Looking for a Fresh Direction – Currency Thoughts
Looking for a Fresh Direction
August 27, 2024
The U.S. presidential debate is two weeks away, and the mother of all elections will follow eight weeks after that. A once highly likely victory for Trump has been transformed into a close contest. The FOMC next meets September 17-18. Chairman Powell has all but telegraphed a rate cut then, but it’s size is uncertain and ensuing policy changes even more so. Investors are looking for the next market shift, unsure of what might provide the next impetus for fresh direction, and this has made for choppy day-to-day movement.
The dollar dipped overnight by 0.1% on a weighted basis and versus the euro, which has the largest share of the DXY dollar index. There have been larger dollar retreats of 0.6% against the Swiss franc, 0.4% versus sterling and 0.2% vis-a-vis the yen and loonie.
Ten-year sovereign debt yields climbed this Tuesday, led by a ten-basis point jump in British gilts and including increase of four bps in German bunds and three bps in the 10-year U.S. Treasury yield. An exception has been a one basis point dip in the 10-year JGB yield.
Stock markets closed up 0.5% in Japan and 0.4% in Hong Kong but down by 1.2% in New Zealand, 0.3% in South Korea and Taiwan. Share prices so far are up j0.5% in Germany, Britain, Spain and Italy, while U.S. stocks show scant net movement.
The prices of WTI oil, Bitcoin and gold are down by 1.7%, 1.5%, and 0.2%.
Monetary policy reviews in Hungary and Kyrgyzstan ended with announcements of no change in their key interest rates. The Hungarian National Bank’s base rate was kept at 6.75%, interrupting a string of cuts totaling 225 basis points in the final quarter of 2023, 375 bps in the first half of this year and a 25-basis point reduction at July’s policy meeting. The rate had peaked at 13% from September 2022 until October 2023, but CPI inflation has risen to a 7-month high and at 4.1% as of July was marginally above officials target range of 2-4%. Core inflation has climbed to 4.7%. According to a statement released after today’s review, “there may be scope for cautiously lowering interest rates further in the coming period, depending on the expected interest rate policies of the world’s leading central banks, as well as developments in the domestic inflation outlook and changes in Hungary’s risk perception.”
Like policy in Hungary, the key interest rate at the National Bank of Kyrgyzstan had previously been lowered considerably. From a peak of 14.0% in March 2022 through November of that year when an initial 100-basis point cut was undertaken, the rate got lowered a second and third time in back-to-back meetings this year in March and April. Each of those reductions was a move of 200 basis points, and so the current rate of 9.0% is its lowest September 2020. Consumer price inflation in this economy has decelerated from 16.2% in February 2023 to 4.1% last month, and the current pace also lies back withing the central bank’s target of 5-7%.
The CRB’s monthly British distributive trades survey revealed a 20-point improvement this month to a 2-month high of -27, but an even larger reversal of July’s deterioration had been anticipated.
German GDP growth last quarter has been confirmed at the preliminary estimate that showed a 0.1% quarterly contraction and zero percent change from the level in the second quarter of 2023. All major components of private demand affected GDP adversely, but government consumption went up 1.0%.
U.S. house price pressure lessened in June. The on-year advance in the Case-Shiller index of home prices in 20 metropolitan areas fell to a 6-month low of 6.5% from 6.9% in June and 7.5% in March, and the FHFA house price index’s year-on-year 5.1% rise was the smallest in nine months and down from 7.1% last February. In other U.S. economic data reports today, the Conference Board’s gauge of consumer confidence unexpectedly improved 1.4 index points to a six-month high in August. At 103.3, however, such remained well south of 114.8 in July 2023, not to mention the reading of 132.6 in February 2020 just as the Covid Pandemic was about to begin. Also out today is the Richmond Fed monthly manufacturing index, which dropped two index points to a 51-month low of -19.
Chinese corporate profits were 4.1% higher than a year earlier in July, versus on-year changes of 3.5% in the first half of this year and a decline of 2.3% in all of 2023.
Corporate service price inflation in Japan retreated from a 111-month high of 3.1% in June to a 3-month low of 2.8% in July.
Swedish producer price inflation returned to sub-zero territory in July — albeit of just -0.1% — for the first time since March. The 12-month change in PPI had earlier imploded from 25.6% in June 2022 to -7.7% by December 2023.
Consumer confidence fell to a 4-month low in Germany this month but remined steady at a 29-month high in Finland and rose to a 53-month high in Taiwan. Belgian business sentiment in August weakened to a 6-month low.
Hong Kong’s HKD 182.8 billion trade deficit in January-July was 30% smaller than a year earlier.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: German GDP, Hungarian National Bank, Japanese corporate service prices, National Bank of Kyrgyzstan, Swedish PPI, U.S. house prices and consumer confidence
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