Somewhat Softer Dollar but Equities and Sovereign Debt Yields Ending Week on Front Foot

November 18, 2022

In overnight foreign exchange action, the dollar fell 1.0% against the kiwi, 0.7% relative to sterling, 0.6% against the Chinese yuan, 0.5% versus the Australian dollar, 0.3% against the Japanese yen and 0.2% against the euro. The DXY dollar index, where the USD/EUR relationship dominates, also edged down 0.2%.

U.S. stock futures point to a rise of a half percent or more at today’s opening bell. Share prices so far in Germany, France, the U.K., Italy, and Spain are each up 1.0% or slightly more. Asian equities closed narrowly mixed.

The ten-year British gilt yield has risen seven basis points, lifted in part by Chancellor of the Exchequer Hunt’s restrictive Autumn Budget Statement. Ten-year German, French and Italian sovereign debt yields have climbed 4, 3, and 3 basis points. The 10-year U.S. Treasury yield is 3 basis points higher.

The price of Bitcoin recovered 0.4%, but that of West Texas Intermediate oil is down 0.4%. Gold is 0.1% firmer.

Investors at least today are paying more attention to the guidance of central bankers than to economic reality.

Japanese total CPI inflation jumped to a 381-month high of 3.7% in October from 3.0% in August and September. Core CPI inflation, which excludes fresh food but includes energy and is targeted to grow by a sustained 2.0% or slightly more, printed 0.6 percentage points higher at a 483-month high of 3.6% in October. Excluding both energy and fresh food, consumer prices in Japan were 2.5% higher than a year earlier, their biggest such rise in 91 months. That said, Bank of Japan officials have maintained their ultra-loose monetary stance with a negative short-term interest rate and unlimited asset purchases to keep the 10-year JGB no higher than 0.25%. Governor Kuroda, moreover, has repeatedly said that inflation above 2% without faster growth in wages will not prove sustainable, and wages continue to be sticky.

Jeremy Hunt’s British Autumn Budget Statement embodies GBP 55 billion of higher taxes and less spending in spite of a grim growth prognosis that concedes a recession already under way and not ending until 2024. He revised projected GDP next year to a drop of 1.4% from a forecast of +1.8% made by the prior government last spring.

British retail sales volume outperformed expectations in October, rising 0.6% on month but still dropping 0.6% on year. Consumer confidence in the U.K. rebounded three index points this month to a still historically depressed -44, not far from September’s record low of -49 and 30 points below the November 2021 reading.

A parade of Federal Reserve officials have sent a uniform message that there can be no pause yet in interest rate normalization and that investors should be more focused on how high the federal funds rate is apt to climb ultimately than on the size of forthcoming incremental moves.

European Central Bank President Lagarde made hawkish comments too overnight outlining a landscape in which a coming recession would be insufficient to restoring the medium-term inflation target, leaving officials at the central bank no choice to persist further in their recent aggressive lifting of interest rates.

GDP in Macao last quarter continued to be hammered by China’s Covid restrictions and was 33.4% weaker than a year earlier.

Norwegian GDP grew 0.8% versus the prior quarter and 1.5% on year. The change compared to a year earlier was the most in four quarters but would have been only 0.8% if offshore oil production were excluded.

Swiss industrial production rose 0.5% in 3Q and by a 2-quarter high of 5.2% compared to the same quarter a year earlier.

Indonesia’s current account surplus of $4.58 billion last quarter was its widest in a year and equivalent to 1.3% of GDP. A surplus equal to 0.3% of GDP in 2021 was the first full-year surplus in a decade.

U.S. 2022 election results currently show the Republicans regaining control of the House of Representatives with 218 confirmed seats to the DEM’s total so far of 212. That flips a 220-213 DEM majority in the congress for the past two years. But the Democrats are assured of Senate control and may pick up one seat to a 51-49 split if Warnock beats Walker in the Georgia run-off vote on December 6. Governorships in the country are also evenly split.

U.S. existing home sales and index of leading economic indicators will be reported later today.

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




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