Monday’s Dollar Blues

The US dollar’s pre-weekend losses were extended initially in Asia before
it recovered sufficiently to give European participant a better selling level.
The dollar selling into the shallow bounce reflects the bearish sentiment,
which as we see it, was simply fanned by both Yellen and Draghi did not alter
the status quo in their Jackson Hole speeches.   

BOJ Governor Kuroda spoke at Jackson Hole following the release of
Japan’s July CPOI figures before the weekend.
   He did talk about
policy.  He suggests that although
the BOJ’s IGB buying was having some impact on liquidity, the market was still
functioning fine.   Kuroda also underscored the need to continued
efforts, meaning the talk of central bank exits did not include the central
bank for the world’s third largest economy.  

Since poking briefly through 0.10% in July, the yield on the 10-year JGB
has been trending lower. 
Today it reached 0.5 bp, the lowest since
April when it reached 0.1 bp.  The
yield has not been negative since last November.  Japan reports July jobs
and retail sales tomorrow and Wednesday, followed by industrial production on
Thursday.  The Japanese economy led the G7 with 1% growth in Q2.  The
growth appears to be slowing to a more sustainable
pace in Q3.  

The eurozone reported an unexpected
slowing of M3 money supply, but lending
to business strengthened.
  M3 rose 4.5% from a year ago in July. 
This matches two-year lows.  The decline was broad based, but lending fared
well.  Loans to households were steady at 2.6%, while lending to nonfinancial businesses rose to a 2.4% from a
year ago, accelerating from a 2.0% clip.  These gains were not
particularly widespread and instead were concentrated in Germany and

The North American session features US wholesale and retail inventories,
and good trade balance. 
They are components of Q3 GDP.  Midweek
the US will revise Q2 GDP.  It is expected to be tweaked higher to 2.7%
from 2.6%.   The Bloomberg survey picked up a median guesstimate that US
growth in Q3 matched Q2 growth, but the GDP trackers at the Atlanta and NY
Fed’s don’t see it that way.  The Atlanta Fed sees the economy tracking
3.4% growth presently, while the NY Fed see 1.9%.  Note that the US is
selling $132 bln of debt today, including four-week T-bills that may come due
before the debt ceiling is raised

Storm Harvey is leaving a path of destruction in its wake, with an ongoing deluge of rain and wind.  In
addition to the human tragedy and physical damage, about 10% of US refining
capacity has been shuttered according to
reports.  As one would expect,
gasoline prices are jumping 4-5%.  Brent prices are steady, while the
front month light sweet crude oil futures contract is off around 1%. 
Although it traded on both sides of the pre-weekend range, the October contract
is well within the range set the day before (August 24) of roughly

There have been two geopolitical developments to note.  First,
North Korea did launch three short-range ballistic missiles that apparently
fell into the Japanese Sea.  Recall that the US and South Korea are
engaged in annual military exercises that seek to intimidate North Korea. 
Last year, in protest, during the exercises, North Korea launched a ballistic
missile from a submarine.   Foreigner sold a small amount of South
Korean shares today (~$25 mln) after buying about $240 mln last week, but the
Korean won is the strongest currency in the world today, gaining 0.7% against
the US dollar.  Over the past five sessions, only two currencies have
performed better than the Korean won:  The Colombian peso (+2.35%) and the
Norwegian krone (+~1.9%).  

Second, after several months of border tensions between China and India,
a successful resolution appears at hand.
  India said that both sides
agreed to disengage, but China claimed that India withdrew (people and
equipment) to its side of the border.    Indian Prime Minister
Modi and Chinese President Xi will meet at
the weekend BRICS summit that China is hosting.  The Indian rupee and
equities firmed on the news.  It seems like a temporary solution, but a
resolution served both sides immediate political needs.  

Equities are mixed.  The MSCI Asia Pacific Index eked out a
small gain.   Of note, Hong Kong’s
Hang Seng rose to new two year highs.  However, the market lost momentum
and closed below the open, suggesting a heavier technical tone than the bullish
impulse of a new high.  That said, it is up 36.6% year-to-date.  In
Europe, the Dow Jones Stoxx 600 gapped lower and has not been able to enter the
gap in the first half the day.  The gap is
between the pre-weekend low (~374) and today’s open and high
(~373.2).  So far, it has held above the low from earlier this month
(~371.5), which was also the lowest since March.  We are concerned that a
sharp fall in European equities may see the euro-positive inflows unwind and
could act as one of the headwinds to the euro’s advance. 

After surging through $1.19 before the weekend, the euro reached $1.1965 before
pulling back a bit. The $1.1900 area
should now offer initial support. 
The dollar is holding just above
JPY109.  Resistance is pegged near JPY109.40 now.  Sterling initially
gapped higher in Asia after a strong showing before the weekend.  It reached
nearly $1.2950, its highest level since the middle of the month.  It
stalled in front of the 20-day moving average (~$1.2960), which it has not
closed above since August 3.  The Canadian and Australian dollars remain
firm near their pre-weekend highs and
look poised to post additional near-term gains. 


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