MORNING ROLL CALL
Recent Fed base rate rise hits USA trade gap as dollar rises.
It’s less than a month since the USA Fed raised the base interest rate by 0.25% and so far the USA equity markets and the dollar have responded positively. Equities have consistently printed record highs, whilst the dollar has gained in strength, rewarding holders of dollars. The small rate rise will potentially benefit savers, who’ve been hammered since emergency base rates were introduced as a response to the 2008 crises, they’ve now enjoyed marginal, albeit short term relief. However, the unintended, yet highly predictable consequences, are beginning to bleed through to the real USA economy.
The USA trade deficit spiked from $61.9 billion to $65.3 billion, much greater than the polled analysts consensus of $61.6 billion, the highest trade gap since March of 2015, when the dollar was also rising quickly versus it’s major peers. The reason for the far greater than expected deficit? The exports of goods fell 1.0%, while imports of goods rose 1.2%, as a consequence of the spike in the dollar’s value since the base rate rise.
Exports were down 0.99%, according to the data estimate, the $1.2 billion decline came from a $1.8 billion fall in exports of capital goods, which was offset by a $1.2 billion rise in exports of industrial supplies. Q4 GDP could be revised down between 0.2% and 0.4%, from its current level, which (according to the Atlanta Fed) is 2.5%.
Jobless claims declined by 10,000 to 265,000 in the week ended Dec. 24th from the six month high printed in the prior period, the USA Labor Department report showed Thursday, the number of applications matched the average forecast.
In New York the SPX fell less than one point to 2,249.35, the lowest level seen since Dec. 8th. The DJIA closed down at 19,819, whilst maintaining a 14% advance in the year. European markets experienced mixed sessions; the UK’s FTSE 100 closing up another record high at 7,120, the CAC closed down 0.20%, DAX down 0.21% and Italy’s MIB closed down 0.18%.
The Dollar Spot Index fell by 0.5% during Thursday’s trading sessions, after trading on Wednesday at the highest level witnessed in over a decade. The slide cancelled the weekly gain, whilst leaving the index 3.3% up in 2016.
The euro strengthened by 0.7% on Thursday to $1.0485, after touching a one week high of $1.0493 during the afternoon’s trading, however, the euro has fallen circa 3.5% versus the dollar in 2016.
The yen rose by 0.5% to 116.63 per dollar during Thursday’s trading sessions, after falling by up to 0.9% in early trading to 116.23 yen, the lowest level printed since Dec. 14th. The U.S. dollar had gained 11.5 percent versus the Japanese currency between the Nov. 8th U.S. election up to Wednesday.
The dollar reached a two week low versus the Swiss franc of 1.0208 francs during Thursday’s sessions, whilst sterling was up 0.2% versus the dollar at $1.2250, after reaching a two month low of $1.2201 during Wednesday.
Silver maintained its recent price ‘handle’, above $16 per ounce, rising by 0.44% to $16.23. Gold rose for a fourth session in series on Thursday, making strong gains of 1.4% to $1,157.20 an ounce in New York, recovering from its recent eleven month low. Gold has now enjoyed the longest winning streak since Sept. 22nd.
Economic calendar events for Friday December 30th all times quoted are London time.
14:45, currency effected USD. Chicago Purchasing Manager (DEC). The prediction, from analysts polled, is for a slight rise to 57.8 from 57.6 the previous month. This measure of the business conditions is based on surveys of purchasing managers across: Illinois, Indiana and Michigan.
18:00, currency effected USD. Baker Hughes U.S. Rig Count (DEC 30). The last weekly oil rig count was 653, this late Friday evening data release can often effect the price of oil late in the trading session and as a consequence the value of the USA dollar and Canadian dollar.