Intensifying Onslaught in Ukraine and Concerns over the Weakness of the Yen and Yuan
April 20, 2022
The weighted dollar index got as high as 101.04, a 2-year high, overnight. Dollar/yen touched a 20-year peak of 129.4, prompting a verbal protest against the yen’s slide from Japan’s finance minister. In the past, verbal complaints about currency values served as a threat to the possible use of direct foreign exchange intervention if the undesired market trends fail to reverse.
Recent weakness in the Chinese yuan, which touched a half-year low overnight of 6.4182, appears to have deterred the People’s Bank of China from reducing its one-year and 5-year loan prime rates, which have been at 3.70% and 4.60% since cuts in January. Chinese growth prospects have dimmed as a result of full Covid lockdowns in Shanghai and other places and also due to China’s support of Russia’s invasion of Ukraine, which threatens to engulf China in the web of economic sanctions against Russia. Many analysts were expecting more augmented monetary stimulus from the central bank today in the wake of last week’s reduction of bank reserve requirements.
The dollar subsequently settled back from overnight highs and presently shows a daily loss of 0.5% on a weighted DXY basis. Against individual currencies, the dollar on balance today is down 0.9% against the Australian dollar, 0.8% versus the yen and kiwi, 0.6% relative to the loonie and Swissie, 0.5% relative to sterling, 0.4% vis-a-vis the euro, and 0.3% against the Mexican peso. Alternatively, the dollar has done well versus the Russian ruble, rising 2.5%, and also retains a 0.3% rise versus the Chinese yuan.
Yesterday’s stock market rally in the U.S. gave upward momentum to trading today in Asia (excepting China, Taiwan and Hong Kong) and Europe. There were gains of 0.9% in Japan and Singapore and of 1.0% in India, and markets in Germany, France, Italy, and Spain have each risen so far at least 1.0%. U.S. stock futures are up, too.
Ten-year sovereign debt yields are down 7 basis points in the United States, U.K., Italy and Spain and off 6 basis points in Germany, France, Portugal and the Netherlands.
The price of West Texas Intermediate oil recovered 1.6%, and Bitcoin is 1.3% higher. Gold is down marginally.
Price data released around the world today revealed
- A 374-month high of 6.7% in Canadian consumer price inflation during March. That was up from 5.7% in February, 4.8% in December, and 2.2% in March 2021. Energy and food prices were respectively 27.8% and 7.7% above year-earlier levels, while all other items were collectively 6.4% higher.
- South African CPI inflation rose 0.2 percentage points to a 3-month high of 5.9% in March. This compares with an inflation target of 3-6%.
- German producer prices jumped 4.9% on month and by a record high 30.9% on year in March. Energy producer price inflation accelerated from 8.0% in March 2021 to 83.8% a year later, while inflation associated collectively with all other items in the PPI climbed from 2.4% to 14.0%.
- In March Czech producer prices rose 4.2% on month and 24.7% (a 362-month high) in year-on-year terms.
Japan tertiary index of service sector activity tumbled 1.3% on month in February after dipping 0.2% in January and rising 1.5% in the fourth quarter. This latest setback cut the 12-month rate of increase to 0.7% from 2.1% in the prior month and 1.5% in 2021 as a whole.
Japan’s customs trade balance was in deficit for an eighth straight month on a nonseasonally-adjusted basis, but the gap of 412 billion yen was the smallest in five months. The first-quarter deficit of 3.274 trillion yen compared adversely to a surplus of 464 billion yen a year earlier. Exports to China rose only 2.9% compared to a 19% on-year advance in imports from that trading partner. The seasonally adjusted trade deficit totaled 2.759 trillion yen last quarter.
Euroland also experienced a trade deficit in February. The shortfall that month was smaller than expected at EUR 7.629 billion compared to a surplus of EUR 23.6 billion a year earlier. Imports soared 38.8% on year, while exports climbed by 17.0%.
Car sales in the European Union were clobbered by uncertainty in the wake of Russia’s invasion of Ukraine. Sales slumped 20.5% on year in March versus an on-year drop of 6.3% on average in the first two months of 2022 and a dip of 2.4% in 2021.
U.S. mortgage applications posted a sixth straight drop last week, this time of 5.0%. The 30-year fixed mortgage rate climbed another 7 basis points to 5.20%.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Canada CPI, Euroland trade balance, Germany PPI, Japan tertiary index and trade balance, Japanese Finance Minister Suzuki
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