Market Focus Shifts to North America

August 15, 2014

Attention earlier in the week had been mostly on the weak GDP data reported in Japan and Continental Europe, but today it’s on a slew of released North American statistic, racial unrest in Ferguson, Missouri and President Obama’s response to such.

The dollar fell overnight by 0.4% against the Canadian dollar, 0.2% versus the euro and Swiss franc, and 0.1% relative to the Chinese yuan.  The kiwi and sterling are unchanged, and the U.S. currency is up 0.2% against the yen and 0.1% vis-a-vis the Australian dollar.

Share prices rose 1.1% in China, 0.7% in India, 0.6% in Singapore and Hong Kong, and 0.3% in New Zealand and Australia.  Several European centers are closed for Assumption Day.  The German Dax and British Ftse have risen 0.8% and 0.7%, but Japan’s Nikkei closed unchanged.  The DJIA opened 0.2% firmer.

Ten-year Treasury and British gilt yields have declined by one and four basis points.  Japan’s 10-year JGB yield is low at 0.49%.

Comex gold tumbled 1.4% and is back under $1,300 at $1,297.80 per troy ounce.  WTI oil edged 0.1% higher to $95.70 per barrel after losing ground on Thursday.

Several U.S. economic indicators were reported.

  • Producer prices firmed only 0.1% in July, trimming their 12-month increase to 1.7% from 1.9% in June and 2.0% in May.
  • Core PPI inflation fell to 1.6% from 1.8% in June and 2.0% in May.  Energy costs settled back 0.6% on month but was 2.5% higher than a year earlier.
  • Industrial production climbed 0.4% for a second straight month, exceeding expectations of a 0.2% uptick, and was 5.0% greater in July than a year earlier.  Factory output soared 1.0% on month.  Overall capacity usage crept upward to 79.2% last month from 79.1% in June and 79.0% in May.
  • The Empire State Manufacturing Index weakened by more than forecast to an August reading of 14.69 from 25.60 in July and was even lower than June’s 19.28 score.
  • Treasury TIC data that measure capital flows between the United States and the rest of the world showed significant deterioration.  All three aggregated net flows revealed more money leaving America and coming in after posting net inflows in May.
  • The preliminary Reuters/U. Michigan index of consumer sentiment unexpectedly fell and by 2.6 points to a nine-month low of 79.2.  This was the first sub-80 reading of 2014.

Canadian monthly labor statistics for July released a week ago were found to embody a significant measurement error.  Corrected figures reported today showed a marginally lower-than-expected unemployment rate of 7.0% versus 7.1% in June, a 41.7K increase in jobs, which had dropped by 9.4K in June, an on-year 0.3% increase in hours worked, and an unchanged labor participation rate of 66.1%.

Canada’s monthly survey of manufacturing sales, orders and inventories was also reported today.  They respectively rose by 0.6%, 0.6%, and 0.5% in June.

Chile’s central bank interest rate was again lowered, this time by 25 basis points to 3.5%.  175 basis points of easing has been engineered since October 2013.

Britain’s second estimate of 2Q GDP confirmed growth of 0.8% on quarter and bumped the year-over-year growth rate by a tenth percentage point to 3.2%.  GDP now marginally exceeds the pre-Great Recession peak.  In the quarter, services climbed 1.0% to spearhead the economy, while production and construction respectively rose 0.3% and was unchanged.  The monthly services index rose 0.3% for a third straight time in June and was 1.0% higher in 2Q.

Hong Kong GDP dipped 0.1% last quarter and recorded the lowest on-year growth (1.8%) since 3Q12.

Retail sales in Singapore sank 1.1% on month in June, which was a bigger drop than expected.

Indonesia’s current account deficit, a factor cited in yesterday’s decision to leave the BI rate at 7.5%, climbed to $9.11 billion last quarter, more than twice the 1Q total.

Norway’s trade surplus of NOK 22.6 billion in July was 26.8% bigger than the June surplus.  Finnish retail sales fell 1.6% between June 2013 and June 2014.  Danish PPI inflation was negative 0.7% in July.

Obama has tried to present a non-inflammatory approach to the situation in Ferguson and predictably has drawn heavy criticism from several sides.  Whatever the issue, the president seems to have squandered a considerable element of trust regarding competence, integrity and judgement.  To be fair, there really hasn’t been a wildly successful second U.S. presidential term in the past century.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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