Slightly Softer Dollar but Higher Share Prices Ahead of FOMC Announcement

July 27, 2022

The FOMC statement due at 18:00 GMT today will be followed by Powell’s press conference 30 minutes later. Fed forecasts are not being updated at this meeting, and officials are widely expected to raised the fed funds target by 75 more basis points to 2.25-2.50%, which would more or less align such with what is considered a neutral stance.

Today’s FOMC announcement comes one day before the first estimate of U.S. second-quarter GDP data. It’s possible that such could show a second consecutive quarterly contraction of GDP, but nobody’s prepared to declare that indicates a recession because labor market conditions and other key leading indicators are not signaling a downturn yet.

Another important development tomorrow will be a likely phone conversation between U.S. President Biden and Chinese President Xi. Tensions between the two countries have intensifies lately, and the intention is to see if a more civil relationship can be imposed before regrettable actions between the two superpowers occur.

Dollar net movements overnight include losses of 1.3% against the Russian Ruble, 0,3% versus the euro and Canadian dollar, 0.2% relative to sterling and the Chinese yuan and 0.1% vis-a-vis the Swiss franc. The dollar is unchanged against the yen and peso and up by 0.4% versus the Turkish lira and 0.3% against the New Zealand dollar. The weighted DXY dollar index is 0.2% softer but got a modest bump from today’s U.S. data releases that showed the smallest advance U.S. trade deficit since November — $98.2 billion in June compared to $104 billion in May and $125 billion in March — as well as a considerably better 1.9% increase last month of U.S. durable goods orders than had been forecast.

Concern is swelling about Italy’s situation. The responsible Draghi government failed on classic Italian political shenanigans; elections are set for September. Also, the high level of Italian debt makes the economy particularly vulnerable to monetary tightening now being undertaken by the European Central Bank. Italian consumer confidence sank 3.5 index points to a 26-month low of 94.8 in July, and manufacturing sector business sentiment  dropped to a 16-month low.

Italy’s 10-year sovereign debt yield today has risen 10 basis points, more than comparable increases of 6 basis points in the U.K., 4 bps in Spain and 3 bps in Germany and France. The U.K. is also in the process of replaces its political leader after PM Johnson resigned. Ten-year U.S. Treasury and Japanese JGB yield have dipped two and one basis points today.

In stock market futures trading, the S&P 500, DJIA and Nasdaq show gains of 0.9%, 0.5% and 1.6% about ten minutes before the opening bell. Key European markets so far are up 0.5-1%. Asian markets closed mixed, with Hong Kong down 1.1%, India up 1.0% and the Chinese and Japanese exchanges hardly changed.

WTI oil is up 0.8%. Bitcoin and gold prices are barely moved.

British shop prices posted a record 4.4% on-year increase in July, up from 12-month rises of 3.1% in June and 1.5% in January.

Australian consumer price inflation jumped a percentage point in 2Q 2022 to an 84-quarter high of 6.1%, with the higher food price pressure since the 3Q 2011. Core inflation of 4.9% compares unfavorably with the Reserve Bank of Australia’s medium-term objective of 2-3%.

Malaysian producer price inflation eased 0.3 percentage points to a 4-month low of 10.9% in June.

Chinese corporate profits were only 1.0% greater in the first half of 2022 than a year earlier, down from a 34.3% rise in full-2021.

Japan’s May indices of leading and coincident economic indicators were each revised somewhat lower to 2- and 7-month lows.

Consumer confidence in Taiwan, whose citizens are living under the evermore threat of a Chinese invasion, dropped to a 157-month low in July, while in South Korea, consumer sentiment plunged 10.4 index points to a 2-year low this month of 86, having touched 107.6 last November.

Turning to European data released today,

German consumer confidence fell more than forecast to another record low heading into August.

French consumer sentiment slid for a seventh consecutive time and with an 80 reading was down from a crest of 103 in mid-2021.

Finnish consumer sentiment in July weakened to its lowest level in at least 27 years.

Austria’s manufacturing purchasing managers index rebounded marginally above June’s 22-month low to 51.7 but still reflected considerable momentum loss from a score of 61.5 in the first month of 2022.

Sweden’s trade surplus imploded to just SEK 0.5 billion in the first half of 2022 from SEK 26.5 billion a year earlier.

Euroland money and credit growth remained more than ample in June but are likely to slow under tightening monetary policy in the second half of the year. The stock of M3 money was 5.9% higher than a year earlier in the second quarter. Loans to non-financial firms and households in June recorded year-on-year expansion of 6.8% and 4.6%. Credit grew 6.2% year-on-year in June.

Investor sentiment toward Switzerland printed at minus 57.2 in June, its fifth sub-zero reading in a row compared to a score of 9.5 back in January. Officials at the Swiss National Bank began to raise interest rates sooner than analysts were anticipating at their last review in June and reportedly are contemplating another increase in September of a half percentage point or more.

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

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