Dollar Up Amid Weaker-Than-Forecast Data Around the World

August 15, 2022

The weighted DXY dollar index is up 0.6% and near its overnight highs. Gains compared to Friday closing levels have been even higher relative to the Canadian dollar (1.0%), New Zealand dollar (1.3%), Australian dollar (1.2%) and Mexican peso (0.7%). The dollar has risen 0.6% vis-a-vis the euro, 0.5% versus sterling and 0.4%relative to the Swiss franc but is 0.2% softer against the Japanese yen.

U.S. stock futures are down about 0.5% following last week’s significant advances. In the Pacific Rim, share prices rose 1.1% in Japan, down 0.7% in China and held steady in China. Stock exchanges are hardly changed in the U.K., Germany, France or Spain but up 0.5% in Italy.

Ten-year sovereign debt yields are down five basis points in Germany, Britain, and France but barely changed in the United States or Japan.

As well-bid as the dollar has been this Monday, prices for commodities such as WTI oil (-4.7%) and gold (-1.5%) as well as cryptocurrencies such as Bitcoin (-1.2%) have had a difficult time.

Several Chinese economic indicators for July and released today showed less strength than expected. Officials at the People’s Bank of China in response lowered the 1-year medium term lending facility rate for the first time in six month. The drop was 10 basis points in size to 2.75%.

  • Unemployment was the exception, falling to a half-year low of 5.4%, but it tends to be a lagging indicator.
  • On-year growth in retail sales of 2.7% was about half as much as expected and left sales in January-July 0.2% below the average in the first seven months of 2021.
  • Industrial production posed a 3.8% 12-month increase, roughly a percentage point below expectations.
  • Fixed asset investment in January-July rose 5.7%, down from a 6.1% increase in the first half of 2022.
  • A 0.9% on-year drop in house prices was the weakest result since September 2015.

After a 0.6-point dip in June, New Zealand’s service sector purchasing managers index fell 3.5 points to a 5-month low in July of 51.2.

Japanese real GDP growth did not revive quite as much as predicted from the first quarter’s stagnation. GDP grew 2.2% on quarter expressed at an annualized rate and was only 1.1% above the 2Q 2021 level. Personal consumption, non-residential investment, and public works spending were respectable, but inventories exerted a 1.7 percentage point drag on overall economic growth, and contributions from net exports and residential investments were each slightly negative. Japan’s GDP price deflator was also negative, both relative to the prior quarter (-0.3%) and to 2Q 2021 (-0.4%).

Quarterly GDP growth in Thailand of 0.7% in 2Q was down from 1.2% in the first quarter and 1.7% in the final quarter of 2021. Growth between the second quarters of 2021 and 2022 of 2.5% was also lower than projected.

Ireland’s construction purchasing managers index tumbled to a 16-month low of 41.8, signalling a robust rate of contraction. That followed another sub-50 reading of 46.4 in June and was well below February’s 7-month high of 58.4.

Manufacturing shipments in Canada recorded consecutive monthly declines of 1.1% in May and 0.8% in June.

The U.S. Empire State manufacturing index ordinarily can be volatile, but the steep swing from a reading of +11.1 in June to a 26-month low of -31.3 sticks out as an especially alarming deterioration.

Not all data reported today were soft. The record month-on-month rise in June of Japanese industrial production was revised upward by a further 0.3 percentage points to 9.2%, but even that jump wasn’t enough to swing the year-on-year change into the black. Production fell 2.7% on average between 1Q and 2Q and was 2.8% lower in June than the same month a year earlier. Industrial capacity and capacity usage were 1.3% and 4.4% below their June 2021 levels.

Energy exporters like Indonesia and Norway have seen significantly larger trade surpluses in 2022. Norway’s surplus in January-July of NOK 729 billion was 350% wider than a year earlier. Indonesia’s surplus in the same period of $29.2 billion was 102% greater than a year before.

Among today’s price data releases,

  • German wholesale prices recorded the first month-on-month decline (-0.4%) in 21 months, but their year-on-year rise of 19.5% remained quite elevated and not far below April’s peak of 23.8%.
  • Finnish CPI inflation of 7.8% in July was unchanged from June’s 458-month high.
  • The combined Swiss PPI/import price index dipped 0.1% on month in July, and its 6.3% year-on-year pace was down from a 488-month high of 6.9% reached in May and repeated in June. Import prices and domestic producer prices were respectively 10.8% and 4.1% greater than in July 2021.
  • New Zealand consumer price inflation accelerated 0.4 percentage points further in 2Q 2022 to a 32-year high of 7.3%. That compared with a cyclical low of 1.4% in the final quarter of 2020.

U.S. data releases later today will include the National Association of Home Builders monthly housing market index and Treasury-compiled capital flows between the United States and the rest of the world.

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

Tags: , , ,


Comments are closed.