Interest Rate Concerns Drive Dollar Up and Equities Lower
January 16, 2024
Driven by hawkish central banker comments at the World Economic Forum in Davos, the dollar touched one-month highs overnight of 1.0873 per euro, 146.79 yen, 0.6595 per Aussie dollar, and 103.81 in the weighted DXY dollar index. Percentage appreciations from Monday closing levels amounted to 1.0% against the Mexican peso, 0.9% versus the Australian dollar, 0.7% relative to the euro, yen and sterling, and 0.6% vis-a-vis the Swiss franc. Following Monday’s U.S. holiday, the 10-year U.S. Treasury yield advanced six basis points to 4.00%. Stock markets fell Tuesday in the Pacific Rim by 2.2% in Hong Kong, 1.1% in Australia, Taiwan and South Korea, and 0.8% in Japan. European share prices and U.S. stock futures show declines of about 0.5%. Bitcoin’s price jumped 1.3%, and oil is 1.1% pricier. But gold fell 0.5%.
In addition to a downward reassessment of the scope for central bank rate cuts in coming months, the other development rippling through the market is the strong showing of former President Trump in the Iowa caucuses last night. Trump captured all but one of the state’s counties and, with just over half the votes, exceeded rivals DeSantis and Haley by roughly 30 percentage points. In Iowa at least, polls showing Trump miles ahead of the field, proved very accurate. The surprise in that respect was that DeSantis narrowly beat out Haley for second place. Next stop will be the New Hampshire primary.
In the United States, the January released Empire State manufacturing survey produced a shocking result that saw the index plunge from -14.5 in December to a 32-month low of -43.7 this month, well below street expectations of a rise to a less negative level of about -5.
The latest monthly batch of British labor market statistics reveal a greater-than-forecast deceleration of average weekly wage costs to an on-year 6.5% overall. That represents an 8-month low, while regular pay growth (excluding bonuses) printed at a 10-month low of 6.6%. The jobless rate stayed at 4.2% for the sixth straight time.
The German and Euroland ZEW surveys of investor sentiment revealed greater-than-anticipated optimism about the future. The expectations index for Germany improved to an 11-month high of +15.2, while that for the whole euro area fell by less than assumed to +22.7. The sub-indices for current conditions were a 2-month low of -77.3 for Germany and a 3-month high of -59.3 for Euroland.
The ECB’s latest monthly year-ahead survey of consumer inflation expectations in the common currency area dropped to a 21-month low of 3.2% from 4.0% in the prior two surveys.
December consumer price inflation estimates of 3.7% in Germany, 0.6% in Italy, and 4.5% in Croatia were left unrevised. German CPI inflation averaged 5.9% in 2023, and December core inflation of 3.5% was at its lowest on-year pace in 18 months.
Japanese domestic producer price inflation for goods slowed to a 34-month low of zero percent in December. An on-year drop of 4.9% in import prices was the smallest decline in 8 months.
South Korean import prices fell 1.7% on month and 4.1% on year in December. The 12-month decline was the least in ten months.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor market statistics, Euroland and German ZEW expectations index, Japanese PPI
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