Monday’s Dollar Blues

The US dollar’s pre-weekend losses were extended initially in Asia before it recovered sufficiently to give European participant a better selling level. The dollar selling into the shallow bounce reflects the bearish sentiment, which as we see it, was simply fanned by both Yellen and Draghi did not alter the status quo in their Jackson Hole speeches.   

BOJ Governor Kuroda spoke at Jackson Hole following the release of Japan’s July CPOI figures before the weekend. He did talk about policy. He suggests that although the BOJ’s IGB buying was having some impact on liquidity, the market was still functioning fine. Kuroda also underscored the need to continued efforts, meaning the talk of central bank exits did not include the central bank for the world’s third largest economy.  

Since poking briefly through 0.10% in July, the yield on the 10-year JGB has been trending lower. Today it reached 0.5 bp, the lowest since April when it reached 0.1 bp.The yield has not been negative since last November. Japan reports July jobs and retail sales tomorrow and Wednesday, followed by industrial production on Thursday. The Japanese economy led the G7 with 1% growth in Q2. The growth appears to be slowing to a more sustainable pace in Q3.  

The eurozone reported an unexpected slowing of M3 money supply, but lending to business strengthened. M3 rose 4.5% from a year ago in July. This matches two-year lows. The decline was broad based, but lending fared well. Loans to households were steady at 2.6%, while lending to non financial businesses rose to a 2.4% from a year ago, accelerating from a 2.0% clip. These gains were not particularly widespread and instead were concentrated in Germany and France.  

The North American session features US wholesale and retail inventories, and good trade balance. They are components of Q3 GDP. Midweek the US will revise Q2 GDP. It is expected to be tweaked higher to 2.7% from 2.6%. The Bloomberg survey picked up a median guesstimate that US growth in Q3 matched Q2 growth, but the GDP trackers at the Atlanta and NY Fed’s don’t see it that way. The Atlanta Fed sees the economy tracking 3.4% growth presently, while the NY Fed see 1.9%. Note that the US is selling $132 bln of debt today, including four-week T-bills that may come due before the debt ceiling is raised.