Dollar Gain Fueled by Higher Interest Rates, but Stocks and Bitcoin End Week on Very Sour Note
August 19, 2022
Ten-year sovereign debt yields soared overnight by 13 basis points in Germany and the U.K. and by 8 bps in the United States. A parade of remarks from Fed officials to dissuade any thought of an early end to aggressive monetary tightening was backed up by hawkish FOMC minutes released this week.
The dollar appreciated so far today by 0.8% against the yen, sterling and kiwi, 0.5% versus the peso, 0.4% relative to the ruble and 0.3% vis-a-vis the euro and Australian dollar. The Canadian dollar dipped just 0.2%, and the Swiss franc has held steady against the U.S. currency. The DXY weighted dollar index is 0.5% higher.
Equities fell 1.1% in New Zealand and India and 0.6% in South Korea and China but not at all in Japan. European share prices are broadly lower especially on Italy’s exchange (-1.3%). The Nasdaq fell 1.3% as well soon after U.S. markets opened, and the SPX and DOW show losses currently of 1.0% and 0.8%.
Bitcoin’s price has tumbled 7.4% thus far today, and WTI oil is 0.6% softer.
Data released this Friday accentuate the inflation problem felt around the world and how such is draining aggregate demand.
German producer price inflation in July was at a record 37.2%, thanks to a turbo-changed 5.3% month-on-month advance. The energy component was 105% greater than in July 2021.
Latvian PPI inflation (30.2%) exceeded the 30% threshold for a third straight month and was up from 15.8% in July 2021.
Polish producer price inflation of 24.9% subsided only marginally below June’s 322-month peak of 25.6%.
Japanese consumer price inflation increased 0.2 percentage points to a 98-month high of 2.6% in July. Core inflation of 2.4% also exceeded the 2% target, but Japan includes energy in its core measure. If energy as well as perishable food are excluded, consumer price inflation climbed 0.2 percentage points but, at 1.2%, remained low.
Preliminary evidence suggests that Canadian retail sales may have sunk 2.0% last month, more than offsetting June’s 1.1% rise. The June increase, moreover, mostly reflected inflation. In real terms, retail sales were just 0.2% higher in June.
British consumer confidence fell 3 more points to a record low of -44 in August versus a reading of -8 in August 2021. But retail sales volume in the U.K. managed to increase 0.3% on month in July, defying analysts expectations of a third straight decline. Even with that gain, sales were 3.4% below their year-earlier level.
Mexican retail sales dropped 0.5% in June.
Euroland’s current account has been squeezed by expensive imported energy, aggravating by the Russian war against Ukraine. Over the 12 months ending in June, the surplus was EUR 116 billion or 0.9% of GDP, down from a surplus of EUR 362 billion in the previous 12-month period that was equivalent to 3.1% of GDP. That being said, the seasonally adjusted June surplus of EUR 4.2 billion was the first surplus since February.
Swiss industrial production was unchanged in the second quarter, resulting in a 5-quarter year-on-year low gain of 5.1%.
Polish industrial production last month posted its greatest monthly slide (6.5%) since April 2020.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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