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Sunday, March 12, 2017


 The dollar is retreating some more in a continuation of despite payrolls that are expected to affirm next week’s Fed rate hike and despite a dovish ECB decision and press conference. These things don’t go together so either we are getting another “sell on the news” incident or payrolls matter less than usual or Draghi was not really dovish. We are inclined to accept the last proposition—we heard a hawkish tone.

The Draghi press conference had some special moments—the ECB’s policies are working, deflation is behind us, the likelihood of another long-term initiative is lower—but in the end, Draghi sees no evidence of a sustainable rise in inflation. There is no “urgency” to change anything, although he mentioned that additional rate cuts are probably off the table. That gave some exciting to the euro, which rose most of the time Draghi was speaking and spiked to 1.0616 around 9:10 am Friday ET. But then the surface message prevailed and the euro spent the rest of that day on the downhill. An effort to tally it again just after lunch came to a sad end and the euro closed the day around 1.0574, less than 20 points higher than the 8 am open. And yet  the euro is higher and back over 1.0620.

The only drama is the ongoing slide in oil and other commodities, including gold, down for the 8th day. Oil is down on supply glut worries occasioned by the giant inventory build in the US, egged on by talk of increased domestic production and a new field in Alaska. Copper is falling for the 4th day on a discouraging Chinese outlook, among other factors. Other commodities have their own reasons—some agricultural products are about to deliver oversupply (corn, soybeans). Falling commodity prices are not consistent with the reflation trade idea.

But yields continue to offer support to the dollar. The 10-year closed yesterday at 2.598% and is quoted this morning at 2.604%.

  • In the UK, industrial output fell 0.4%, with the manufacturing component down 0.9%, although Dec was revised up from 2.1% to 2.2%. Construction also fell bt 0.4% after a decent 1.8% gain in Dec. Separately, exports rose 1.6% and imports rose by less, 0.9%, leading to a smaller trade deficit (£1.966 billion) from £2.026 B in Dec, revised from £3.304 billion, a huge revision. 

  •  The German trade surplus also surprised by falling to a mere €14.8 billion in Jan from €18.7 in Dec and the smallest in a year. Imports were led by demand for consumer products, so that’s okay. We waited twenty years for consumer demand to recover in Germany.


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