Stronger Dollar After Another U.S. Gun Massacre

May 25, 2022

The dollar strengthened 0.4% overnight on a weighted basis, rising 0.7% against the euro, 0.6% versus the Australian dollar, 0.4% vis-a-vis the Swiss franc, and 09.3% relative to the Canadian dollar, Russian ruble, Mexican peso and sterling. U.S. stock indices are essentially flat in futures trading, and so is the 10-year U.S. Treasury yield. The big overnight financial move has been a 1.4% jump in the price of WTI oil. Gold, which tends to move inversely with the dollar, fell 0.7%.

Among other stock markets, share prices closed up 1.2% in China and 0.9% in Tawian but down 0.6% in New Zealand and 0.3% in in Japan. The German Dax, Paris Cac are 0.3% firmer, and British and Italian equities have risen by 0.6%. Ten-year sovereign debt yields fell overnight by four basis points in Italy and Spain, three bps in France and the Netherlands, and two bps in Japan and Germany.

The Reserve Bank of New Zealand’s official cash rate was raised by the expected amount, 50 basis points to 2.0%, but the released statement ramps up the commitment to restoring price stability.

The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range. Consistent with the economic outlook and risks ahead, monetary conditions need to act as a constraint on demand until there is a better match with New Zealand’s productive capacity. A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment.

Today’s interest rate hike in New Zealand was larger than those of 25 basis points in November and February. CPI inflation has accelerated from 1.5% in the first quarter of 2021 to 6.9% last quarter, and core consumer price inflation also exceeds the top of the central bank’s target band.

German GDP growth last quarter of 0.2% relative to 4Q 2021 reverses the prior quarter’s downtick, matches the preliminary estimate, and was led by business investment but blunted by a drag from net foreign demand especially after Russia’s invasion of Ukraine. On-year growth has been revised up 0.1 percentage point to 3.8% and is the most since a 10.4% on-year advance in 2Q 2021.

GDP growth last quarter was revised higher in Singapore and now shows gains of 0.7% on quarter and 3.7% on year.

French consumer confidence fell slightly to a 91-month low in May and, with a reading of 86, was down from 99 in December and 98 in May 2021.

German consumer confidence recovered 0.6 points from last month’s record low but remains 19 index points more negative than its level a year ago.

Investor confidence in the Swiss economy weakened another point in May to an 87-month low of minus 52.6. A record high of +72.2 was touched in May 2021.

South Korean business confidence slid a point in May to a 2-month low.

Sweden is especially threatened by Russian aggression and wants to join NATO asap. Swedish consumer confidence fell to a 62-month low in May, while business confidence recovered to a 2-month high. Sweden’s jobless rate of 8.2% in April was unchanged from March and 1.2 percentage points lower than a year earlier.

Swedish producer prices increased 1.2% last month and were 23.8% above their year-earlier level. PPI inflation in April 2021 had been just 5.6%.

Spanish producer prices rose 1.6% on month in April. Year-on-year Spanish PPI inflation dipped to 45.0% from 47% in the prior month but was still more than three times greater than 13.0% in April 2021.

Icelandic PPI inflation increased to a 242-month high of 29.6% in April.

Malaysian CPI inflation in April edged up 0.1 percentage point to 2.3% after touching a 5-month low in March.

Japan’s March index of leading economic indicators was revised marginally lower but remains at a 2-month high. The index of coincident economic indicators was bumped upward and at a 30-month high.

21 people are known to have been killed in the school massacre in Texas, 19 of whom were young children. It’s hard to be confident that anything will be done legally to stem the epidemic of gun violence, with the issue so wrapped up in America’s cultural divide. If conservatives manage to get their wish and move the country firmly into the camp of authoritarian nations, the ironic thing is that the second amendment will be one of the first casualties. No successful autocracy has ever permitted private gun ownership.

Many of the primary candidates endorsed by former President Trump lost yesterday, especially in Georgia.

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




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