Dollar and Equities Extend Their Divergent Trends – Currency Thoughts
Dollar and Equities Extend Their Divergent Trends
January 13, 2025
Today begins the final week before the inauguration of Donald Trump’s second non-consecutive term, which promises to be one of radical experimentation, alliance upheaval and uncertainty around the world. The dollar and share prices had initially responded favorably to Trump’s victory, but while the dollar continues to appreciate, equities have shifted direction, pulled lower by inflation fears and rising long-term interest rates. Investors are bracing also for some sobering corporate news as the fourth-quarter earnings season soon gets under way.
The dollar overnight climbed another 0.7% against sterling, 0.5% versus the euro and 0.4% relative to Mexico’s peso. The dollar is fast approaching parity with Europe’s joint currency and at a high of 1.0177 earlier today touched its firmest level in 27 months.
Japan is observing the Coming of Age holiday today, but the yen has stabilized around 157.5 dollar, supported by the possibility of FX intervention and speculation that the Bank of Japan will be raising interest rates further soon.
Ten-year sovereign debt yields rose more sharply in many European countries today than in the United States. Among the key countries, yields climbed today by seven basis points in Italy, four bps in Spain, and three bps in France. The British gilt’s two-basis point increase matches today’s increase in the U.S. 10-year Treasury yield, while the German bund is only a basis point firmer.
In pre-open U.S. stock futures trading, the Nasdaq is down over 1% following Friday’s 1.6% loss, and the S&P 500 shows an extended drop of three-quarters percent. In spite of a big reported jump in China’s trade surplus last month, stock markets closed down today by 2.3% in Taiwan, 1.4% in India, 1.2% in Australia, and 1.0% in South Korea, Indonesia and Hong Kong. European stock market losses thus far today are led by a 1.3% decline in Italy, followed by 0.8-0.9% slides in the German DAX and Paris CAC.
Oil prices, often a harbinger of general inflation trend, jumped 2.3% today to a 5-month high. Service sector price disinflation has stalled in many economies, and the U.S. federal deficit seems destined for new heights. Fears are mounting of a tit-for-tat war of tariff hikes, and the worst case scenario surrounding the federal funds rate in 2025 is not even an absence of cuts. Some forecasters are beginning to wonder if short-term rates might actually be raised.
On paper, digital money would seem to be a go-to option if inflation persists, but instead Bitcoin tumbled over 3.0% today. Gold slid 0.3%.
Like many Mondays, data releases have been light in number today. The main report involved China’s trade surplus, which widened to a ten-month high of $104.8 billion in December on a 10.6% year-on-year upsurge of exports as foreign buyers scrambled to beat steep tariff hikes that President-Elect Trump has promised. China’s surplus had been as small recently as $81.7 billion in September and was $75.3 billion in the final month of 2023. The surplus of $992 billion in full-2024 was some 20% larger than in 2023.
Growth in Chinese car sales slowed from 12% in 2023 to just 4.5% last year.
Consumer price inflation in India receded to a 4-month low of 5.2% in India last month. From a 95-month high of 7.8% in April 2022, such had ebbed to a 59-month low of 3.60% by July 2024.
Greek consumer price inflation last month of 2.6% was above November’s 2.4% reading. 2.6% is the most in three months and a full percentage point above the 26-month low of 1.6% in September 2023.
Serbian CPI inflation of 4.3% in December matched November’s reading. Inflation fluctuated narrowly between 4.2% and 4.5% in the the second half of 2024 after touching a 35-month low of 3.8% last June. A record 16.2% was hit in the first quarter of 2023.
Czech consumer price inflation, which had been as low as 2.0% last June, rose to a one-year high of 3.0% last month.
Croatian producer prices jumped 1.5% on month in December, trimming the 12-month rate of decline to an 11-month low of -1.4%.
Turkey’s current account deficit of $2.87 billion in November was its largest gap in seven months.
Ireland’s construction purchasing managers index rebounded from a five-month low of 47.5 in November to an 8-month high of 51.6 last month.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Chinese trade surplus, India CPI, tariff hikes expected to be inflationary
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