Dollar Woes Deepen as Stocks Edge Up; Gold Rises: Markets Wrap
There was no respite for the dollar on Wednesday, with the greenback extending the decline that’s taken it to the lowest level in three years. U.S. stock futures advanced as European equities nudged higher, and gold added to recent gains. The dollar slid against almost all its major peers, taking its losing streak to three days as U.S. Treasury Secretary Steven Mnuchin said the decline provides a boost to the American economy through trade. The move happened even as the yield on 10-year Treasuries increased, tracked by those of most European government bonds as data showed the euro-area economy strengthened further at the start of 2018. As the euro gained the Stoxx Europe 600 Index initially fell before reversing, while emerging-market equities were little changed after eight days climbing. The record winning streak for Chinese stocks in Hong Kong continued. The pound jumped as U.K. employment rose and wage growth ticked higher. Investors will now likely shift attention to Thursday’s European Central Bank meeting, while they keep an eye on Davos, Switzerland, where the world’s business and political elites have gathered for an annual conference that will feature the leaders of the U.S., U.K. and Germany among others. The dollar remains a key focus as traders increasingly cite concerns about a widening U.S. trade deficit that’s been highlighted by President Donald Trump’s protectionist moves. “We’re looking for the dollar to continue to depreciate against most currencies,” Daniel Morris, a senior investment strategist with BNP Paribas Asset Management, said in an interview with Bloomberg Television. “The U.S. economy has a current-account deficit and it needs to close that — one way to do that is for the dollar to depreciate.”
U.K. Labour Market Unexpectedly Strong as Employment Rises
The U.K. labour market displayed unexpected resilience in the three months through November as employment jumped and wage growth ticked higher. The number of people in work rose 102,000 to a record high, confounding market expectations that employment would fall. Basic pay growth quickened to 2.4 percent, the highest in almost a year, though it still lags well behind the rate of inflation. The positive news could push more proactive policy makers at the Bank of England towards voting for another increase in interest rates. The amount of slack in the labour market is central to the debate at the central bank, where officials raised the benchmark rate for the first time in a decade in November amid concern that poor productivity had lowered the economy’s “speed limit.” The BOE will announce its next policy decision on Feb. 8, alongside new growth and inflation forecasts as well as an analysis of the supply side of the economy. Unemployment fell by 3,000 during the period, leaving the jobless rate at a 42-year low of 4.3 percent, the Office for National Statistics said Wednesday. Inactivity dropped to its lowest since the winter of 2000-01 and there were a record number of vacancies.
Euro-Area Economy Opens 2018 With Best Growth in Almost 12 Years
The euro-area economy strengthened further at the start of 2018, bringing with it signs of a long-awaited pickup in inflation. The improvement lifted IHS Markit’s Purchasing Managers’ Index to 58.6 from 58.1 in December, higher than economists had forecast. The gauge is now at a level suggesting quarterly economic growth of close to 1 percent, according to the report. Rising output prices will reinforce the position of the more hawkish members of the European Central Bank’s Governing Council. They’ve already been out in force this year, arguing that the improved economic backdrop has put inflation on a path toward 2 percent and justifies an unwinding of unprecedented stimulus. The Governing Council holds its first policy meeting of the year on Thursday. While no change in interest rates or quantitative easing is predicted this week, officials are widely expected to phase out asset purchases by the end of the year. According to IHS Markit, some of the latest surge in prices relates to higher costs for oil and raw materials, but there’s also a sense that underlying inflation may finally start to take off. “Pricing power more generally has improved as demand outstrips supply for many goods, leading to a sellers’ market,” said Chris Williamson, chief business economist at IHS Markit. There were also signs of inflation in the PMI for Germany, where factories jacked up prices at a near-record pace. The headline index showed Europe’s largest economy maintained its momentum at the start of 2018. France recorded a similarly upbeat performance.
Japan’s Exports Grow 9% in December to Close Out Strong Year
Japan closed out its best year for exports since the financial crisis with solid growth again in December, as the global economic recovery looks set to continue well into 2018. Japan’s exports recovered throughout 2017 thanks to solid global demand and a weaker currency. Confidence among large and small manufacturers is on the rise, and large firms plan to increase their capital investment in the first quarter. But increasing domestic demand remains key to Japan’s economic recovery becoming self-sustaining. Better retail sales and household spending data have offered signs for optimism, and continued growth in imports would offer another indication that demand is rising.