firmer.

The move out of stocks has been associated with declines of 4, 3, and 2 basis points today in ten-year British gilt, German bund, and U.S. Treasury yields.

The National Bank of Kazakhstan hiked its policy interest rate for a fourth time since July in an unexpected move. While increases last July, September and October had each been by 25 basis point, today’s announced rise was bumped up to 50 basis points and brings the rate level to a 10.25%, highest since just before a 250-basis point cut in April 2020. Consumer price inflation is currently running at 8.4%, compared to a target corridor of 4-6%. Monetary officials are concerned that additional depreciation of the tenge and expansionary fiscal policy could impede efforts to return inflation to its target.

The Chinese yuan rose 0.2% against the dollar today in spite of a 10-basis point cut in the People’s Bank of China 14-day reverse repo rate.

The FOMC begins the first scheduled review of 2022 tomorrow and will announce its decisions on Wednesday. Analysts expect a lift-off in the federal funds target to occur at the following meeting in March.

Today’s data menu features preliminary January purchasing manager survey findings. The Euroland, British, Japanese, and Australian surveys revealed much weaker activity concentrated in the service sector and related to Omicron, as well as some signs of lessening supply chain bottlenecks. Pricing indicators were mixed.

Euroland’s composite PMI fell to an 11-month low of 52.4 in January despite the fastest manufacturing growth in five months including rising factory optimism about the future. Among service sector industries, employment conditions slipped to an 8-month low, and output price inflation rose to a record high. Germany’s composite PMI rebounded to 54.3 from a 18-month low of 49.9 in December. Conditions in other members of the euro area worsened, including France whose composite and services readings of 52.7 and 53.1 represented 9-month lows.

The British composite, manufacturing, and service-sector purchasing manager readings of 53.4, 56.9 and 53.3 were each lower than forecast and were the weakest scores since last February. But there were indications that inflation may be starting to lose momentum.

Japan’s composite PMI swung below 50 (indicating deterioration) with a reading of 48.8 following 52.5 in December and a 51-month high of 53.5 in November. The manufacturing index edged 0.3 points higher to 54.6, but services dropped 5.5 points to a 5-month low of 46.6.

In Australia, the composite PMI reading of 45.3 was 9.6 points weaker than in December and at a 5-month low. The manufacturing and service sector readings were each their weakest results since August as well, and business confidence slumped to a 21-month low as Australia copes with a big Covid-19 wave.

At 4.0%, CPI inflation in Singapore reached a 106-month high in December, almost double the average 2021 pace of 2.3%. Inflation has accelerated from only 0.2% last January.

Finnish producer price inflation of 23.3% in December represents a new record high and compares with a 12-month rate of minus 0.8% last January.

Year-on-year increases of 3.7% and 10% in Taiwanese retail sales and industrial production were the smallest 12-month increases in three months and 10 months, respectively.

Investors are still awaiting the IHS-compiled U.S. purchasing managers survey findings from January, due later this morning.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

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