Weaker Dollar but Stronger Equity Prices

February 2, 2022

The dollar fell overnight by 0.5% against the euro and its weighted DXY index, 0.4% versus the yen, and 0.3% relative to the Swiss franc, Australian dollar and sterling. Compared to its late January high, the DXY index is now 1.6% weaker.

Share prices got an additional boost from several strong earnings reports and Alphabet’s decision to split its stock. Equity markets closed 1.9% and 1.7% higher in New Zealand and Japan and rose 1.2% in India, Indonesia and Australia. The Nasdaq futures points to a rise of almost 2%, and European gains so far range from 0.4% in the Paris CAC to 0.9% in the British Ftse.

Net movement overnight has been inconsequential in 10-year sovereign bond yields and the prices of gold, a Bitcoin, or oil.

Central banks that heretofore have been inclined not to jump on the rate hike bandwagon appear likelier to reconsider that choice. A speech overnight by Reserve Bank of Australia Governor Lowe opened the door a crack to the possibility of a rate increase in 2022 if growth in GDP and wages remains on a stronger-than-projected pace.

An even bigger influence on market sentiment regarding central bank policies this year was today’s preliminary report on Euroland consumer prices in January. Analysts expected the crest to have been in the previous month, but instead of receding to 4.5%, Total CPI inflation ticked up another 0.1 percentage point to a record high of 5.1% in January. The 12-month advance in energy prices climbed another 2.7 percentage points to 28.6%, while the food, alcohol, and tobacco component rose to 3.6% from 3.2% in the prior month and 2.2% in November. In Germany, France and Spain, inflation did subside, but Italy, Greece, Belgium, Cyprus and the Netherlands clocked higher inflation and by a significant margin in some cases. Despite a 0.3 percentage point dip in core inflation, financial markets reacted adversely to this report, pricing in an ECB deposit rate liftoff closer to midyear than in the final quarter of the year.

Big Surprise Just In: The ADP early estimate of private U.S. employment growth shows a 301,000 contraction in January. This first decline in 13 months was blamed largely on the depressing effects of Omicron and dovetails with a NYT expose comparing the abysmally high U.S. Covid cumulative death rate to those of other wealthy countries. The U.S. rate of about 265 per 100,000 population is about three times greater, for instance, than that of neighboring Canada. Countries with comparable Covid-related death rates to the United States include Ukraine, Poland, Russia, Greece and the Czech Republic. It’s astounding that half of America’s deep political divide is fighting tooth and nail to retain an antiquated public health care system that produces such embarrassing results.

In other price and wage data reported this Wednesday, labor cost inflation in New Zealand accelerated to 2.8% last quarter from 2.4%, 2.1% in 2Q and 1.6% in both 1Q and the last quarter of 2020. The jobless rate of 3.2% was down from 4.9% a year earlier. Consumer price in Italy leaped 1.6% higher in January and to a 4.8% year-on-year increase from 3.9% in December. Core Italian consumer prices were 5.3% higher than a year earlier after a 4.2% on-year advance in December. Austrian CPI inflation increased 0.8 percentage points to a 446-month peak of 5.1% last month, and Indonesian CPI inflation climbed 0.3 percentage points to a 20-month high of 2.2%.

Two more manufacturing purchasing manager surveys were reported today. The Filipino PMI fell to the 50.0 level of neutrality (effectively indicating stalled activity) from a 9-month high in December. Indonesia’s manufacturing PMI rose 0.2 points to 53.7 but was accompanied by a 20-month low in optimism about the one-year-ahead future.

Copom, the policy-making board at the Central Bank of Brazil, is reviewing its monetary stance today.

China, Taiwan, and Hong Kong markets remained closed for Lunar New Year observances.

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


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