Dollar Leaped 1.2% Overnight to 19-Month High

January 27, 2022

Fed Chairman Powell’s implication that Fed tightening in 2022 will exceed market expectations lit a flame under the dollar, which overnight rose 1.2% on a weighted basis to its best level since June 28, 2020. The dollar climbed 0.7% against the euro and Swiss franc, 0.5% relative to the yen, kiwi and sterling, and 0.4% versus the Turkish lira and Australian dollar.

Stock markets in the Pacific Rim fell 3.1% in Japan to over a one-year low, 3.5% in South Korea, 2.0% in Hong Kong, 1.8% in Australia and China, 1.1% in New Zealand and around 1% in India. The German Dax and Paris Cac are down slightly, while the British Ftse is higher.

Russian geopolitical tensions with NATO haven’t abated. The price of West Texas Intermediate oil is 0.9% stronger, while that of gold fell by 0.9%.

Ten-year sovereign debt yields rose 5, 3, and 2 basis points overnight in the U.K., Germany and Japan but fell back 3 basis points in the United States.

On the central banking front, Chile’s policy interest rate, which had been just 0.5% in mid-2021, was raised by a further 1.5 percentage points and more than anticipated to 5.5%. Turkish monetary officials have reportedly increased their projected end-2022 CPI inflation forecast to 23.2% from 11.8%.

Today’s data menu will be dominated by the first glimpse of U.S. GDP growth last quarter and several other U.S. indicators that are scheduled for release.

Australian producer prices rose 1.3% in December, lifting the 12-month rate of increase by 1.2 percentage points to a record high of 10.8%. That surpassed expectations.

New Zealand consumer prices climbed 1.4% last quarter, resulting in a 30-year high inflation rate of 5.9%.

Australian quarterly import price growth (5.8%) exceeded export growth (3.5%) in 4Q for the second quarter in a row.

Malaysian PPI inflation of 10.0% in December was down from 12.6% in November and the lowest since February.

Spanish and Norwegian unemployment last quarter — respectively at 4.0% and 3.4% — were at their lowest levels in 53 and 10 quarters.

The CBI monthly survey of British distributive trades produced a reading of 28 in January, which exceeds its long-term average and was 20 points higher than December’s reading by 11 points below November’s score. British auto output posted on-year drops of 12.7% in December and 6.7% in 2021.

As Omicron recedes, consumer sentiment is picking up. The 7-day average of U.S. cases yesterday was 21% below the level two weeks earlier, but comparable comparisons of deaths and hospitalizations, whose trend lags that of cases, were up by 34% and 5%. For Wednesday alone, 686,136 new U.S. cases were identified.

German consumer confidence recovered 0.2 index points but remained very depressed at -6.7 after the prior month’s 7-month low of -6.9.

Consumer confidence in Finland rose to a 2-month high in January, and Taiwanese consumer sentiment rose to a 3-month high.

Austria’s manufacturing purchasing managers index improved to a 4-month high with a robust score of 61.5 in January. It was over 60 for the first time since October.

Business confidence in South Korea settled back two points in January but was otherwise its highest since August.

On-year growth in Taiwanese GDP of 4.9% last quarter was the most since 9.2% in 1Q 2021. In the Philippines, GDP rose 3.1% in the fourth quarter and surpassed its year-earlier level by 7.7%.  In 4Q 2020, GDP had plunged 8.3% year-on-year.

Chinese corporate earnings climbed 34.3% on average last year.

The Swiss trade surplus widened 36% last year to CHF 58.7 billion.

U.S. real GDP jumped 6.9% on quarter (at annualized rate) during 4Q, which beat analyst expectations by almost 1.5 percentage points and resulted in a 5.5% advance from the final quarter of 2020. However, 71% of the quarterly growth, or 4.9 percentage points, was a attributable to inventory accumulation, and a 3.3% rise in personal consumption accounted for more than the rest. Government expenditures  and residential investment fell by 2.9% and 0.8%, while net exports had no impact on GDP growth. The personal consumption price deflator went up 6.5% on quarter (annualized) and 5.5% year-on-year. For 2021 as a whole, real GDP grew 5.7% after dropping 3.4% in 2020 and rising 1.9% in 2019.

After the U.S. GDP figures were reported but before U.S. stock markets had opened, share prices had widened their gains.

After soaring by 59k to 290k in the previous week, U.S. new jobless insurance claims settled back to 260k last week, but the four-week average advance of 247k was the most in eight weeks.

U.S. durable goods orders slid 0.9% in December, which was about twice as much as the projected drop, but orders were still 15.6% greater than in December 2020. For all of 2021, orders surged back 20.9%. U.S. pending home sales and the monthly Kansas City manufacturing survey results will be reported shortly.

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

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