Dollar-Bloc And Sterling Advance, While Euro And Yen Slip

The US dollar is mixed. After a soft start in Asia, where Tokyo markets were closed, the dollar recovered smartly against the euro and yen. The dollar-bloc and sterling are firmer. Sterling’s earlier losses were recouped following news that the manufacturing PMI jumped to 56.1, its highest since June 2014.  

Rising global yields with the US 10-year Treasury yields up five bp today, and European yields up 5-8 bp, while equities firm, may be a factor driving the yen lower. The yen’s 0.5% fall is the most among the majors today, sees the dollar resurface above JPY118 to its best level since December 20.  

Excluding Japan, the MSCI Asia Pacific Index gained 0.4%, and it’s the sixth consecutive gain. Of note, the Shanghai Composite rose a little more than 1%, and Australian equities rose 1.2% to lead the region. European bourses are higher, and the Dow Jones Stoxx 600 is up 0.7% near midday in London, led by financials and energy.It is the third consecutive advancing session and sixth in the past seven sessions. Italian banks shares are up nearly one percent after yesterday’s 2.25% gain. Last week’s 2.8% drop, snapping a four-week rally, has been recouped.  

In addition to the UK’s manufacturing PMI, there are three other economic reports to note. First, preliminary French December CPI rose 0.3% for a 0.8% year-over-year pace. While better than November’s 0.7% year-over-year pace, it was a touch below expectations. It appears that energy was the main driver.Service prices, a proxy for domestic price pressures, eased to 0.9% from 1.0%.  

Second, German inflation jumped as a function of the sharp rise in December and a base effect. All of the German states have reported their December figures, and they all rose 0.7% or 0.9% in the month. The year-over-year rates more than doubled to 1.7%-1.9%. Baden-Wuerttemberg was the notable exception. Its 0.7% rise on the month translates into a 1.6% year-over-year pace from 0.8% in November. The national figure is due shortly. The risk may be on the upside to the Bloomberg median guesstimate of 0.6% on the month and 1.3% year-over-year rate.