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FX Daily, February 20: Marking Time on Monday

Swiss Franc

EUR/CHF - Euro Swiss Franc, February 20

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EUR/CHF - Euro Swiss Franc, February 20

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FX Rates

US markets are closed for the Presidents’ Day holiday, but it hasn’t prevented its pre-weekend gains giving a bullish tone to global equities.  The S&P 500 and NASDAQ recovered from early weakness to close at new record levels before the weekend. Global equity markets are following suit today.

The MSCI Asia Pacific Index eked out a small gain (0.05%). Japan’s minor gain held back the regional index. Without, the MSCI benchmark would have risen nearly 0.2%. China’s shares led the with the Shanghai Composite up 1.2%. China’s shares that trade in Hong Kong continue to perform well, rising another 0.8% to bring the year-to-date gains to an 11.2%.

FX Performance February 20 2017 Movers and Shakers

FX Performance February 20 2017 Movers and Shakers

Source: Dukascopy - Click to enlarge

The Dow Jones Stoxx 600 is up about 0.25%, led by telecom and financials.  The index gapped higher but held below last week’s high, which was the best level since December 2015. The gap is small (370.76-370.88). The fallout from Kraft Heinz withdrawing its bid for Unilever appears localized.

FX Daily Rates, February 20

FX Daily Rates, February 20

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More broadly, the dollar is mixed against the major currencies. Sterling is the strongest, gaining a little less than 0.5% to recoup most of the pre-weekend loss. The Japanese yen is the weakest of the majors, losing about 0.3% with the greenback straddling the JPY113.00 area. The other major currencies are in narrow ranges and little changed. Among emerging markets, the Russian ruble is the strongest, with a 0.6% gain following Moody’s pre-weekend decision to upgrade its outlook. The South African rand is the weakest. It is off about 0.6% and is moving lower for its third consecutive session.

The economic calendar is light today. There are three main features: Japanese trade, Germany producer prices, and UK CBI trends. The Japan’s January trade deficit was larger than expected, as exports disappointed and imports surprised on the upside. It was the first deficit since last August. There is a large seasonal component, and in the most commentary, it is attributed to the Chinese New Year. We are a bit skeptical and note that for more than 20-years, which means that even before China became Japan’s largest trading partner, the seasonal pattern was evident.

FX Performance, February 20

FX Performance, February 20

- Click to enlarge

United States

Benchmark 10-year bond yields are most one-two basis points higher. There does not seem to be much reaction to the weekend political developments, where Renzi has stepped down as PD chairman as a leadership battle is waged that could split the center-left party, which is seen as increasing the chances of electoral success by the 5-Star Movement. Also, the possibility of the united left candidate in France appears to have diminished, and Macron was criticized for comments critical of French history in Africa. The meeting of European finance ministers is not expected to reach an agreement to make another tranche payment available to Greece, but Greek bond yields are slightly softer. As we have noted, Greece does not need the funds until early Q3 and brinkmanship tactic requires approaching the brink.

Yield US Treasuries 10 years, February 20

Yield US Treasuries 10 years, February 20

Source: Bloomberg.com - Click to enlarge

Japan

The January trade balance always deteriorates from December.

Japan Trade Balance, January 2017

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Japan Trade Balance, January 2017

Source: Investing.com - Click to enlarge

Moreover, Japan’s exports rose in China (3.1% year-over-year) while shipments to the US and Europe fell (6.6% and 5.6% respectively). Exports of motor vehicles fell 6.7% year-over-year in value terms.

Japan Exports YoY, January 2017

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Japan Exports YoY, January 2017

Source: Investing.com - Click to enlarge

Crude oil imports surged 36^ in value terms. Exports were off 0.3% in volume terms. The shortfall of JPY1.087 trillion was the largest since January 2015.

Japan Imports YoY, January 2017

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Japan Imports YoY, January 2017

Source: Investing.com - Click to enlarge

Germany

German producer prices surged 0.7% in January. This is twice the pace the median forecast had anticipated in the Bloomberg survey. The year-over-year rate surged to 2.4% from 1.0% at the end of last year.  It is the highest reading since March 2012. As was the case with the surge in consumer prices, energy is the leading culprit. Energy rose 4%, and mineral oils rose 20%. Electricity prices increased 6.5%. The base effect warns of additional upside pressure this month.

Germany Producer Price Index (PPI) YoY, January 2017

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Germany Producer Price Index (PPI) YoY, January 2017

Source: Investing.com - Click to enlarge

United Kingdom

The UK February Trends report saw factory orders rise to the highest level in two years. The industrial order balance rose to 8 from 5. The median guesstimate anticipated a small decline. Price expectations also edged higher. The report lends support to other data that suggests the drop in the sterling has had a greater impact on inflation than exports. Sterling ticked higher on the news but may have put the session high in below $1.25.

Graphs and additional information on Swiss Franc by the snbchf team.

Full story here
Marc Chandler
He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.
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