Outlaw Mondays

The US dollar is narrowly mixed to start the new week. Two main developments stand out.
 First, the dollar-bloc currencies are trading heavily.  The
Australian dollar is pushing lower for the fifth consecutive session.  The
greenback is advancing against the Canadian dollar for the sixth consecutive
session.  The New Zealand dollar is weaker for the fifth time in six
The other development is the
continued resilience of the euro. The euro reached almost $1.1815 after
slumping to nearly $1.1725 before the weekend.
  However, the euro appears to
have peaked in front of a corrective retracement target near $1.1830.
 News that German industrial production unexpectedly fell in June, for the first time this year, may help
deter further euro gains today.  
German industrial output
fell 1.1% in June.
median expectation in news wire surveys was for around a 0.2% gain.  The
drop follows a 1.2% gain in May.  The euro’s exchange rate for German
producers, and the better stronger demand in Europe, and the world has underpinned world’s fourth largest
economy.  Industrial output grew 1.8% in Q2 and contributed around 0.5
percentage points to Q2 GDP.   Recall that the July manufacturing PMI
slipped to 58.1 from 59.6, which was the weakest reading since March.  
In an otherwise, relatively
light news session, China reported that the value of its reserves rose more
than expected in July.  
China’s reserves increased for the sixth consecutive month.
 The $3.081 trillion follows June holdings of $3.057 trillion.  It is
about $5 bln more than expected.  Recall China’s reserves briefly slipped
below $3 trillion at the start of the year.  A combination of capital
controls, and a stronger yuan, (reflecting in no small measure, the weakness of
the US dollar), and improved economic activity have helped officials rebuild
Meanwhile, over the weekend,
the UN Security Council unanimously supported increased sanctions on North
That China
and Russia consented is a diplomatic victory for the Trump Administration.
 Some reports linked the lack of new trade action against China that was
anticipated to be announced at the end of
last week on intellectual property rights was held up by seeking China’s cooperation. 
Recall that like other
presidential candidates including Bush and Obama, Trump threatened to cite
China as a currency manipulator and later backed down.
  Similarly, the investigation
into steel imports on national security grounds has reportedly been completed, and an aluminum one may be opened.   US policy toward China does
not appear to have changed, even if the rhetoric has.  
The South Korean won eased
0.2%, and the Kospi edged 0.2%
stocks are up five of the past six sessions,
but gains have lagged the region.  The MSCI Asia Pacific Index rose 0.4%
and is looking to extend its four-week
advance.  News that Toyota raised its full year guidance helped lift the
Topix nearly 0.5%, snapped a two-day down move.  Most equity markets in
the region advanced, but those open late seemed to be dragged down by early
losses in Europe.   By mid-morning in Europe, most bourses were little changed, and the Dow Jones Stoxx 600 was off
marginally, with utilities, information technology, and consumer sectors,
leading the way.  Materials and energy were doing best.  
The four basis point rise in
the US 10-year yield before the weekend,  encouraged by the fairly
constructive jobs report, lifted yields in the Asia-Pacific region earlier
benchmark yields are up another basis point today.  UK Gilts are faring
better.  News that Visa reported slower UK spending in July for the third
consecutive month, as UK consumers pulled back, especially for discretionary
clothing and household goods purchases, may have helped.  At the same
time, the UK appears to make a new
concession in the Brexit talks.  For the first time, it made a
counter-proposal GBP36 bln monetary compensation to cover the commitments it
had previously made.  It wants to link the concession to a commitment from
the EU for a transitional agreement.  
Sterling had been sold down
to $1.3025 before the weekend, a roughly 2.25 cent loss in two days. 
 Sterling had posted a key reversal
in response to the BOE’s more dovish tilt on August 3. Today’s upticks carried
it to $1.3060.  The 20-day moving average is
found near $1.3055.  The pre-weekend close below it was the first
time since June 26, and resurfacing about it on a close basis would help signal
a near-term low is in place.  On the upside,
the $1.3120 may provide resistance.  
OPEC (and Russia) meet today
to discuss compliance with the output agreement.  Reports suggest
compliance fell to 86% in July.
  Note that Libyan output reached a three-year high in
July, but news today suggests its largest field has been closed due to protests.   Oil is trading heavily, off
about 1.2% today.  Brent was up 0.8% before the weekend, while WTI had
gained 1.1%.  
On Friday, the dollar traded
on both sides of Thursday’s range against the yen
but failed to finish the week above the high set on Thursday. 
 Still, the price action was
encouraging.  Higher US yields and rising stocks helped.  The dollar
has been confined to a narrow 10 tick range on either side of JPY110.75
today.  A move above JPY111.20 would lift the tone.  

The US and Canadian
calendars are light today.
consumer credit, due late in the session may attract economists’ attention but may mean little for the markets.
 The highlight of the week is the July CPI figures.  The Fed’s
Bullard and Kashkari speak today, while Dudley speaks later in the week. 


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