Dollar Finishing Week on Firm Note

True to its recent habit, the US dollar is
finishing the week on a firm note.
  On the month, though, the
greenback has fallen against most of the majors, but sterling, the Canadian dollar, and the Swedish krona.  

Global equities are trading heavily, and
investors’ angst is lending support to bond markets.
  The concerns
about the contagion effect emanating from Germany’s largest bank is taking a
toll on sentiment.   Deutsche Bank stock fell to a new record low in
the European morning but has turned
higher in subsequent turnover.  Nevertheless, the financial sector is
Europe is off twice what the loss of the overall market.  The Dow Jones
Stoxx 600 is off 1%, while the financial sector is off more than 2%. 
Italian banks share index is off 2.5% and is near two-month lows.  

The MSCI Asia-Pacific Index fell 1%, to record its largest loss in three weeks.
Japan’s Topix was off 1.5%, with
financials off 2.2%.  Chinese stock markets managed to buck the trend to post minor gains, but even in
Shanghai, banks shares ended lower.  Separately, China’s Caixin
manufacturing PMI edged to 50.1 from 50.0.  The average in Q3 was
50.2.  That is the highest quarterly average since Q3 2014, and provides
another piece of data suggesting that Chinese economy has stabilized, albeit at
lower levels and with higher debt.   Chinese markets are closed the
next week for national holidays, though official PMI data will be reported over the weekend. 

Japan released a mixed bag of data.  
Prices pressures continue to ease.  Household spending fell more than
twice what was expected.  Industrial
output was stronger than forecast, helped by a surge in auto output.
Unemployment ticked up to 3.1% from 3.0%.  

Headline CPI remained negative (-0.5% vs. -0.4% year-over-year) in August, for the
fifth consecutive month.
Excluding fresh food, which is the BOJ preferred
measure, fell -0.5% from a year ago.  The measure excluding food and energy slipped to 0.2% from 0.3%.   
Tokyo reports its inflation figures with less of a lag, but the September data dive little hope of a recovery in the
national price measures.    

The BOJ reported that its staff, excluding
managers, will be given a 0.2% pay increase in the base wage.
  This follows a 0.6% increase in the FY15, and
although it is the third year that the base wage has increased, the small
amount illustrates the similar pressure facing the private sector.  Weak
wage increases are one of the factors
holding back consumption.  Overall household spending fell 4.6% in August
from a year ago.   The Bloomberg median was for a 2.1% decline. 
Household spending has been contracting on a year-over-year basis since

Industrial output rose 1.5% in August, which
is three-times what the median guesstimate projected. 
year-over-year pace rose to 4.6% from -4.2% in July.  Vehicle production
rose 8.8% after a 4.1% slide in July.  Construction orders jumped 13.8%
after a 10.9% fall in July.     Japan will report the Q3 Tankan
survey early Monday in Tokyo.  Sentiment among the large manufacturers is
expected to post a small increase, and capex plans are expected to improve from the 6.2% of Q2.  

Eurozone data was largely in line with
  The unemployment rate was steady at 10.1% in August,
while the preliminary September CPI rose to 0.4% from 0.2%.  This picks up the gains in energy, as the core
rate was steady at 0.8%.  

The euro has been pushed to new lows for the
week, just below $1.1170.  Last week’s low was
near $1.1125.
   Barring new news, the intraday
technicals suggest that the downside may have largely been exhausted in
the  European morning.  The dollar has largely matched yesterday’s
range against the yen.  The greenback found sellers at JPY101.80 was
approached, while buyers appeared after a big figure pullback. 

Better than
expected UK data failed to lend much support to sterling.
Yesterday’s losses were extended, but the
week’s low near $1.2920 remains intact.   The intraday technicals warn
that the low for the day, though, may not be in place.  

Still, the UK could not have hoped for better
data today. 
The Q2 GDP estimate rose to 0.7% from 0.6%, unexpectedly,
but somehow, in the machinations of GDP calculations, this turned into a 2.1%
year-over-year pace, down from 2.2%.  The Q2 current account deficit was
also smaller than anticipated, while investment was stronger than expected,
rising 1.0% or twice the median forecast.  Most promising for Q3 was news
that the index of services for July rose 0.4%.  This is the second best of the year thus far.  The median
forecast was for a 0.1% increase.  The June series was also revised higher  (0.3% from 0.2%).  

There is a slew of North American data today. 
In the US, the personal consumption expenditures will be used to calculate Q3 GDP.
After the improvement in the advance merchandise trade balance and inventory data, look for Q3 estimates to be
raised again, with many, perhaps even the Atlanta Fed, returning toward 3%
forecasts.  The core PCE deflator, the Fed’s preferred inflation measure
is expected to tick up to 1.7%, which would represent new two-year
highs.    The Chicago PMI may attract attention.  It is
expected to improve from the 51.5 reading
in August.  Lastly, the University of Michigan’s consumer confidence
report and the inflation expectation will be

For its part, Canada reports July GDP. 
It is expected to have risen by 0.3% after a 0.6% rise in June.  The
monthly GDP readings in Q1 16 and Q2 16 have averaged zero.  Industrial
and raw material prices are expected to have fallen in August.  The US
dollar bottomed near CAD1.3050 yesterday and tested CAD1.32 in the European
morning.  However, the greenback’s momentum appears to have stalled.  Similarly, the Australian
dollar, which posted an outside down day yesterday, saw follow through selling today, but the enthusiasm waned below
$0.7600 and near the 20-day moving average (~$0.7595).  There is scope
toward $0.7630-$0.7640.  

In addition to the Chinese data, there are two
other events this weekend to note. 
The first is a formality. 
The Chinese yuan will be included in the IMF’s SDR starting October 1.  The second is more substantive.  Hungary
holds a referendum on the EU’s immigration policies.  It is likely to
reject plans to relocate refugees, setting the stage for an escalation of the
simmering confrontation with the EU.  


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