Dollar Lifted by Signs of Stronger U.S. Growth than Assumed
February 15, 2023
The weighted DXY dollar index advanced 0.7% overnight. Gains range from 1.5% against the Aussie dollar and 1.3% versus sterling to 0.8% relative to the Japanese yen and Mexican peso, 0.6% against the euro and loonie, and 0.4% relative to the Chinese yuan and Swiss franc.
U.S. stock futures are down 0.5-0.6%. Investors have abandoned hopes that the Fed might cut rates late this year. Asian stock exchanges fell 1.5% in South Korea, 1.4% in Taiwan, 1.1% in Singapore and 0.4% in Japan, China, and Indonesia. Australia’s stock market lost 1.1%, but European ones are in the black at the moment.
There’s been a wide discrepancy today between a 2.4% jump in the price of Bitcoin and 1.2% declines in those for WTI oil and gold.
The ten-year U.S., German, and Japanese sovereign debt yields are up 1-2 basis points, whereas the 10-year British gilt yield dropped six bps after lower-than-forecast British CPI inflation was reported.
British consumer prices recorded their largest month-on-month decline (0.6%) in four years, and the 12-month increase dropped to 10.1% last month from 10.5% in December and a 41-year high of 11.1% in October. Core consumer price inflation slowed to 5.8% from 6.3% in the prior month and 6.5% in October. Producer output inflation of 13.5% was down from 14.6% in the previous month and a 4-1/2 decade high of 19.8% in July. Producer input prices in the U.K. dipped 0.1% on month and to a 0ne-year low 14.1% 12-month rate of rise versus 24.1% last June.
Consumer price inflation in South Africa decelerated to an 8-month low of 6.9% in January from 7.2% in December and 7.8% last July. But business confidence in South Africa relapsed to a 2-month low last month as well.
South Korean import price inflation imploded to an 23-month low of 1.7% in January from 9.1% in December and 36.5% last May.
CPI inflation in Ghana may have crested but not before exploding from 13.9% in January 2022 to 54.1% in the final month of last year. January 2023’s reading was 53.6%.
Led by food prices, Nigerian CPI inflation of 21.82% last month was its highest in 208 months.
Polish CPI inflation rebounded to 17.2% last month from 16.6% in December, 17.5% in November and 9.2% in January 2022.
Industrial production in the euro area fell by a greater-than-anticipated 1.1% in December. That resulted in an average 0.2% decline in 4Q 2022 and a rise of just 0.9% in 2022 as a whole. While energy output rose 1.3% in the latest month, all other major elements of industrial production fell in the final month of last year. In a second Euroland indicator released today, the seasonally adjusted trade deficit widened to EUR 18.1 billion from EUR 14.4 billion in November, and the trade balance swung from a surplus of EUR 116.4 billion in 2021 to a deficit of EUR 314.7 billion in 2022. Energy accounted for 85% of that year-to-year deterioration.
Japan’s tertiary index of service sector activity fell 0.4% in December. The index was 1.3% higher than a year earlier.
Investors yesterday reacted to U.S. January news of higher-than-expected 6.4% CPI inflation but a partial rebound in small business sentiment from a 6-month low in the prior month. Today’s U.S. data releases also delivered a mixed bag:
- U.S. retail sales rebounded 3.0% in January after dropping 1.1% in December, and the latest three months averaged 0.2% below the prior 3-month average. Investors had expected retail sales to recover less than 2%.
- Industrial production hasn’t risen since since September and January’s unchanged level underperformed expectations of a half percent recovery after slides of 0.6% in November and 1.0% in December. Compared to January 2022, production was only up 0.8%. Dollar strength will be a headwind for industrial production going forward, hopefully countered by a fairly aggressive industrial policy that the Biden Administration is pushing hard.
- And today’s released Empire State manufacturing index recovered to a three month high, albeit still south of zero with a reading of -5.8. Such had dropped in January by 21.7 index points to minus 32.9.
- U.S. mortgage applications dropped 7.7% last week in reaction to a 21-basis point rise in the 30-year fixed mortgage rate to 6.39%.
Two central banks in Africa raised their key interest rates today. The Bank of Zambia‘s policy rate has been increased to 9.25% from 9.0%, which had been the level since a pair of 50-basis point hikes in February and November of 2021. When Covid surfaced early in 2020, Zambian monetary officials had reduced the rate from 11.5% to 6.5% between May and August of that year. Today’s action was motivated by a sharp upward revision in projected CPI inflation this year to 11.1% from a forecast of 8.5% made just three months earlier. Officials also project double-digit average inflation in 2024 versus their target corridor of 6-8%.
The Bank of Namibia‘s policy interest rate was also raised by 25 bps today, becoming 7.0%. Rate increases during 2022 in Namibia had totaled three percentage points, but the 25-bp hike was smaller than the previous four moves. CPI inflation of 7.0% in January represented a 5-month low. Today’s action “was taken to contain inflationary pressure and its second round effects and anchor inflation expectations. The decision is also deemed appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand.”
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British CPI and PPI, Euroland trade balance and industrial production, U.S. retail sales and industrial production
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