Softer Dollar and Yen

June 24, 2022

The dollar firmed 0.2% overnight against the yen but otherwise slipped 0.3% against the Swiss franc, peso, and kiwi, 0.2% relative to the loonie and sterling, and 0.1% versus the euro and on a weighted DXY basis.

Equity markets are headed for a weekly advance, which has been a rare occurrence in 2022. The street explanation is that investors have become more confident that inflation will be reined in, but the better tone also could simply reflect the tendency for stock markets to firm up close to the end of a calendar quarter. This works to the advantage of financial advisors whose fixed fees are based on quarter-end portfolio values.

In stock futures trading, main U.S. indices have risen almost 1.0% overnight. European stocks show gains of one to two percent for the most part. In the Pacific Rim, stocks advanced 2.3% in South Korea, 1.3% in New Zealand, 2.1% in Hong Kong, 1.2% in Japan, 0.9% in China and India, 0.8% in Taiwan and Australia, and 0.6% in Indonesia and Singapore.

Ten-year sovereign debt yields compared to Thursday’s close have increased by 9 basis points in Italy, 6 bps in Germany and Spain, 5 bps in the U.K. and France and 3 basis points in the United States.

The rebound in the price of Bitcoin was extended another 0.6%, pushing such above $21k, and WTI oil advanced nearly 2% overnight. Gold is marginally softer.

The Bank of Mexico’s overnight interbank rate was lifted by 75 basis points to 7.75%, matching market expectations and also the recent incremental tightening of the federal funds rate. 7.75% constitutes the Mexican policy rate’s highest elevation since shortly before the pandemic’s onset. The rate’s pandemic low of 4.0% occurred between February and June of last year. As in the United States, Mexican authorities raised the incremental magnitude of tightening, having hiked the rate previously by 50 basis points in May, March, February, and December and by 25 bps in the first four increases of the current tightening cycle. The central bank’s released statement notes that during the first half of 2022 ” headline and core inflation registered annual variations of 7.88% and 7.47%, respectively, remaining at elevated levels unseen in two decades… Medium- and long-term expectations for headline inflation were revised slightly upwards and those for core inflation remained stable, although at levels above the target.” Looking ahead, officials plan to set a policy rate that is consistent at all times with the trajectory needed to facilitate the orderly and sustained convergence of headline inflation to the 3% target within the time frame in which monetary policy operates as well as an adequate adjustment of the economy and financial markets.” The hope is this will happen by 1Q 2024, and it will necessitate more methodical rate hikes at the next few scheduled policy reviews.

Japanese consumer prices inflation held steady at 2.5% in May, and core inflation, which Japanese officials define as excluding perishable food but not energy prices, stayed above the 2% target at a 7-plus year high of 2.1%. If the 17.1% rise of energy is also included, however, underlying inflation stayed below 1% at 0.8%, and Bank of Japan officials have emphatically pushed the narrative that less policy stimulus is not under consideration.  In a separate release today of a BOJ proprietary statistic, corporate service prices were unchanged month-on-month during May.

The German IFO Institute’s monthly business climate index dropped 0.7 index points to 2-month low in June of 92.3. While current conditions were deemed not as soft as analysts were expected, the expectations component dropped 1.1 points to a 3-month low of 85.8, which was below what analysts had anticipated. IFO officials attributed the pessimism to high energy prices and a threat of gas shortages. Among major economic sectors, trade absorbed a particularly heavy blow, falling to a 26-month low.

British retail sales volume fell 0.5% on month and 4.7% on year during May, and consumer confidence in the U.K. slid to a new record low in June.

In Italy, consumer confidence weakened over 4% in June, but business confidence among manufacturers rebounded from May’s 13-month low to a 3-month high in June.

Czech consumer confidence and business sentiment weakened to respective 121- and 3-month lows in June.

Brazil’s FGV consumer confidence index, however, rose 3.5 index points to a 10-month high of 79 in June.

Turkish manufacturing sector business confidence fell to a six-month low in June.

CPI inflation in Mongolia rose to a 114-month high of 15.1% last month, and Malaysian CPI inflation of 2.8% was a half-percentage point above April’s pace and the most in five months.

Spanish GDP growth in 1Q 2022 got revised 0.1 percentage point lower to 0.2% versus 4Q 2021 and 6.3% from the same quarter a year earlier. Dutch growth has been revised to a quarterly gain of 0.4% and an increase of 6.7% from the first quarter of 2021.

China’s $88.9 billion current account surplus last quarter was 25% wider than a year earlier but 25% narrower than in the final quarter of 2021.

Data on U.S. new home sales and the U. Michigan measure of consumer sentiment will be reported later this morning.

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

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